The inflation trade has returned as Congressional spending and softer talk from the Fed has traders focusing on rate cuts, not hikes and what that may mean for demand as we move ahead. Hot and dry weather moving in has offered additional support, with November soybeans closing over $1.50 above lows set just last Friday.
To end the day we saw September wheat up 27, with December corn up 16 and November soybeans 30 higher.
The Inflation Reduction Act combined with the Chips and Science Act are much smaller and incremental versions of the Build Back Better Plan initially proposed shortly after President Biden took office. Congressional members claim both bills will bring more to the economy than they are spending, but the price tag between the two is nearly $700 billion.
In the act however there are several extensions to tax credits for the production of certain biofuels, with the $1.00/gallon tax credit for biodiesel extended through 2024, while other forms of renewable diesel saw extensions to their credits through 2025.
There has been a massive increase in soybean crush and bio or renewable diesel plant projects across the US thanks to these tax credits and others that have been proposed. With the passing of the bill it is likely most of the estimated 400 million bushels of new crush demand by 2024 will be completed.
In addition to congressional spending yesterday's GDP data showed the US has worked its way into a technical recession. While at face value that would seem to be disappointing to traders, it has actually been viewed as good news to some as thoughts we could see an expedited move from tightening to easing if economic data becomes too concerning are on the increase.
On the production side of things, we of course continue to monitor weather with excessive heat expected across much of the Western Corn Belt starting early next week and remaining in place for several days. As we have discussed it does appear as though the ridge responsible for the heat and dryness starts to move west, with possible shifts towards a wetter pattern, but that won't be until the second week of August at the earliest.
Heavy rain is expected across some of the driest parts of the country, likely saving some folks in the area from a total crop loss, but is still being seen as too little too late for most of the areas corn crop.
The Wheat Quality Council held a spring wheat tour across North Dakota this week. Yields are forecast to be a near record thanks to decent moisture and somewhat moderate temps. With 6 weeks left until a later than normal harvest though, many in the area will likely hold their breath until the crop is in the bin.
Yesterday's export sales data showed larger than expected new crop soybean sales, which is in and of itself interesting considering the lack of chatter or flash sales tied to the trades over the last week. New crop soybean sales are well above normal, indicating Chinese crushers continue to kick the can down the road with coverage, likely looking to run on fumes until new crop supplies are available.
Corn export sales were disappointing for both old and new crop, with traders starting to talk more about another reduction to the export outlook in the August supply and demand update. Wheat sales were solid again, coming in just above the amount needed each week to meet USDA projections.
Looking ahead, we are higher again this morning with talk of China looking to increase commodity buying to support its economy, inflation talk coming back into play and the weather. It's amazing to see how far we've come from last Friday's lows, with both corn and beans now back above spring insurance prices.
Corn up 10 to 15
Beans up 25 to 30