So much for the “Dome of Doom!”
Sizzling temperatures last week briefly revived memories of July heat waves that decimated crops in years past. The grain market barely batted an eye. The best proof of that came from the so-called Volatility Index for December corn futures, which continued its trajectory lower, reaching depths not seen for more than a year.
The corn VIX wasn’t alone. Despite all the handwringing over tariffs and budget deficits, other markets were remarkably calm, too. Traders from Wall Street to Main Street appeared content to take a vacation and leave the work to chatbots and AI tools.
The opening days of August could test these oh-so-still waters. The regular update to monetary policy from an embattled Federal Reserve highlights a data buffet that includes GDP, inflation and employment—assuming Chairman Jerome Powell resists calls for his resignation. A burst of angst from investors could cripple a host of markets. Otherwise, look for grain traders to busily prepare for USDA’s first surveys of farmers and their fields, due Aug. 12, along with World Agricultural Supply and Demand Estimates.
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Talking heads off-key
While talking heads warbled loudly last week, the choir of bulls accompanied the S&P 500 Index to a series of record highs. Such rallies normally create overvalued conditions. But my model spat out 6,380 as an average for the S&P—less than 10 points from Friday’s close. An overheated market would typically mean stocks were above 7,600. So, amidst what seemed like chaos, calm prevailed.
Still, for all the focus on Powell, a lot of his job is akin to herding cats. Chairmen normally like unanimity from the eight policy meetings each year. But some officials could dissent from the interest rate vote, which could rattle the market if nothing else does.
For the record, the current target for Federal Funds is between 4.25% and 4.5%. Betting on Fed fund futures shows virtually no chance for a hike at the end of the two-day meeting July 29 and 30. But that’s expected to change soon, with the first increase in five years in September and another by the end of the year, with rates near 3% by the end of 2026.
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Who doesn’t like cheap money?
Lower interest rates, of course, make life easier for growers, at least most of them. An old English saying says farmers need two things: Muck and money. Muck, if you don’t speak with a brogue, is manure, highlighting the importance of fertility to success.
As for money, it affects everything from storage costs to land values and your bottom line. Lower rates drop the incentive to sell off the combine and invest proceeds or pay off debt but also make land a more attractive investment for off-farm buyers competing for that neighbor’s 40 (that you’ve eyed for decades).
This double-edged sword could also swing through currency markets. Investors seek out countries with higher interest rates, hoping to earn higher returns. All that talk about the dollar’s tarnished value as a safe haven store of value rubbed off with a little polish from investors, who kept the greenback near 40-month lows despite a bit of a bounce last week.
Risks lurk this week
The like/don’t like camps for the currency illustrate the dollar’s role on the world stage. Gold lost a bit of its luster, though it’s still in a multi-year uptrend. OPEC+ appears content to continue increasing production targets this week, mostly because Saudi Arabia wants to increase its share of the market, even if that means derailing President Trump’s plan to “Drill, baby, drill.”
CEOs of big corporations also, by and large, don’t mind a weaker dollar, as long as it boosts revenues from overseas operations, which are then repatriated back to the U.S. as dollar value increases and operating profits. Remember “Look Ma, no hands!” as a kid? You sometimes crashed your bike into the trees in the days before helmets.
More risks lurk this week. The Fed’s favorite inflation gauge could tick a little higher, but unemployment could do the same as payroll growth slows. The central bank has a “dual mandate” from Congress, at least for now: Stable prices and full employment. No drama could give the bank the courage to cut rates in September.
Yet “expect the unexpected” is always a good motto for investors and farmers alike. Crop ratings and satellite maps still point toward record corn and soybean yields, though bean fields wavered a bit last week. A bigger shift from the heat wave could trigger more short covering from funds, who remain very bearish on corn and mostly neutral on beans.