Next Tuesday, the USDA will offer the June WASDE report. Every analyst will dig into the numbers, ranging from U.S. production to global stocks. Don’t ignore what comes on Wednesday.
There’s a more important announcement on the docket that will affect grain prices at 2 pm EST on Wednesday, June 13. We’ll be discussing it more this weekend, but for right now it’s important to get out in front of this decision and provide a bit of a guide to what we can expect moving forward.
Last Friday, the U.S. government said that employee pay is moving at its highest pace since 2008. Over the last year, we’ve seen salaries and wages increase by roughly 2.7%. With unemployment now under 4%, companies are forced to pay more money to hire and keep existing employees.
Sounds like good news, right? But that’s not always a great thing for the ag space.
Here’s the math: Higher incomes impact business profits. Companies raise prices to compensate. Rising prices mean inflation. Inflation means… higher borrowing costs.
The Federal Reserve will likely move to raise its benchmark rate by another .25 percent.
They raised rates once already in 2018. Next week, a hike is expected.
The question is whether we will get one or two more hikes after the June Federal Reserve meeting… as every move up increases the buying power of the U.S. dollar.
That stronger dollar weighs on commodity prices. It also makes U.S. exports less competitive against other nations’ agricultural products.
So, while it’s great from a macroeconomic perspective that the U.S. economy is currently in overdrive… there are downsides that must be addressed.
It’s a certainty that a rate hike will come next Wednesday. The Federal Reserve will likely eye the July jobs report and – if the wage trend continues – another hike will come in September or October.
From there, it comes down to the final meeting of the year in December. Right now, the odds of a rate hike at that meeting are probably at 40%.
That’s why we’re looking for clues after the Federal Reserve releases its statement next week.