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October 9, 2024
The 2-year and 10-year Treasury yields have traded lower over the last several months in anticipation of a rate cut, as well as lower inflation levels and weaker labor reports. The Federal Reserve (Fed) cut the federal funds target by 50 basis points to a range of 4.75-5%. Fed officials view the risks of rising unemployment and higher inflation as roughly balanced and do not want to see further weakness in the labor market.
Equity markets have performed better than expected in 2024 despite persistently elevated interest rates and softening employment, among other concerns. The major indexes have established several record highs over the last few months.
Federal debt now represents 120% of Gross Domestic Product (GDP) and continues to grow. Rising debt levels could increase both inflation and treasury yields, weaken the U.S. dollar, and reduce the capacity of the U.S. government to respond to an economic crisis or international event such as war. Congress is unlikely to respond until a crisis arises or it creates significant hardship on the American people.
Escalating conflict in the Middle East, continued war in Ukraine, shipping disruptions in the Red Sea, and increasing collaboration among Russia, China, India and Brazil (among other smaller countries) present significant risks to the U.S. economy. These developments could further disrupt supply chains and weaken the U.S. dollar.
Treasury yields
This section presents select economic indicators to help producers gauge the direction of their business. These metrics reflect current market dynamics and their potential impact on operations. Come back each month to stay informed and adapt swiftly to the ever-changing economic landscape.
WTI crude oil and diesel prices
Observation: Economic concerns continue to weigh on energy markets and pressure prices; however, escalating conflict in the Middle East is leading to higher prices (not yet reflected in the chart data).
About this indicator: The West Texas Intermediate (WTI) crude oil price is a benchmark for oil pricing and influences the cost of fuels like diesel, which is essential for running farm equipment and transporting goods.
Transportation price indices
Observation: Trucking rates have risen on higher demand. Bulk shipment rates increased in the second half of September, in part due to rising grain exports out of the U.S. Container rates have softened on lower exports out of China.
About this indicator: The long-haul trucking index measures the changes in trucking freight rates over time. The Baltic Dry Index measures the average global cost of shipping bulk materials, including grains, sugar, metals, and others. The container index measures the average global cost of shipping containers. Shipping prices vary by route and carrier size based on market dynamics and may move independently from global averages (i.e. the cost to ship goods from the West Coast to Asia could remain flat even if global rates are increasing).
DXY Index
Observation: The DXY Index fell in September due to lower interest rates, but started increasing in October due to the escalating conflict in the Middle East (the U.S. dollar is considered a safe haven asset). The dollar may further strengthen if the Fed signals slower-than-expected rate cuts (greater incentive to hold U.S. dollars).
About this indicator: The DXY index measures the strength of the U.S. dollar against a basket of foreign currencies. The strength of the U.S. dollar impacts the competitiveness of agriculture producers in foreign markets. As the dollar strengthens, U.S. producers become less competitive, and vice versa.
Trade deficits
Observation: Trade deficits are growing as imports increasingly exceed exports. Growing trade deficits may eventually weaken the U.S. dollar and lead to higher inflation.
About this indicator: Trade deficits occur when a country imports more than it exports. While most countries rely on trade surpluses to increase their foreign currency reserves (critical for purchasing imports), the U.S. dollar’s unique position as the reserve currency in global trade means the U.S. can, for now, run large trade deficits while still being able to purchase foreign goods.
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