Publication Note: Monday Morning Demand Notes will not appear next week as we take an extended break over the Easter holiday. We’ll be back on Monday, April 28.
The Scoreboard
Commentary
- Last week, we learned that… when things got dicey, investors didn’t flock to the usual “safe haven” trades – the US dollar and treasuries. With events on the trade/tariff front swirling, equity markets gyrating, and recession fears rising, traders sold US dollars and government debt, essentially saying that finding somewhere safe meant looking elsewhere for security, be it gold, the euro or other instruments. At one point Friday morning, the USDX sank to 98.80, down nearly 2% on the day and 4% for the week. The market recovered, with the USDX closing at 99.60, down 1.0% for the session but still down 3% for the week to the lowest Friday close since February 2022. Yields on 10-year treasuries got to as high as 4.55%, a two-month high, before settling at 4.35%, up 36 basis points for the week. For the record, US equities closed higher on the week, getting back 6% after losing 9% a week earlier.
- Here’s what I think this all means for the markets we cover:
- If the USD is “on sale,” we might see a bid creep back into the commodities space. Given the risks to demand posed by an unfolding trade war, this seems counter-intuitive. The US won’t be selling many agricultural commodities to China, given that soybeans now land at more than $23 per bushel or whey hits the docks at more than $1 per pound. But there could be a weak dollar/strong commodities trade out there somewhere. We caught a glimpse of it Friday when, at the USD lows, crude oil was up 3%, corn +2% and coffee +5%.
- On a practical level, where the US doesn’t face new reciprocal tariffs, a weaker dollar facilitates exports. Customer purchasing power goes up. Competitors see their prices increase in USD terms. Look at cheese this week. CME spot block cheddar prices increased by 4%, but the price increased by just 1% in South Korean won terms. On the competition front, the EEX mozzarella index came in at €4262 per metric ton, down fractionally from the week prior. Converted to US dollars, the price went to $2.19 per pound, up 3%.
- Higher interest rates aren’t good for much at the moment. Increasing borrowing costs won’t help an economy that is already concerned about consumer spending and business investment. Friends in the residential real estate business say clients are suddenly confused and scared by mortgage rates that are bouncing around but are trending higher. Elsewhere, a story in The Wall Street Journal with the headline “Wealthy Buyers Are Backing Out of Multimillion-Dollar Home Deals” caught my attention, as did the subhead asserting that the current “chaos” is putting “the once unshakable high-end home market on ice.” Higher interest rates also mean that it will cost the US government more to refinance piles of debt.
- Look, there’s little that’s straightforward here. Headline risk remains sizeable in both directions for numerous markets. Given the opposing forces in play, I’m not eager to make big bets on a “reflation trade” in commodities. Count me as intrigued and studying, not committed.
- In the meantime, an unfolding trade war, the potential for slower economic growth, and abundant uncertainty have me believing that the current moment skews more bearish than bullish.
Interviews for the preliminary April reading of the University of Michigan Sentiment Survey took place between March 25 and April 8, before the April 9 tariff announcements; still, consumers were already in a terrible mood. The index landed at 50.8, down from 57.0 in March and 77.2 a year earlier. The reading was the lowest since June 2022. That’s when inflation in the US peaked, and the scourge of higher prices was very much on the minds of people participating in the survey. Respondents expected inflation to be 6.7% a year from now, the highest level since November 1981, and up from +5.0% in March. The danger here is that deteriorating sentiment weighs on spending, slowing economic growth.
While inflation fears are amping up, consumer prices actually declined in March versus February. The Consumer Price Index for all goods and services fell 0.1% on the month and increased 2.4% compared to March 2024, the smallest year-over-year increase since September 2024. Analysts expected +0.1% and +2.6%, respectively. Energy pulled the headline lower, with prices down 2.4% month-over-month and 3.2% year-over-year. Grocery store prices gained 0.5% versus February and 2.4% compared to March 2024, the biggest year-over-year increase since August 2023. I suspect that’s where the continued annoyance comes from—the Ever.Ag measure of retail breakfast cost came in at $2.60 for bacon, eggs, buttered toast and coffee. That was up seven cents on the month and 31% year-over-year. Eggs played the biggest role in driving costs higher, with prices reaching a new high of $6.23 per dozen, up 108%. But coffee was up 24%, too.
Restaurant traffic in week 14 turned back to the downside. Placer.ai said traffic declined 3.0% year-over-year. QSR outlets did better, with activity down 0.6%. Grocery store traffic increased 1.0%.
Fluid milk sales fell below the year-prior pace in January. According to USDA, conventional + organic volume declined 0.5% year-over-year, adding up to 18 million pounds, enough milk to make 10 truckloads of cheese per week. Looking at the line items, organic continued to do well, with sales up 6.6%. Whole milk volume increased 1.4%.
Butter and cheese retail sales moved in different directions during the week ending April 6. Circana reported butter & butter blend volume declining by nearly 4% year-over-year, while natural cheese demand increased by about 2%. The butter performance seems lackluster, considering that the results for this particular week fell during the middle of Lent this year versus the week after Easter last year. Recently, we’ve noted a skew toward cheese promotions over butter deals this spring holiday season, ostensibly influencing sales.
Butter promotions accelerate this week, but the activity level isn’t what it was at the same point before Easter last year. According to USDA, 13,947 outlets have deals this week, up 145% year-over-year. But when you look back to the same week in Lent last year, 18,046 stores featured butter. Average price: $4.16 per pound, down 36 cents versus the week prior but up 5% year-over-year. Six-to-eight-ounce shredded cheese is on sale at 12,543 stores, down 8% on the week and up 11% year-over-year. That decreased from the same point in Lent in 2024 (14,923 stores). Average price: $2.25 per package, down 24 cents on the week and 3% year-over-year.
Futures and options on futures trading involves significant risk and are not suitable for every investor. Information contained herein is intended for informational purposes and is obtained from sources believed reliable but is in no way guaranteed. Past results are not indicative of future results. Any data contained herein is proprietary and may not be copied, disseminated, or used without the express written permission of Ever.Ag Insights.