War Note: FOMC Preview, Latest War Updates & Shortage Watch, Agriculture Data Preview
In this War Note we discuss the FOMC Preview and whether or not the Fed will hike this year, highlight the latest war updates, discuss shortages, ag data, and more.
Don Johnson (@DonMiami3), Chief Economist
Good Tuesday evening MacroEdge Readers & Community,
This evening we will have a short ‘War Note’ update - with the next update this week coming on Thursday, post-FOMC. Today was a relatively uneventful day in markets, with the Dow closing flat on the day, and momentum tech seeing the largest downside. The commodity space (some of which we’ll discuss below) saw its largest upside in a while - as oil moved higher, alongside ag commods like wheat, corn, and canola. The broad direction for the entire agricultural sector continues to be up (and again to the right), and there is still a large mispricing from the 2021-2022 move if we are repeating something similar. With the Strait of Hormuz closure going on 60 days now, we simply cannot wrap our heads around the magnitude of the impact, and the lag, all of which will continue to be observed as we head into the summer and beyond.
In Australia, which we use to monitor yield action, inflation came in at almost 5% y/y - a huge spike and a warning sign for other developed countries of what is to come if this situation continues. While we place a critical emphasis (national security risk) on our equity markets here in the United States in 2026, the lower 70-80% in the ‘i-shaped’ economy continues to get bulldozed by pro-inflation policy, which is a continuation of rising nominal asset prices over everything else. The current regime may be unsustainable from a market standpoint - but there are plenty of other instances that I am even more wary of that we are watching our leaders ‘sleepwalk’ us right into… This explains a core reason for my belief that the Fed should be thinking about hiking soon rather than holding a pause - if the rise in commodity prices continues to accelerate. While the best solution for commodity prices is high commodity prices, we live in a society devoid of and terrified of price discovery, so things continue to spiral upwards.
These are not deflationary signals:
The resulting responses to higher prices are where price discovery can actually take place…
This evening we’re going to briefly dive into the ag reality and our discovery - with Part I of the ‘On the Ground’ Report Series coming on Thursday evening, or later over the weekend. We are preparing to head to West Texas for multiple days of data collection, and we will be sharing our findings and strategy through the ‘On the Ground’ report series. Additionally, we’ll also provide a brief update this evening on the energy portfolio strategy, the latest war updates, and more…
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Agriculture Reality and Discovery - ‘On the Ground’ Report Series Introduction
In a week, we’ll be embarking on a 3-day data collection and discovery trip across wheat & corn country in the State of Texas. We’re going to be collecting input and anecdotes on everything from pricing, to fertilizer costs, to other input costs, the harvest season, risks, potential upside, and much more. This is going to be a unique opportunity for us to again pull the data directly from the ground and output our findings and our opinions on whether or not additional upside is on the horizon. Our focus is going to be primarily on corn, wheat, and fertilizer (while also looking at other factors like Urea and PPI), and how these elements are factoring into the outputs. Purely from a commodity pricing standpoint, there is a ton of room in this basket for things to move higher if we are seeing a repeat of a 2008 or 2021 style commodity inflationary scenario. The food inputs (and food commodities) are typically the last to participate in the rally, and then a more vertical move.
Looking at the commodities individually, you can see how far off the 2021 highs they still are… They don’t even need to repeat the exact scenario to see substantial upside as the Strait of Hormuz closure and blockade remains ongoing:
Corn
Wheat
Urea/Fertilizer (Gulf FOB):
(Continued below → Ag Reality and Discovery, our FOMC Preview, the latest war updates, schedule for the week, energy strategy note, and much more)…
