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A hot September inflation reading sent Treasury yields and the dollar jumping Wednesday, spoiling a rally for soybeans after China finally resumed purchases and throwing a damp towel across agricultural and financial markets.
The Labor Department said the September consumer price index rose 3.7% in September from a year ago, up from 3.4% in August and above the 3.6% expected by economists surveyed by the Wall Street Journal. Core prices, which exclude food and energy, were up 2.6%, topping expectations for a 2.5% reading. A counterseasonal surge in gasoline prices, which saw a monthly rise of 9.1% – and are up 34% year over year – accounted for more than half the rise in the headline index. But a number of upside surprises in the core reading suggested that higher energy prices are feeding through to non-energy goods, said Thomas Simons, chief U.S. economist at Jefferies, in a note, with along with a surprising pop in measures of rent and rent-equivalent prices is inconsistent with a speedy return to the Fed’s 2% inflation target.
- “In recent months, we have been pleasantly surprised by the stability of core goods prices,” Simons wrote. “Despite rising interest rates, record-high diesel prices, and no end in sight for the conflict with Iran, retailers had been holding off on passing through additional costs to their customers, who are weary after years of above-target inflation.The September CPI data suggests that they have held off as long as they can, and we are concerned that there might be more inflation pressure building in the pipeline.”
Traders reacted by pricing in a roughly 33% probability the Federal Reserve will deliver a quarter-point rate hike when policy makers meet later this month, up from 22% on Tuesday and less than 18% a week ago, according to the CME FedWatch Tool. They’ve priced in a less than 10% probability the Fed remains on hold through year-end, down from 20% a week ago.
Treasuries saw volatile trade, with the 10-year yield surging above 5.30% before falling back to around 5.19%. The dollar, taking a cue from a jump in short-dated yields, rallied versus major rivals. That took the ICE U.S. Dollar Index, a measure of the currency against six major rivals, to a session peak of 102.945, its highest intraday level since April 2025.
Needless to say, a stronger dollar is typically seen as a negative for commodities priced in U.S. dollars, making them more expensive to users of other currencies. A surge by the dollar can be particularly unnerving, with investors dumping assets perceived as risky. U.S. stocks were also caught in the downdraft, particularly rate-sensitive tech high-fliers, with the tech-heavy Nasdaq dropping 1.9% and the S&P 500 losing 1.1% – the worst day for both indexes since late July.
Traders will get a look at the September producer price index on Thursday morning, which will offer a glimpse into price pressures in the wholesale pipeline. And Fed Chairman Kevin Warsh is due to speak late Thursday night at an International Monetary Fund event in Thailand, a speech that will be watched for his take on the economic picture ahead of the central bank’s Oct. 27-28 policy meeting.
- Side note: Food, and particularly beef, didn’t get the blame for the hot CPI reading. The food index was flat for the month, while beef prices fell 1% and ground beef was down 0.8%. “Beef prices in particular seem to be cooling, with prices down for a 3rd month as people have shifted to chicken,” said Peter Boockvar, chief investment officer at OnePoint BFG, noting a 1.3% rise in chicken prices in September.
Market recap: Soybeans had gained ground in the overnight session after a Reuters report that Chinese state buyers had purchased 8 to 10 cargoes of U.S. soybeans, the first purchases since Chinese leader Xi Jinping’s summit meeting last month with President Donald Trip. USDA affirmed private sales of 470,000 metric tons of soybeans to China this morning. But the dollar’s jump and a weak tone in corn and wheat left soybeans unable to hold on to gains.
- November soybeans fell 6 ½ cents to $12.77 ¼.
- December soybean meal rose $1.30 to $364.50.
- December soybean oil lost 96 points to 67.06 cents.
- December soft red winter wheat rose 4 cents to $6.73 ¼.
- December hard red winter wheat finished 2 ¾ cents higher at $7.15 after hitting a three-month low.
- December spring wheat declined 4 cents to end at $6.90.
- December cotton rose 15 points to close at 80.66 cents after hitting a nearly three-week high.
- December live cattle fell $1.25 to close at $225.125, while November feeders lost $2.575 to $338.45.
- December lean-hog futures dropped $1.95 to $66.075, hitting a contract low.
Judge maintains stay of USDA reorganization… A federal judge has ordered USDA to halt its reorganization and relocation efforts, finding that the department had likely violated a congressional directive prohibiting it from spending money on the plan, Agri-Pulse reported. The fiscal 2026 agriculture spending bill barred USDA from reprogramming funds to proceed with the reorganization affecting thousands of department employees and said USDA had to obtain permission from the Senate and House appropriations committees before doing so, the report noted. Both the plaintiffs, who include employee unions, and USDA agreed that the approval provision is unconstitutional, and U.S. District Judge Vince Chhabria agreed. However, he said the prohibition on reprogramming remains, the report said.
Brazil’s presidential race… A new poll showed right-wing candidate Flavio Bolsonaro holding a slim lead over President Lula Inacio da Silva less than two weeks before Brazil’s Oct. 25 presidential runoff election, Bloomberg reported. The poll, conducted for O Globo newspaper, showed Bolsonaro receiving 51% of votes to Lula’s 49%, the report said, noting the lead is within the survey’s margin of error of plus or minus two percentage points. The Brazilian real surged after Bolsonaro outperformed expectations in the first round of voting earlier this month. A stronger real can be a boon to U.S. soybean prices. While Brazilian soybeans for export are priced in U.S. dollars, a stronger currency means fewer reais in the pockets of Brazilian farmers, which can cause them to delay selling.
Diesel crunch to continue into 2027… The International Energy Agency on Wednesday said diesel supply will remain tight well into next year. “Falling inventories, soaring cracks, and steepening levels of backwardation have signalled the need for additional supplies,” the Paris-based agency said in its monthly report for October. “However, even with a rapid recovery expected in refinery throughputs into year-end, gasoil supply falls short of meeting demand in 4Q26, suggesting that the replenishment of lost inventories, outside of typical seasonal fluctuations, is unlikely before 2H27.” (The IEA uses “gasoil” as an overarching term covering diesel, heating oil, and other middle distillates.)
Inflation to boost Social Security benefits… The Social Security Administration on Wednesday said benefits for retirees will rise by 3.6% in 2027, reflecting higher inflation. The cost-of-living adjustment, or COLA, is the highest since 2023 and follows a 2026 increase of 2.8%, the Wall Street Journal reported. The annual COLA is calculated based on average inflation for July, August and September. The September CPI reading showed a year-over-year rise of 3.7% (see top item). The Social Security Administration also uses a wage formula to adjust how much high-income workers pay into the system through payroll taxes. For 2027, the income cap on the program’s payroll tax will rise 4.2% to $192,300, the Journal said. Workers and employers each pay a 6.2% tax on earnings up to that cap. Earnings above the limit aren’t subject to the tax. Self-employed workers will pay the combined rate of 12.4% up to net self-employed earnings of $192,300.