The Wall Street Journal - 02.08.2019

THE WALL STREET JOURNAL. ***** Friday, August 2, 2019 |B11

MARKETS

AUCTIONRESULTS
Here are the results of Thursday's Treasury auctions.
All bids are awarded at a single price at the market-
clearing yield. Rates are determined by the difference
between that price and the face value.
FOUR-WEEK BILLS
Applications $111,377,251,700
Accepted bids $35,000,051,700
" noncompetitively $1,471,539,700
" foreign noncompetitively $0
Auction price (rate) 99.838222
(2.080%)
Coupon equivalent 2.118%
Bids at clearing yield accepted 17.97%
Cusip number 912796VT3
The bills, dated Aug. 6, 2019, mature on Sept. 3, 2019.
EIGHT-WEEK BILLS
Applications $93,320,944,800
Accepted bids $35,000,232,300
" noncompetitively $271,504,800
" foreign noncompetitively $100,000,000
Auction price (rate) 99.673333
(2.100%)
Coupon equivalent 2.142%
Bids at clearing yield accepted 17.39%
Cusip number 912796VX4
The bills, dated Aug. 6, 2019, mature on Oct. 1, 2019.

The yield on the 10-year
U.S. Treasury note recorded its
largest one-day decline in
more than a year, falling to its
lowest level since the 2016
presidential election after
President Trump announced
new tariffs on Chinese imports.
The 10-year yield, which
falls as bond
prices rise, set-
tled at 1.894%,
down from
2.034% Wednesday. That is its
lowest close since 1.867% on
Nov. 8, 2016.
A benchmark that helps set
borrowing costs throughout
the economy, the yield fell
sharply Thursday afternoon
after Mr. Trump’s announce-
ment of 10% tariffs on an addi-
tional $300 billion of Chinese
imports.
Bond yields had begun de-
clining early in the session, a
day after the Federal Reserve
cut interest rates while pro-
viding mixed signals about the
course of monetary policy.
Weak economic data and a
decline in oil prices then
boosted concerns about the
outlook for global growth and
the Fed’s ability to stimulate
inflation.
Bond yields fell further af-
ter the Institute for Supply
Management said U.S. manu-
facturing activity slowed in
July to the lowest since before
the 2016 election, a slide that
accelerated after the 10-year
yield dropped below 2%.
“Breaking through 2%
seems to have brought in some
buyers,” said Don Ellenberger,
head of multisector strategies
at Federated Investors.
The 10-year yield has
erased almost all of its rise
following the 2016 presidential
election, when investors bet
that tax cuts and infrastruc-
ture spending would stimulate
growth and inflation. The
yield reached a multiyear high
of 3.232% in November as in-
vestors bet that economic
growth, fueled by the corpo-
rate tax cuts, would continue
and that the Fed would con-
tinue raising rates to prevent
the economy from overheating.

BYDANIELKRUGER

Bond Yield

Hits Lowest

Level Since

2016 Vote

CREDIT
MARKETS

Treasury Sets Debt Sales

The U.S. Treasury Department
will auction $162 billion in securi-
ties next week, comprising $123
billion in new debt and $39 billion
in previously sold debt. Details
(all with minimum denominations
of $100):
Monday:$39 billion in 13-
week bills, a reopening of an is-
sue first sold on Nov. 8, 2018,
maturing Nov. 7, 2019. Cusip
number: 912796RM3.
Also, $39 billion in 26-week
bills, dated Aug. 8, 2019, matur-
ing Feb. 6, 2020. Cusip number:
912796TE9.
Noncompetitive tenders for
both issues must be received by
11 a.m. EDT Monday and com-
petitive tenders, by 11:30 a.m.
Tuesday:$38 billion in
three-year notes, dated Aug. 15,
2019, maturing Aug. 15, 2022.
Cusip number: 912828YA2.
Noncompetitive tenders must
be received by noon Tuesday;
competitive tenders, by 1 p.m.
Wednesday:$27 billion in
10-year notes, dated Aug. 15,
2019, maturing Aug. 15, 2029.
Cusip number: 912828YB0:
Noncompetitive tenders must
be received by noon Wednesday;
competitive tenders, by 1 p.m.
Thursday:$19 billion in 30-
year bonds, dated Aug. 15, 2019,
maturing Aug. 15, 2049. Cusip
number: 912810SJ8.
Noncompetitive tenders must
be received by noon Thursday;
competitive tenders, by 1 p.m.

in place of their usual lattes

and Americanos.

With prices approaching

their lowest level in more than

a decade, analysts don’t expect

them to fall much further.

One source of optimism for

coffee growers and investors

can be found in the currency

market. The Brazilian real

strengthened by 1.9% against

the dollar in July, partly be-

cause the U.S. currency weak-

ened ahead of the Federal Re-

serve’s interest-rate cut on

Wednesday.

The real is expected to rally

further as Brazilian President

Jair Bolsonaro’s economic pro-

gram progresses through the

country’s congress. A stronger

real generally boosts the dollar

price of coffee on international

markets.

Steve Pollard, a coffee ana-

lyst at London-based brokerage

Marex Spectron, expects prices

to rise to more sustainable lev-

els for farmers in Central

America.

He said growers in Hondu-

ras and Nicaragua are skimping

on fertilizer and that prices

will have to recover to between

$1.15 and $1.20 a pound to in-

centivize them to keep produc-

ing.

—Pat Minczeski

contributed to this article.

crops led to a price spike.

When it became clear that

those concerns were un-

founded, traders started to bet

that prices would fall again.

Now, funds are building up

their short bets, or wagers that

prices will fall, and are “whip-

ping the market down,” said

Kona Haque, head of research

at commodity trading house

ED&F Man.

By Ms. Haque’s estimates,

the frost endangered up to 1

million 60-kilogram bags of

Brazilian coffee—a fraction of a

harvest that the U.S. Depart-

ment of Agriculture expects to

be as large as 59.3 million bags.

Such an output would be

enormous for what is supposed

to be the weaker leg in Brazil’s

two-year production cycle.

The amount would also be

the second-largest crop ever,

behind last year’s record 64.8

million bags.

“For now, the market looks a

bit grim,” Ms. Haque said, add-

ing that roasters in Europe,

Japan and the U.S. don’t buy

much coffee during the sum-

mer months.

Soaring temperatures in the

U.S. and Europe likely added to

pressure on prices. As tempera-

tures have reached 100 degrees

Fahrenheit in London and New

York, said Roger Bradshaw of

Soft Commodity Consulting,

consumers are likely to have

cracked open colder soft drinks

Coffee traders endured the

market’s worst month in more

than two years in July, as

prices fell victim to benign

growing conditions in Brazil

and scorching temperatures in

the U.S. and Europe.

The price of arabica, the

premium variety of bean grown

mainly in Brazil, slumped 9% to

$1 a pound last month on the

Interconti-

nental Ex-

change in

New York, the biggest monthly

drop since December 2016. In

May, arabica fell to as low as

88 cents, its cheapest price in

more than a decade.

Coffee prices have consis-

tently fallen since late 2016

amid booming supply in Brazil

and impoverishing farmers in

Central America, which has con-

tributed to high levels of migra-

tion to the southern U.S. border.

Growers in Brazil, the

world’s largest coffee producer,

and other countries recently

discussed ways they could bol-

ster the market and the in-

comes of farmers who depend

on it.

Driving the current decline

is the realization by traders

that an outbreak of frost in

Brazil left the country’s coffee

crop largely unscathed.

In late June, worries that a

cold snap could damage coffee

BYJOEWALLACE

Coffee Prices

Sink Amid Bean

Glut in Brazil

COMMODITIES

Futureshavetumbled,promptingsometraderstobetthatpriceswillfallfurther.

Coffeefuturesprice

Sources: FactSet (price, net bets); U.S. Department of Agriculture (harvest)

*For the marketing year ending in the date labeled.

$3.00

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

a pound

2010 ’15 ’19

Netspeculativepositionsin

coffeefuturesandoptions

0

–125,000

–100,000

–75,000

–50,000

–25,000

contracts

2018 ’19

SizeofBrazil'scoffeeharvest*

60

0

20

40

million 60-kg bags

2011 ’15 ’20

FORECAST

PRICES WILL FALL

Investors reined in long-

standing wagers that the U.S.

economy will continue outpac-

ing the rest of the world, send-

ing oil to its worst day in

nearly 4½ years and dragging

down stocks and bond yields.

Thursday was one of the

most volatile days on Wall

Street since last winter’s selloff,

with the Dow Jones Industrial

Average swinging in a 627-

point range to erase an early

rally and close down 1%. The

yield on the benchmark 10-year

U.S. Treasury

note, which

helps set bor-

rowing costs on

everything from mortgages to

corporate debt, tumbled to its

lowest level since the 2016

presidential election.

After hopes for further in-

terest-rate cuts supported most

markets early in the trading

session, President Trump’s

midday announcement of 10%

tariffs on an additional $300

billion of Chinese imports

dragged down major indexes,

bond yields and commodities in

tandem. Investors said the lat-

est salvo in the U.S.-China trade

spat triggered fresh fears that

higher tariffs will slow business

investment and economic activ-

ity.

Following the Federal Re-

serve’s first rate cut in more

than a decade, those worries

forced some investors to ques-

tion how long the U.S. economy

can withstand a deepening

slowdown overseas, traders

said.

“The past two days have wo-

ken people up,” said Mohit Ba-

jaj, director of exchange-traded

fund trading solutions at Wal-

lachBeth Capital. “Eventually

something has got to give, and

there’s going to be a little bit

more of a slowdown going into

the rest of the year.”

Mr. Bajaj said many inves-

tors were trimming positions in

riskier assets such as stocks

and commodities and favoring

the safety of assets such as

bonds and gold that tend to

hold their value when markets

turn rocky.

The Dow industrials ended

the day down 280.85 points at

26583.42, falling at least 1% in

consecutive sessions for the

first time this year after rising

as much as 1.2% earlier in the

day. The S&P 500 fell 26.82

points, or 0.9%, to 2953.56. De-

spite recent losses, both in-

dexes are within 2.8% of their

all-time highs.

The yield on the 10-year U.S.

Treasury note fell to 1.894%

from 2.034% a day earlier, post-

ing a fresh multiyear low. Bond

yields decline as prices rise.

The 10-year yield has retraced

almost all of a climb that began

after the 2016 election, when

investors bet that Trump ad-

ministration policies such as

tax cuts and government

spending would spur growth.

Its slide reflects uncertainty

about future rate cuts as the

world’s central banks aim to

stabilize growth. Fed Chairman

Jerome Powell said during a

45-minute press conference

Wednesday that it was difficult

to provide guidance about fu-

ture plans for rates in part be-

cause of uncertainty over trade

policy. In another warning sign,

the yield on the three-month

Treasury rose well above the

10-year yield. Short-term yields

have climbed above longer-

term ones before the last sev-

eral recessions, a phenomenon

known as an inverted yield

curve, though the time between

the inversion and economic

growth turning negative has

varied.

In another sign of economic

worry, U.S. crude tumbled 7.9%

to $53.95 a barrel for its big-

gest drop since February 2015.

Traders are wary that a slow-

ing economy will soften de-

mand for crude, leaving the

world with another glut. Those

fears have sent prices down

nearly 20% from their April

peaks. Shares of oil producers

slid, withWhiting Petroleum

andConcho Resourcestum-

bling 39% and 22%, respec-

tively, after posting disappoint-

ing second-quarter results.

In Asia early Friday, stocks

fell, the Chinese yuan weakened

and bonds and haven curren-

cies rallied. Japan’s Nikkei

Stock Average and Hong Kong’s

Hang Seng Index were down

more than 2% and the Shanghai

Composite was down 1.5%.

In currency markets in Asia

early Friday, the yen gained

0.3% at 107.06 to the dollar. The

Chinese yuan depreciated

against the greenback, with the

currency in the offshore market

hitting 6.8972 a dollar, its low-

est level since November.

—Steven Russolillo

and Joanne Chiu

contributed to this article.

BYAMRITHRAMKUMAR

ANDJESSICAMENTON

New Tariffs Stagger Stocks, Oil Prices

EnergysharesledtheS&PlowerThursday.

Share-priceandindexperformance

Source: FactSet

10

–40

–30

–20

–10

0

%

Wednesday Thursday

Royal

DutchShell

Whiting

Petroleum

Concho

Resources

S&P500

THURSDAY’S

MARKETS

sales dropped $161 million.

The U.S. agricultural sector

for the past year has struggled

to navigate trade disputes pit-

ting the U.S. against some of

the biggest food importers, in-

cluding China and Mexico.

Tariffs on U.S. farm goods

forced exporters to seek new

markets, and cut into prices

for farmers, leaving them with

less to spend on seeds and

chemicals. Then came the

spring rains, capping the wet-

test 12-month period on re-

cord for the continental U.S.

Repeated storms left fields too

wet to plant, forcing farmers

to decide whether to gamble

on late-planted crops, switch-

ing to less-profitable alterna-

tives or filing insurance

claims.

Corteva said costs in its lat-

est quarter climbed as farmers

replanted crops after rain

swamped their fields, an ex-

pense often covered by seed

companies, while farmers

switched seed orders to faster-

maturing corn and lower-

priced soybeans after storms

forced later planting. With

fewer acres planted, rival seed

makers cut prices and Corteva

followed suit, executives said.

Corteva said it now expects

2019 profit to be $250 million

to $300 million lower than its

previous forecast. “The events

that transpired in North

America this year are without

precedent,” Mr. Collins said.

Bayer, the world’s biggest

seed-and-pesticide supplier

following its 2018 acquisition

of Monsanto, said Tuesday

that the wet U.S. spring could

put its 2019 profit goal out of

reach.

ADM, one of the world’s

biggest grain processors and

exporters, said the spring del-

uge added $65 million in costs

to its most recent quarter.

High river waters slowed

ADM’s barges, added costs for

its grain-shipping business

and made U.S. corn more ex-

pensive for foreign buyers.

“We couldn’t deliver,” ADM

CEO Juan Luciano said Thurs-

day on a conference call.

In hard-hit stretches of the

Midwest where weeds now

reign over farm fields, grain

companies like ADM, Bunge

andCargillInc. have offered

lofty prices for grain to secure

supply ahead of an uncertain

harvest. Mr. Luciano said

tighter supplies already are

boosting costs for major grain

buyers like food processors

and livestock producers.

Ingredion, which produces

high-fructose corn syrup,

starches and other staples,

said Thursday that rising corn

costs, partly driven by

weather problems, cut its

North American profit by $29

million so far this year. The

likelihood of higher corn

prices ahead led the company

to cut its 2019 profit projec-

tion. Chief Executive Jim Zal-

lie said Ingredion was working

to pass rising grain costs on to

its customers.

Record-breaking rains con-

tinue to vex the agricultural

industry, adding hundreds of

millions of dollars in costs for

grain traders and crop-seed

suppliers.

Millions of corn and soy-

bean acres were left unplanted

after persistent springtime

storms, leading to product re-

turns and swelling inventories

for seed and pesticide makers

including CortevaInc. and

BayerAG. Agricultural ship-

pers and processorsArcher

Daniels MidlandCo.,Bunge

Ltd. andIngredionInc. have

contended with overflowing

rivers that shut plants and

raised grain prices across the

Midwest.

“It’s difficult to overstate

how challenging this year has

been,” James Collins, chief ex-

ecutive of Corteva, said

Thursday. Corteva said the

bad weather drove quarterly

profit in its seed business

down 50%, as seed sales fell

by $180 million and pesticide

BYJACOBBUNGE

Wet Weather Poses Costly Challenge for Agribusinesses

Amid a record rainy season, grain bins were damaged in Nebraska.

SCOTT OLSON/GETTY IMAGES