Fed might step up its asset purchases and La Niña looms over Ag markets

By Blu Putnam, Chief Economist & Erik Norland, Senior Economist, CME Group

Will Fed Step Up Asset Purchases in 2021?

• Fed narrowed asset purchases from July through September.
• Fed’s balance sheet held steady in Q3 after massive expansion.
• Asset purchases might rise sharply in 2021 as budget deficit grows.
• Fed comfortable with 10-Year Treasury yield at 0.60 to 0.90%.

Will This La Niña’s Impact Be Different?

• Drop in sea-surface temperatures in Pacific signals La Niña.
• La Niña tends to correlate with high volatility for corn, soy, and wheat.
• Market impact this time could be muted due to rising grain exports outside US.
• S. America, Black Sea region are now major exporters of corn, soy, and wheat.