Yields Backed Off And The Dollar Went With Them

US futures are close to flat and split. The Nasdaq is the only one higher.

Wednesday went well. The S&P 500 broke a three session losing streak.

Treasury said it would double the size of its bond buyback operations. The thirty year Treasury yield fell hard on the news. The ten year Treasury yield has kept falling this morning.

The dollar dropped hard on the day and gold rallied sharply with it. Gold has settled. The dollar has not.

Crude is up again and it is the biggest move on the board. Iran still says the Strait of Hormuz is shut. The tape is not arguing with Iran.

Deere (DE) reports before the bell. It sells the most expensive machine on an American farm.

Market Implication

Wednesday's gains came from a debt announcement and a cancer trial. Moderna (MRNA) is handing much of its move back before the open. Neither ever said anything about demand.

The Income Held. The Source Changed.

Farm income this year is forecast to land about where it landed last year. That reads as stability.

Look at what sits inside it. Direct government payments to producers are forecast to jump sharply. Crop receipts are flat.

Now read why they rise. Farm Bill programs pay out when commodity prices fall. The transfer is a receipt for prices that already happened.

So the part of farm income earned by selling something is shrinking. The government is filling the hole.

The Note Got There First

US farm debt is heading to a record. Debt against assets is the heaviest in more than a decade.

Farm interest expense is at a record in dollars. It takes a large bite before anything reaches a dealer.

A better corn price reaches the bank first.

That is how the rally and the forecast are both true. Deere expects industry sales of large farm machines across the United States and Canada to fall sharply this year. In February it raised its profit forecast and left that number exactly where it was.

Structural Setup

Equipment demand now tracks the interest line on the farm's own books. One order book prices that this morning. The crop rally will not be in it.

The Session That Bought Everything Except Machines

Wednesday was broad. Health care closed at a record.

Materials ran with gold. The Russell 2000 beat the big indices.

Industrials fell.

That is odd on a day built on cheaper money. Machinery is the most rate sensitive thing the sector sells.

The horizon explains it. One day of falling Treasury yields does not rewrite an equipment loan signed last year.

Deere's last quarter sorted the same way. Production and precision agriculture, the big machine business, shrank hard. Construction and forestry grew fastest.

The part that is shrinking is the core.

Deere's order books for this year's combines and planters closed months ago. Today's revenue was set before the crop rally.

The glut of used machines is an industry condition. Titan Machinery (TITN) sells the rival Case IH line across the plains.

Sector Read

Watch used inventory, not new orders. Deere says it is building only what retail demand supports. The unsold iron sits on dealer lots industry wide, and no line in this morning's release counts it.

The Refund Only Some Companies Get

The Supreme Court struck down the emergency tariffs in February. Customs and Border Protection opened a claims process and began paying.

Deere filed. Its claims were accepted and it booked the money against production costs. The margin went up.

That is the easy part of the queue. The hard part is older entries, where the paperwork already closed for good.

The Justice Department appealed in June. Its position is that those entries get refunded only to importers who sued the trade court.

Tens of billions of dollars now hang on a filing date.

Watch Signal

A tariff recovery in this year's earnings has two parts with different odds. Accepted claims are being paid. Older entries wait on one appeals court and on whether the company sued. Ask which part before calling the credit banked.

The Lender Inside The Tractor Company

Deere builds machines. It also lends the money that buys them.

John Deere Capital's loan book runs into the tens of billions. It raises its own funding and files its own accounts.

Think about what those accounts should show now. Farm debt is at a record. Farm bankruptcy filings climbed last year.

The charge for bad loans should be climbing with them.

It fell. Deere took a smaller provision last quarter than a year earlier, and a smaller one across the half year.

Then it raised the outlook for the lending arm, naming better credit provisions as a reason.

Something is servicing those notes. Deere said it plainly in May: "U.S. Government programs continue to provide liquidity support for farmers."

Deere was describing the farm economy. Against its own loan book, the line explains the provision.

The Read

Farm credit quality now runs off the federal payment calendar. If a payment slips, the captive lenders see it before the order books do. A farmer misses a payment long before he cancels a combine.

Economic Data: Initial Jobless Claims for the week to August 15, 8:30am ET. Philadelphia Fed Manufacturing Index for August, 8:30am ET. Continuing Jobless Claims, 8:30am ET. Conference Board Leading Economic Index for July, 10:00am ET. EIA Natural Gas Storage, 10:30am ET. Treasury announces the two, five and seven year note auctions, 11:00am ET.

Fed Speakers: None scheduled. The Jackson Hole symposium runs August 27 to 29.

Earnings: Walmart (WMT), Deere (DE), Alibaba (BABA), NetEase (NTES), Advance Auto Parts (AAP) before open | Ross Stores (ROST), Flowers Foods (FLO), OSI Systems (OSIS) after close.

Overnight: Nikkei 225 +1.36%, Shanghai Composite +0.24%, FTSE -0.18%, DAX -0.38%

Walmart (WMT) and Deere report within the hour. The street is watching the grocer.

Deere has not touched its full year profit range since it raised it. This morning it holds or it does not.

Hold it and the recovery it keeps promising for next year survives another quarter.

Narrow it and look at which division did the carrying. Construction equipment and lawn tractors have covered all year.

There is a cleaner test a week out. Titan Machinery reports next Thursday, and a dealer lot flatters nobody.

A recovery you can find in an order book is a recovery. One you can only find in a guidance range is a hope.