As Hope Fades, Market Realignment Intensifies03/13/2019
I have written extensively on policy and related market realities. Links to my previous seven Farm Press articles and slide shows can be found at the end of this article.
This week, we look at market hope versus reality.
Hope of a quick resolution to U.S. and global trade and policy disputes are slowly waning for several reasons.
First, near term 2019 and likely into 2020 leaves grain, rice, cotton, and many other commodity producers concerned about ongoing cash flow deficits.
Second, beyond, let’s say mid-2020, stimulus-driven global growth coupled with other factors have the potential to lift grain, rice and cotton prices; therefore, producers should be super conservative business managers in 2019 and allow market demand to come to them.
Strong global economic and policy headwinds
The U.S. President, Congress and Federal Reserve Chairman collectively are facing some strong domestic and global economic and policy headwinds, along with the world’s most influential leaders, especially Chinese, European Union, Russian, Indian, Japanese, South Korean, and other leadership.
Global agreement is evident. Given the considerable global economic and policy challenges, U.S. and global governments, broadly speaking, agree that the maintenance of global expansion should have priority. This substantially limits the possibility of a severe global slowdown and increases the likelihood of increasing demand and improved prices for all commodities, and, on the conservative side, I would say possibly starting sometime in 2020.
Given burdensome U.S. and global debt, U.S. and global governments and central bankers support stimulus-driven U.S. and global growth to maintain sufficient economic expansion to avoid a major economic contraction.
Since the U.S. is in the second longest business cycle in history, prolonging the current expansion has and will have both positive and negative consequences.
Global governments’ individual and collective responses to maintain economic momentum tends to bend market price direction. These governmental interventions show winners and losers, with the grain, rice, and cotton prices presently being most vulnerable to negative price influences, due to this year’s currency, bond, equity, and commodity realignment. Periods of realignment are absolutely essential for prolonged periods of economic expansion and avoidance of a recession.
Since the U.S. current economic expansion is the second longest in history, a recession should be expected sooner rather than later. Consider the following economic expansion periods since July 1980, listing the shortest to the longest:
- July 1980 to July 1981: 12 months of expansion
- November 2001 to December 2007: 73 months of expansion
- December 1982 to July 1990: 92 months of expansion
- June 2009 to present: 117 months and counting
- March 1991 to March 2001: 120 months of expansion
U.S. or China technology dispute
China has a plan to achieve global technological supremacy within six years. The U.S. has a plan to prevent that from happening. Neither wants to escalate tensions and set off a new Global Cold War. If China has or achieves global technological supremacy, it is only a matter of time, a few decades, before they achieve financial and military supremacy. How these and other trade and policy negotiations are resolved define near- term market outlook and future global economic, social, political, and military realities.
Near Term Market Outlook for the Week Beginning March 11, 2019
- US Dollar Index: If the dollar ends the week of March 11, 2019 above 97.63, the groundwork will be in place to grind slowly higher, potentially into the 113 area, which would likely provide major headwinds for U.S. export activity, Charts A5 to A8.
- 10-Year US Treasury Yield: Near-term, or if the U.S. Dollar finds support this week and builds a base for moving higher, this risk off-setting could lead to a lower 10-Year U.S. Treasury Yield. This week a stronger dollar and a weaker 10-Year Yield would likely be a primary function of concern over European Union economic and political instability, Charts A1 to A4.
- CRB Index: U.S. and Chania and ongoing global trade and policy disputes, coupled with global currency, bond, equity and commodity market realignment, allow for an extended U.S. business cycle and will likely keep the CRB Index weak for a period, Charts B1 to B5.
- $WTIC Light Crude Oil: Global economic and policy disputes, coupled with global economic and political realities, will limit additional near-term price strength unless supply is significantly constrained, B6 to B9.
- Soybeans: Near-term price strength waning. Without additional concrete trade guidance, a trading range of $9.39 to $7.95 should be considered, Charts B10 to B13.
- Corn: Near term price strength waning. Without additional concrete trade guidance, consider a trading range of $3.90 to $3.44 or possibly lower to $3.10. Charts B14 to B17.
- Long Grain Rice: Planted acreage will define the trading range for 2019, presently a near-term trading range of $11.04 to $10.10 per cwt. is pragmatic. Once we know the first USDA March 29, 2019 prospective planting acreage estimate, we can redefine the trading range, Charts B18 to B20.
- Cotton: Without additional concrete trade guidance, consider a trading range of $0.79 to $0.64 cents per pound, Charts B21 to B24.
- Wheat: Wheat is displaying serious weakness; if support at $4.22 per bushels does not hold, $3.28 per bushel becomes a real option, Charts B25 to B28.
Coats previous seven Farm Press articles and slide shows related to Policy and Market Situation and Outlook are available here::
World, U.S. and Arkansas rice fundamentals weighing heavy on price, February 18, 2019
USDA 2019 long grain rice, soybean, and corn outlook, February 26, 2019
Slide Show: USDA 2019 long grain rice, soybean, and corn – supply, demand, and price outlook, February 26, 2019