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Commodities Bullish in 2018, but…


The expectation for 2018 is a year of sustained domestic and global growth through 2018 and into 2019 as governments and central banks globally throttle-up measured amounts of stimulus into their respective economies in the much talked about orchestrated manner to achieve desired levels of growth in country after country around the world.

The achievement of the desired stimulus level, given assumed global stability, will allow:

  • Both short and longer term Treasury bond rates to rise in a slow controlled manner
  • The dollar to have more weakness than strength and a similar dynamics for the Chinese currency
  • Most U.S. and global equity markets sideways to up with corrections along the way allowing for the avoidance of a bubble
  • The achievement of desired levels of global growth will elevate the demand for commodities

To date not all commodities have participated in the building global bull market for equities and commodities.

For instance, oil, the lead commodity, has been performing well over the last six months for a number of reasons. Up until recently oil’s bullish performance has been due less to fundamentals and more to intervention and uncertainties surrounding this market. Fundamentals and uncertainty will be supportive of the global oil market in 2018 and well into 2019.

Base metals are performing well in anticipation of major amounts of global stimulative monies being invested into infrastructure and businesses.

For field crops, cotton is bullish, but rice and grains are struggling due to global overproduction and other issues. Rice and wheat are so important to feeding the world’s expanding population that protectionism, currency differentials, and regional and global trade barriers are key factors that are problematic for U.S. exports. As one studies the global economic activity, it becomes increasingly clear that the “Orchestrated Stimulative U.S. and Global Effort” was highly successful in 2017, expectations are the effort will meet with like, if not greater, success in 2018 with potential well into 2019 and longer.

Grains: For this discussion corn, soybeans and wheat are in a price bottoming process and the length of the process in no small part is dependent on 2018 global production expectations as well as global reflationary growth expectations.

What could derail global growth and weaken equity and commodity prices?

Presently, there is, for lack of a better way to state the issue, reasonable global social and political stability, which is absolutely required to achieve multiple years of global growth and demand for many global equities and commodities.

What to expect from the markets this week, January 22, 2018

Market “Near Term” Snap Shot

  • Rice: This market likely has more weakness than strength as market participants digest potential of significant expansion of 2018 U.S. long grain rice planted acres (Charts 38 and 39).
  • Cotton: Cotton prices remain in a determined grind to the upside. Closing and holding above 88.50 cents implies possible significantly higher prices (Chart 40 to 42)
  • Soybeans: It is still not obvious that this market has either fully corrected or found a bottom. That may change with this week’s price action, but presently still give consideration to prices revisiting the 2017 low of $9.00 (Charts 32 to 34).
  • Corn: Searching for a low, so assume bearish until price action becomes more supportive of a bullish case, and give consideration to prices possibly moving to their previous 2016 lows of $3.15 or below (Charts 35 to 37).
  • Wheat: Wheat appears to have additional price weakness into the 3.90 area (Charts 43 to 45.)
  • 10-year Treasury Yield: Consolidating with new highs possible to 2.75 (Charts 1 to 3)
  • U.S. Dollar: A significant decline is now underway, so first give consideration to 87 before correcting and moving lower (Charts 4 to 6).
  • Oil $WTIC: Fundamentals and global uncertainties increasingly supportive of this market. Price action to $73-plus a consideration (Charts 29 to 31).
  • $CRB Commodity Index: Macro factors and chart structure imply continued cautious optimism, though some back filling may be in order (Charts 26 and 28).
  • S&P 500: Trend remains up, but a cautionary time period (Chart 14).
  • Global Equities Excluding U.S. and Canada: Trend remains up, momentum regained (Chart 16)
  • Feeder Cattle: Bullish.

Source: Bobby Coats, Western Farm Press

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