Rice harvest

Market Price Considerations for the Week Beginning January 2, 2017

Markets covered: Rice, Cotton, Soybeans, Corn, and Wheat; Select U.S. and Global Equities; Dollar; Oil; and 10-year Treasury Yield

Dramatic Changes in the Business and Investment Landscape Underway

Problem: Economically the global economy has been slowly going to its knees with building global deflationary forces, due to

  • Chronic slow domestic and global growth due to
    • Governments’ deficit spending that produces unsustainable debt in country after country around the world, leading to
      • Historic low and building negative interest rates;
      • Social anxiety yields to “Populists Movements:”

Current populist movements’ have the tendency to lead to dangerous levels of social, political, and economic uncertainty and instability, including military friction.

Pre-Reflation Goal - Global Business, Market and Investment Landscape:

Pre-reflation, business managers, investors and investment managers globally assumed optimum returns must be achieved in a global economic setting of chronic slow growth, historic low to negative interest rates and building debt.

Today’s Global Business, Market and Investment Landscape:

“TODAY” market participants “BELIEVE” near term domestically and globally Governments and Central Bank Intervention will enhance growth and returns on investments, especially fixed investments. Reflation will be more bearish than bullish for safe haven assets like U.S. Treasuries, utilities, etc. as indicated by chart patterns, and bullish the dollar, U.S. equities and some other global equities as well as building support for future commodity price strength.

2017 Market Considerations

2017 expected to be a year of opportunity: First, tax and regulatory relief; Second, increasing domestic and global growth; Third, improved returns from fixed assets; Fourth, improved equity returns; Fifth, improved returns for the agricultural sector with improved commodity prices; Sixth, improved returns for the business sector in general; and Seventh, movement toward achieving inflationary goals; and Eight, belief and confidence in the economic momentum.

Biggest factors contributing a drag on economic activity in 2017: European Union instability, dollar strength from safe haven status, likely oil price firmness, trade and military friction, merging protectionism, and fiscal and monetary policy missteps by most countries.

2017 Summary Expectations:

  • 10-Year US Treasury Yield: 2017 – 10-Year Treasuries expect some additional upside and trading range defined
  • US Dollar Index: 2017 – Dollar more strength than weakness, constraining dollar’s upside potential will have some success the first half of 2017
  • CRB Index: 2017 – A stronger CRB Index will emerge, due to global reflation, oil price strength, an improved supply and demand balance among commodities, a reasonably stable dollar in the first half of 2017      
  • $WTIC Light Crude Oil: Likely primary range $40 to $60 with possible high in $72 area
  • Soybeans: 2017 – Pricing opportunities emerge as the year progressives
  • Corn: 2017 – This market may bottom sooner rather than later in 2017 with pricing opportunities
  • Rice: 2017 -Supply and demand balance improves allowing stronger pricing opportunities in the 2nd half of 2017
  • Cotton: 2017 - Bullish, prices fall below 68-cents corrective price action likely and revaluate upside price action expectations
  • Wheat: 2017 - Bottoming process underway pricing opportunities will emerge
  • SPY SPDR S&P 500 ETF: 2017 – Neutral until understand fiscal and monetary policy’s potential direction and impact
  • QQQ NASDAQ Power Shares: 2017 – Neutral until understand fiscal and monetary policy’s potential direction and impact
  • EFA iShares ETF: 2017 - Global Equities Excluding U.S. and Canada: 2017 – Neutral until understand fiscal and monetary policy’s potential direction and impact. Anticipate this market has more strength than weakness in 2017
  • EEM iShares ETF, Emerging Market Equities: 2017 - 2017 – Neutral until understand fiscal and monetary policy’s potential direction and impact. Anticipate this market has more strength than weakness in 2017
  • MCHI iShares ETF: 2017 - China Equities Available International Investors: 2017 – Neutral until price action defines market direction. Anticipate this market has more strength than weakness in 2017

Near Term Market Considerations Week Beginning January 2, 2016

Near Term Summary Considerations:

  • 10-Year US Treasury Yield: Consolidating and/or correcting upside gains
  • US Dollar Index: Consolidating and/or correcting upside move
  • CRB Index: Consolidating, oil price defines direction, see oil next
  • $WTIC Light Crude Oil: Consolidating with corrective activity possible, but a market which appears in search of higher highs as year evolves
  • Soybeans: Neutral, price weakness now dominates
  • Corn: Neutral, this market acting more bullish than bearish
  • Rice: Neutral, price weakness remains problematic defined by global uncertainties
  • Cotton: Bullish, prices fall below 68-cents corrective price action likely, revaluate price expectations
  • Wheat: Neutral, price weakness into 3.60 area a possibility
  • SPY SPDR S&P 500 ETF: Neutral – Consolidating, prices may need to correct some of their gains
  • QQQ NASDAQ Power Shares: Neutral – Consolidating and likely corrective price action needed
  • EFA iShares ETF - Global Equities Excluding U.S. and Canada: Range Bound
  • EEM iShares ETF, Emerging Market Equities: Range Bound
  • MCHI iShares ETF - China Equities Available International Investors: Appears to be building momentum

Market-by-Market: Near Term Market Considerations Week Beginning January 2, 2016

Charts 1 - 3. $UST10Y - 10-Year US Treasury Yield

Primary Consideration:

  • Near-term, the 10-Year Treasury Yield consolidating and/or correcting upside gain
  • 2017 – 10-Year Treasuries expect some additional upside and trading range defined
  • The Bond market topped (low yield) back in July anticipating domestic and global fiscal policy (infrastructure, etc.) stimulus activities would be elevated to a level to compliment ongoing monetary policy.
  • Washington Leadership expected to be friendly to business and favor investing in equities, the dollar and commodities over bonds

Charts 4 - 6. Power Shares US Dollar Index

Primary Considerations:

  • Neutral Near Term - Consolidating and/or correcting upside move
  • 2017 – Dollar more strength than weakness, constraining dollar’s upside potential will have some success the first half of 2017
  • Thanks to the European Union’s unsustainable economic platform, global government excessive entitlements and inefficiencies contribution to unsustainable debt.
  • Global interventionist government and Central Bank activities will define dollar strength or weakness over the next 3 to 12 months

Charts 7 - 9. CRB Index

Primary consideration:

  • Consolidating, oil price defines direction
  • The CRB Commodity Index appears to be building a base to move higher, which near term would be a primary function of oil price strength leadership and a reasonably stable dollar
  • 2017 – A stronger CRB Index will emerge, due to global reflation, oil price strength, an improved supply and demand balance among commodities, a reasonably stable dollar in the first half of 2017  

Charts 10 - 12. $WTIC Light Crude Oil

Primary Consideration:

  • Consolidating with corrective activity possible, but this is a market which appears to be in search of higher highs due to a number of factors with one being anticipated improved supply and demand balance
  • 2017 – Likely primary range $40 to $60 with possible high in $72 area
  • A challenging market for a number of economic and geopolitical reasons
  • Washington Leadership likely bullish U.S. production
  • OPEC and others likely define price top
  • Global uncertainties supportive of prices

Charts 13 - 15. Soybeans

Primary Consideration:

  • Neutral - I remain more concerned about additional price weakness and the culmination of a bottoming process near term. Presently, downside price considerations to 9.23. This market is coiling for a major price move

Alternative Consideration:

  • Considering global risks and uncertainties and building aggressive fiscal and monetary policy intervention activities argue a price bottom is in place or near

2017 – Pricing opportunities emerge as the year progressives

Additional Thought:

  • Market participants appear to be building a risk appetite. Being short means at least having close mental stops

Charts 16 – 18. Corn

Primary consideration:

  • Neutral – Assume a retest of the previous low at $3.15 per bushel, but also consider his market continues to act more bullish than bearish

2017 – This market may bottom sooner rather than later in 2017 with pricing opportunities

Alternative consideration: (Looking more like the primary consideration)

  • Bottom in place and upside consideration to $4.15 per bushel

Charts 19 - 20. Rice

Primary consideration:

  • Neutral – Price weakness remains defined in part by global economic, political, and social uncertainties

2017 – Supply and demand balance improves as the year progress allowing stronger pricing opportunities in the 2nd half of 2017

Charts 21 - 23. Cotton

Primary Consideration:

  • Bullish prices likely into the 84-cent area. Near term if prices fall below 68-cents, then likely corrective price activity underway
  • 2017 – Bullish to 84-cent area, then reevaluate price strength or weakness, prices below 68-cents make sure price action is only corrective

Charts 24 - 26. Wheat

Primary consideration:

  • Neutral
  • Forming a price bottom
  • Price weakness into the $3.60 area remains a possibility

2017 – Bottoming process underway and pricing opportunities emerge as the year progressives

Alternative consideration:

  • Bottom in place, price consolidation underway before prices move higher

Charts 27 – 29. SPDR S&P 500 ETF

Primary Consideration:

  • Neutral – Consolidating, prices may need to correct some of their gains

2017 – Neutral until understand fiscal and monetary policy’s potential direction and impact

Charts 30 - 32. QQQ NASDAQ Power Shares

Primary Consideration:

  • Neutral – Consolidating and likely corrective price action needed

2017 – Neutral until understand fiscal and monetary policy’s potential direction and impact

Charts 33 - 35. EFA iShares ETF, Global Equities Excluding U.S. & Canada

Primary Consideration:

  • Range Bound

2017 – Neutral until understand fiscal and monetary policy’s potential direction and impact. Anticipate this market has more strength than weakness in 2017

Charts 36 - 38. EEM iShares ETF, Emerging Market Equities

Primary Consideration:

  • Range Bound – Potentially Bullish

2017 – Neutral until understand fiscal and monetary policy’s potential direction and impact. Anticipate this market has more strength than weakness in 2017

Charts 39 - 41. MCHI iShares ETF, China Equities available international investors

Primary Consideration:

  • This is a China ETF showing far more weakness than one would like to see. The key question for the row crop sector – What is the impact to near term soybean, corn, wheat, cotton, and rice prices? Studying this chart one can certainty feel the underlying presence of global economic, social and political uncertainties

2017 – Neutral until price action defines market direction. Anticipate this market has more strength than weakness in 2017

Charts Book Index – Link

  • Chart 1. $UST10Y - 10-Year US Treasury Yield, Weekly Chart, 2012 – Dec. 30, 2016
  • Chart 2. $UST10Y - 10-Year US Treasury Yield, Daily Chart, May 2016 – Dec. 30, 2016
  • Chart 3. $UST10Y - 10-Year US Treasury Yield, Monthly Chart, 1997 – Dec. 30, 2016
  • Chart 4. Power Shares US Dollar Index, Weekly Chart, Dec. 2013 – Dec. 30, 2016
  • Chart 5. Power Shares US Dollar Index, Daily Chart, July 2016 – Dec. 30, 2016
  • Chart 6. Power Shares US Dollar Index, Monthly Chart, July 2016 – Dec. 30, 2016
  • Chart 7. $CRB Reuters/Jefferies CRB Index, Weekly Chart, September 2013 – Dec. 30, 2016
  • Chart 8. $CRB Reuters/Jefferies CRB Index, Daily Chart, May 2016 – Dec. 30, 2016
  • Chart 9. $CRB Reuters/Jefferies CRB Index, Monthly Chart, 2007 – Dec. 30, 2016
  • Chart 10. $WTIC, Weekly Chart, Dec. 2013 – Dec. 30, 2016
  • Chart 11. $WTIC, Daily Chart, May 2016 – Dec. 30, 2016
  • Chart 12. $WTIC, Monthly Chart, July 2005 – Dec. 30, 2016
  • Chart 13. Soybeans, Weekly Chart, September 2013 – Dec. 30, 2016
  • Chart 14. Soybeans, Daily Chart, May 2016 – Dec. 30, 2016
  • Chart 15. Soybeans, Monthly Chart, 15 Year Chart – Dec. 30, 2016
  • Chart 16. Corn, Weekly Chart, September 2013 – Dec. 30, 2016
  • Chart 17. Corn, Daily Chart, May 2016 – Dec. 30 2016
  • Chart 18. Corn, Monthly Chart, 2005 – Dec. 30, 2016
  • Chart 19. Rough Rice Jan '17 (ZRF17) CBOT, Quarterly, Continuation Chart, 1987 – Dec. 30, 2016
  • Chart 20. Rough Rice Jan '17 (ZRF17) CBOT, Daily Continuation Chart, August 2016 – Dec. 30, 2016
  • Chart 21. Cotton, Weekly Chart, September 2013 – Dec. 30, 2016
  • Chart 22. Cotton, Daily Chart, May 2016 – Dec. 30, 2016
  • Chart 23. Cotton, Monthly Chart, 2007 – Dec. 23, 2016
  • Chart 24. Wheat, Weekly Chart, September 2013 – Dec. 30, 2016
  • Chart 25. Wheat, Daily Chart, May 2016 – Dec. 30, 2016
  • Chart 26. Wheat, Monthly Chart, July 2016 – Dec. 30, 2016
  • Chart 27. SPDR S&P 500 ETF, Weekly Chart, September 2013 – Dec. 30, 2016
  • Chart 28. SPDR S&P 500 ETF, Daily Chart, May 2016 – Dec. 30, 2016
  • Chart 29. SPDR S&P 500 ETF, Monthly Chart, May 2016 – Dec. 30, 2016
  • Chart 30. QQQ NASDAQ Power Shares, Weekly Chart, September 2013 – Nov 18, 2016
  • Chart 31. QQQ NASDAQ Power Shares, Daily Chart, June 2016 – Dec. 30, 2016
  • Chart 32. QQQ NASDAQ Power Shares, Monthly Chart, 2007 – Dec. 30, 2016
  • Chart 33. EFA iShares ETF, Global Equities Excluding U.S. & Canada, Weekly Chart, May 2014 – Dec. 30, 2016
  • Chart 34. EFA iShares ETF, Global Excluding U.S. & Canada, Daily Chart, 2016 – Dec. 30, 2016
  • Chart 35. EFA iShares ETF, Global Excluding U.S. & Canada, Monthly Chart, 2007 – Dec. 23, 2016
  • Chart 36. EEM iShares ETF, Emerging Market Equities, Weekly Chart, 2014 – Dec. 30, 2016
  • Chart 37. EEM iShares ETF, Emerging Market Equities, Daily Chart, 2016 – Dec. 30, 2016
  • Chart 38. EEM iShares ETF, Emerging Market Equities, Monthly Chart, 2007 – Dec. 30, 2016
  • Chart 39. MCHI iShares ETF, China Equities available international investors, Weekly Chart, 2014 – Dec. 30, 2016
  • Chart 40. MCHI iShares ETF, China Equities available international investors, Daily Chart, 2016 – Dec. 30, 2016
  • Chart 41. MCHI iShares ETF, China Equities available international investors, Monthly Chart, 2011 – Dec. 30, 2016

 

Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, Division of Agriculture, University of Arkansas System. E-mail: [email protected]

 

DISCLAIMER-FOR-EDUCATIONAL-PURPOSES

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