Coats: Near-term price outlook for Mid-South crops

Commodity markets, observed in their respective price charts:

  • First, appear torn between reflecting fundamentals, technical, and normal market participant activity, and
  • Second, reflecting price complexity created by building fiscal and monetary intervention required
    • To manage building global risk and uncertainty
    • In a slow growth global economy
    • With declining positive global investment options, and
    • Building global separatist and populist movements.

Central Banks are trapped by math:

  • If they raise the rates the Central Banks destroy debtors and asset markets.
  • If they keep rates at zero the Central Banks destroy pension funds, banks and insurers. Simon Mikhailovich @S_Mikhailovich

 

Rice, Soybeans, Cotton, Corn, and Wheat Near Term Price Outlook

Rice

  • USDA’s 2015/16 July 2016 price estimate                                $11.00 ($/cwt)
  • USDA’s 2016/17 July 2016 price estimate                                $10.50 ($/cwt)
  • Change from June 10, 2016                                                         - 0%
  • Change from 2015/16 on June 10                                              - 4.5%
  • September 2016 current price                                                     $9.30 ($/cwt)
  • Near term continued potential price weakness remains

Soybeans

  • USDA’s 2015/16 July 2016 price estimate                                $9.05 ($/bu)
  • USDA’s 2016/17 July 2016 price estimate                                $9.50 ($/bu)
  • Change from June 10, 2016                                                         - 0%
  • Change from 2015/16 on June 10                                              - 5.0%
  • November 2016 current price                                                      $9.74 ($/bu)
  • Scenario 1 - Near term corrective price strength into the $10.00 to $10.25 area before additional price weakness resumes possibly into the $8.50 area.
  • Scenario 2 – Prices may have bottomed.

Cotton

  • USDA’s 2015/16 July 2016 price estimate                                $0.55 (c/lb)
  • USDA’s 2016/17 July 2016 price estimate                                $0.59 (c/lb)
  • Change from June 10, 2016                                                         + 3.5%
  • Change from 2015/16 on June 10                                              + 1.7%
  • December 2016 current price                                                      $0.77 (c/lb)
  • Potential price strength into the $0.85-plus area

Corn

  • USDA’s 2015/16 July 2016 price estimate                                $3.65 ($/bu)
  • USDA’s 2016/17 July 2016 price estimate                                $3.40 ($/bu)
  • Change from June 10, 2016                                                         - 2.9%
  • Change from 2015/16 on June 10                                              - 6.8%
  • December 2016 current price                                                      $3.34 ($/bu)
  • 2 possibilities
    • Possible price bottom near
    • Possible price bottom no lower than $3.00

I would assume prices consolidate before moving higher

Wheat

  • USDA’s 2015/16 July 2016 price estimate                                $4.89 ($/bu)
  • USDA’s 2016/17 July 2016 price estimate                                $3.80 ($/bu)
  • Change from June 10, 2016                                                         - 5%
  • Change from 2015/16 on June 10                                              - 22.3%
  • September 2016 current price                                                     $4.16 ($/BU)
  • Presently likely corrective price activity into the $4.50-plus area
  • Followed by likely decline to a new low into $3.75 area

 

Trend Change Underway

  • Globally, most market participants including governments and central banks increasingly acknowledge “Chronically Weak Global Growth
  • In the aggregate all governments, central banks, markets, businesses must adjust to a sustained period of
    • Slow global growth,
    • The challenges and impact of building global negative interest rates,
    • Declining global “Positive Return” investment opportunities
  • Governments and central banks will fight global deflationary forces with reflationary stimulus and monetary policy activities
  • Technology’s impact on the global labor force
  • For businesses globally it’s a period of consolidation
  • “Highly Efficient Businesses” especially in the agricultural sector will have increasing opportunity

 

Factors Potentially Impacting Market Prices

Anomaly and Risk Events:

  • Sustained periods of anemic global growth create:
    • social unrest and separatist and populist movements,
    • potentially unstable global governments,
    • military friction,
    • regional global friction and
    • unanticipated levels of fiscal and monetary stimulus, and
    • unpredictable market activity with risk-on and risk-off periods rotating in compressed time periods

The global economy is confronted with a multi-year slow growth period requiring reoccurring reflation activities

  • Expect building on-going fiscal and monetary stimulus. Watch fiscal and monetary intervention from Japan, United Kingdom, European Union, and China, to gain insight about types of intervention activities
  • A potential 2017 U.S. Recession will likely be delayed until 2019 given collective building global fiscal and monetary intervention activities.

Social unrest and separatist and populists movements:

  • Do not underestimate social mood’s building impact on country after country around the world and their political, economic, and social stability and their destabilizing and volatility impact on global markets.
    • These movements in the European Union and globally are on the rise.
    • The building negative global social mood impacts are a symptom of anemic growth in country after country around the world.

The world’s governments and central banks:

  • Globally governments and central banks are in crisis management mode.
    • Their biggest fear and their biggest challenge is loss of confidence.
    • Therefore, do not underestimate their ability individually or collectively to respond to global deflationary force.
      • To date their intervention activities to limit global deflation have Inflationary forces on the rise, which is positive for many asset classes like equities and commodities.
      • The size of market wave and volatility generated by intervention activities are requiring many to add additional layers of risk management protection.
  • Collectively fiscal and monetary stimulus around the world will likely build over the next 12 months.
    • This type of intervention creates historic unknowns, price uncertainty, dangerous levels of volatility, and market opportunity.

U.S. treasuries

  • U.S. treasuries are very likely to remain sideways given their near-term bullish move (lower yields).
    • This market apparently has not topped and lower yields appear likely.
    • When will the market top?
      • I do not know, if the top is one, two, or three years away for the U.S. 10 year treasury.
      • The top could come sooner rather than later, but the breakout period could easily be another 7 years into the future.

Dollar

  • Near term the dollar should be sideways and remain range bound.
  • Remember, the Fed has real concerns about reaching and maintaining their 2-percent inflation objective in a stagnant global economic setting.
  • To achieve this objective it would be helpful for oil prices to be in a $50.00 trading range and the dollar not to rise significantly, like they did on June 24.

U.S. equities

In a world of building negative interest rates the price action of U.S. equities should be watched very carefully; let the price define strength, weakness, or simply sideways corrective activity over time.

  • Near term U.S. equities may or may not need additional time to consolidate before moving significantly higher.
  • It is certainly worth noting that global reflation has reemerged. I expect that this is going to be an ongoing exercise of risk-on and risk-off for the foreseeable future.

 

Near Term Price Outlook:

Rice - Near Term Price Outlook

  • Near term continued potential price weakness remains.
  • At the present time the U.S. supply simply exceeds demand.

Soybeans - Near Term Price Outlook

  • Scenario 1 - Near term corrective price strength into the $10.00 to $10.25 area before additional price weakness resumes possibly into the $8.50 area.
  • Scenario 2 – Prices have bottomed.
  • Maintain very tight price stops.

Cotton - Near Term Price Outlook`

  • Potential price strength into the $0.85-plus area

Corn

  • 2 possibilities
    • Possible price bottom near.
    • Possible price bottom no lower than $3.00.

I would assume prices consolidate before moving higher

Wheat

  • Presently likely correctively price activity into the $4.50-plus area.
  • Followed by likely decline to a new low into $3.75 area.

 

Finally

  • Uncertain anomaly events and elevated levels of risk events are now with us for a number of years into the future.
  • These events will likely exert strong influences on market participants with the potential to create major swings and directional changes in individual or multiple markets.
  • Expect increasingly complex price patterns.

 

Final Thought

Central Banks are trapped by math.

If they raise the rates the Central Banks destroy debtors and asset markets.

If they keep rates at zero the Central Banks destroy pension funds, banks and insurers.

Simon Mikhailovich @S_Mikhailovich

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

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