The week of September 24, 2018 has the potential to be a Risk-On week for many equity and commodity markets. This implies likely near-term price firmness to strength for several hard-asset equity and commodity markets.
Will rice, grain and cotton producers be beneficiaries? Short answer, near term seems price supportive. Grains and soft commodities likely need a period of three to six months where market participants’ risk appetite is the dominate trend. Presently, one can make an argument that the current emerging Risk-On trend lasts four to eight weeks.
Policy Intervention. For this discussion, simplistically we have two ways to look at fiscal, monetary, and trade policy intervention market impacts. First, global economic momentum will be maintained no matter the costs through orchestrated intervention, though this ongoing activity faces increasing headwinds and uncertain outcomes, so expect varying levels of market impact and turbulence. Second, a massive global financial storm is brewing that will result in escalating financial tensions between countries globally. This will result in escalating, first, trade friction and, second, fiscal and monetary policy tensions. It also implies major periods of stimulative intervention followed by corrective periods.
Glass Half-Full. Finding a resolution to ongoing collective policy disputes will take time, but the current Risk-On market appetite indicates market participants see many more positives than negatives remaining in the current business cycle.
Cross Currents and Misdirection Norm. The global currency, bond, equity, and commodity market crosscurrents and misdirection continue presenting huge navigational challenges for market participants. This likely will not change until the end of the current business cycle. The market cross currents and misdirection are a function of ongoing fiscal, monetary, and trade policy actions that direct and fuel stimulus driven global growth. These elevated levels of market uncertainties are likely to be the norm for market participants until the next recession, and the next recession may not emerge until mid-2023.
Market expectations over the next several weeks.
- Currencies. The U.S. Dollar moves sideways to down against the Euro with several other major currencies increasingly having a sideways to upside bias over the next few weeks.
- U.S. 10-Year Treasury. The U.S. 10-Year Treasury Yield has gained upside momentum, due to near term inflationary global growth expectations. Closing the week of September 24, 2018 above 3.07 means consideration must be given to a change in trend with higher yields
- U.S. Equities. Most U.S. equity markets should be sideways to up over the next few weeks, responding to growth expectations, stock buybacks, global safe-haven status, continuing foreign currency advantages, etc.
- Global Equities. The Global equity index (EFA), emerging markets (EEM), and frontier markets (FM) move mostly sideways to up over the next several weeks as confidence in global government and central bank stimulus-driven growth continues to emerge. The strongest and most stable index will likely be the global index, followed by the emerging market index, and the frontier index will likely be the weakest index over the next several weeks as traders’ position for short term gains.
- $WTIC Oil. $WTIC oil is struggling to maintain momentum. If oil cannot close above $72 per barrel in the next couple of weeks, oil prices likely revisit the $65 per barrel area.
- Soybeans. Soybeans (September 21, 2018 - $8.47 per bushel) still appear to have price weakness into the $8.00 per bushel area. Fundamentals and global political, trade, and economic uncertainties remain formidable headwinds for higher prices, but tightening aggregate global grain stocks are raising global food security concerns and possibly price supportive. Charts (B10-B13)
- Corn. This market needs to end the week of September 24, 2018 above $3.75 to suggest additional upward price momentum is sustainable. Otherwise, potential downside to $3.23 per bushel is a possibility (September 21, 2018 - $3.57 per bushel). Charts (B14-B17)
- Wheat. Wheat appears to be a casualty of policy friction. Wheat ended the week of September 17, 2018 at $5.21 per bushel, sustaining a series of higher lows and higher highs. That said, wheat is losing economic momentum. (B14-B17)
- Long Grain Rice. Fundamentals continue to weigh heavily on this market. Closing the week of September 24, 2018 below $9.21per cwt. implies potential serious price weakness. (Chart B18-B20)
- Cotton. Key consideration: If cotton can remain above December 78 cents per pound, this market has the potential to regain upside price momentum, given today’s global economic setting. Finishing the week of September 24, 2018 below 78 cents per pound would likely indicate serious price weakness lies ahead (September 21, 2018 – 79.13-cents per pound). Charts (B21-B24)
- Soft Commodities. Fundamentals coupled with stable but not strong global growth continue weighing on these markets. Near term: Coffee, more price weakness than strength; Cocoa, trying to confirm a bottom is in place; Sugar, continues searching for a bottom; Cotton, a critical week lies ahead, holding 78 cents would be supportive of a reversal in price trend; Orange Juice, more price weakness than strength; Lumber continues searching for a bottom.
- Livestock. Lean Hogs likely need some corrective price action before moving higher. Feeder Cattle and Live Cattle remain bullish.
- Gold and Silver. Gold and silver could find some near-term price support if the dollar continues to correct its upside move, but this sector still appears to be in search of a strong bottom.
Rice Outlook Webinar: Larger Supplies, More Competitive Prices, and Record Global Trade Are Projected to Boost U.S. Rice Exports in 2018/19 with USDA’s Agricultural Economist Dr. Nathan Childs, Thursday, September 27, 2018. The September 27 Webinar will analyze the most current USDA forecasts for both the U.S. and global rice markets. For the U.S., a substantial increase in supplies, more competitive prices, and record global import demand are expected to boost U.S. rice exports 13 percent. Despite larger exports, U.S. ending stocks are projected to increase 53 percent. In the world market, smaller crops in India and China are projected to pull global production down 1 percent from the 2017/18 record. World rice trade is projected to again reach a new record, led by increased demand from Sub-Saharan Africa and the Middle East, as well as by continued strong purchases by China.
Link to Register: http://bit.ly/UAEX-Rice-Childs-Sept27
New Video: Climate Change, CO2 and Rice Production in the 21st Century: Now what? Dr. Ziska, Plant Physiologist with the USDA’s Agricultural Research Service in Beltsville, Maryland, September 20, 2018.Rice is widely recognized as a major caloric source globally. What challenges do rising carbon dioxide and climatic uncertainty pose for global rice production? From threats, to consequences; from challenges to promise, Dr. Lewis Ziska, former project leader for climate change at IRRI, discussed a range of issues related to quantifiable and qualitative rice impacts; from pollen sterility, to increased weed pressures; but also stressed opportunities, with a focus on genetic and management adaptation. Video Link: https://youtu.be/zdfUpJEfkoo
Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture, Cooperative Extension Service. E-mail: [email protected]
Download Slide Show for charts and expanded details, Click Download Link