Farm commodity prices are mixed again for the week beginning June, 18 with cotton remaining bullish. Cotton prices could move through the 98-cent area. Soybeans, corn, and wheat this week likely start the process of correcting their rapid downside move and then one of two outcomes emerge: First, corrective price move to the upside followed by a decline to test the previous low with prices moving higher, or Second, corrective price move to the upside followed by a decline to new lows.
Long Grain Rice is looking at new crop price weakness, a function of demand and planting expectations
Week beginning June 18, 2018
- Commodity Index, $CRB – Weakness emerging due to global growth uncertainties.
- Oil, $WTIC – Correcting excessive bullish price move, then higher.
- Cotton – Bullish, but one worries about contagion due to building near-term aggregate commodity weakness.
- S&P 500 – Bullish, but correction and/or consolidation may not be complete.
- Foreign Stock Markets – Varies by market, sideways consolidation or corrective period before moving higher, bottom-line: In the aggregate, most markets are building a base to move higher in one to two or more months.
- Soybeans, Corn, and Wheat – Key considerations: These commodities this week likely start the process of correcting their rapid downside move and then likely one of two outcomes emerge: First, corrective price move to the upside followed by a decline to test the previous low with prices moving higher; Second, corrective price move to the upside followed by a decline to new lows.
- Long Grain Rice – New crop price weakness a function of demand and planting expectations.
- U.S. Dollar – Bullish for a period, corrective period needed not required.
- 10-Year U.S. Treasury Yield – Defining a trading range 2.7 to 3.3.
Fed Bullish Global Growth and Demand for Commodities
After the U.S. Federal Reserve June 13, 2018, Federal Open Market Committee Meeting, chairman Powell, in a press conference, provided guidance on the U.S. economy. My interpretation of key takeaway points:
- The economy is doing very well with job availability, unemployment and inflation low; and interest rate goals of slowly moving toward normalization are underway. This implies the public and private sector must be more fully engaged in remaining competitive, efficient, and profitable since the game plan is to engineer an extension of the business cycle for a good two or more years.
- Monetary policy accommodation is gradually being scaled back by raising the target range for the federal funds rate on June 13 by 1/4 percentage point, bringing it from 1-3/4 to 2 percent.
- Language was removed stating that “the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” Why? The economy has strengthened, and the committee has now raised the federal funds rate from near 0 to 1-3/4 to 2 percent.
- The FOMC Committee’s belief is a gradual approach for increasing the federal funds rate will best promote a sustained expansion of economic activity, strong labor market conditions, and inflation near their symmetric 2 percent goa, which enhances business efficiency.
- The median projection for the federal funds rate is 2.4 percent at the end of this year, 3.1 percent at the end of 2019, and 3.4 percent at the end of 2020. By 2020, the median federal funds rate is modestly above its estimated longer-run level.
- Fed balance sheet reduction began in October 2017, is proceeding smoothly and is expected to remain on schedule and meet its goals of continued balance sheet shrinkage.
The takeaway for businesses:
Adjust your business plan to be competitive, efficient and highly profitable for the next two or three or more years in a business environment of slowly rising interest rates, building inflation, and a highly dynamic fiscal, monetary, trade, and regulatory policy setting. Global governments and central banks are planning on businesses ongoing and continued stimulative contribution to growth. This will require many businesses to increasingly embrace: Biotechnology, Artificial intelligence, and Robotics.
The Week Ahead June 18, 2018
- 10-Year US Treasury Yield: Near Term Range Bound and Stable, Longer Term Sideways to Up. For the week of June 15, 2018, the 10-Year US Treasury ended the week neutral at 2.93 percent. The upward trend of U.S. interest rates is essential to the financial health of pension funds, individuals, and businesses dependent on a more normalized interest ratThe 10-Year Treasury Yield is building a sideways trading range. For a multi-month period this market likely trades in an interest rate range of 3.3 percent on the upside and 2.7 percent on the downside before moving higher.
- Market participants were correct in anticipating a Fed Fund Rate increase of .25-percent at the June 13, 2018, meeting to 2 percent. Presently another rate hike of .25 percent is expected by market participants at the next Federal Reserve Open Market Committee (FOMC) meeting on September 25-26, 2018, and market participants presently expect another increase at their December 2018, meeting. (Charts A1-A4) Presently, I have no expectation of a rate increase at their December 2018, meeting. The Fed is positioning to maintain a balanced yield curve, given global economic dynamics, as the year progresses by continuing to shrink their balance sheet.
- Prolonged Business Cycle: Understand, global governments and central banks continue positioning to prolong the business cycle for an extended period of two to three or more years, which implies slowly rising interest rates and inflation over that period.
- U.S. Dollar Index: Bullish. With the dollar index presently at 94.5 (Charts A5-A8) and off its low of 88.15, the index is in a slow determined corrective grind to the upside. The dollar has entered a possible one to two or more months of more strength than weakness, with an upside potential target of 96 to 98 before returning to the dominant downside trend. Understand, this is an extremely challenging market, and chart strength or weakness is highly dependent on global government and central bank orchestrated fiscal, monetary, trade, and regulatory policy objectives being achieved. Since the U.S. Dollar strength has negative economic consequences to frontier, emerging, and developing economies that mostly borrow in dollars, a prolonged rise in the dollar moves country after country toward their own economic slowdown. Thus, a key reason for the ongoing economic slowdown. We will closely monitor this market and adjust our expectations accordingly.
- S&P 500: Bullish Bias. Sideways consolidation before moving higher. Prices need to hold above 2720 to regain momentum needed to retest previous highs of 2873. Prices falling through 2560 would be near term bearish, but market cleansing.
The trend in this market remains up: Consider:
- Present global economic uncertainties and a stronger dollar have been supportive of this market, due to enhancing foreign investor interest;
- Continue to anticipate an additional one- to two-month corrective or consolidation period before this market resumes its upward march;
- The market will almost always punish the majority for a period;
- Only fight the Fed with high conviction and a sound risk management strategy (seek professional marketing assistance);
- The bigger trend still remains up with corrections along the way.
Bottom-line: Just let price action provide guidance until stronger momentum is regained. Note the collection of attached Equity Charts A14 to A28.
NASDAQ Composite Index: Moving Higher. NASDAQ and Russell 2000 Index finished the week of June 15, 2018, basically at all-time highs. The trend in this market is up, but be respectful of market dynamics. Just let price action provide guidance and be an active risk manager.
Respect Warranted, Why? Market liquidity lacking, if major selling were triggered, sellers would find a very thin market of buyers and a potential rapid decline in prices.
The NASDAQ is a high visibility market where speculative interest, high frequency traders, passive investors, etc. dominant price action absorbs its energy and leadership from the likes of Facebook, Apple, Google, Amazon, Netflix, Microsoft, etc. These high tech giants will continue experiencing on-again and off-again headwinds on a number of different fronts extending beyond consumer privacy rights.
$WTIC Light Crude Oil: Correcting Before Moving Higher. Correcting the overextended bullish price move before likely moving higher. Why would oil prices move higher? Stimulative global growth over the next two to three or more years remains the driver as supply increasingly struggles to keep up with demand.
Understand: This is a market in need of an extended pullback. Why?
- This is a market out-of-balance with other global currency, bond, equity and commodity markets.
- This is a market where rising prices are increasingly placing a drag on economic activity and limiting U.S. and global growth.
Is the demand for oil waning? Not hardly. The summer months are the strongest demand months for the oil sector and stimulus driven global growth is achieving its objective of maintaining global economic momentum and the demand for oil.
Two major supply concerns:
- The Venezuelan economic, social, and political crisis has that country and oil sector near collapse.
- Likely Iranian sanctions have the potential to contract global supply, even though significant Iranian oil will move through the global black oil market or directly into China.
The current oil price correction is a time of opportunity as speculative and value investors scan not only the oil sector, but the commodity complex for speculative and value investments.
An interesting array of factors, from fundamentals, to global policy drivers, to social, economic, political, and military uncertainties, keep this market at elevated levels, and they do not appear to be losing their influence soon.
CRB Commodity Index: Correction Underway, but watch this index carefully.
Commodity weakness in part is a function of the following:
- Ongoing global equities realigning with global currency, bond and commodity markets have had the desired effect of slowing global growth and raised questions about the demand for commodities in the aggregate. Dollar strength is placing a drag on global economic activity.
- European, Chinese and other uncertainties on a number of fronts currently raise a few questions about sustaining global growth.
- Some question: Can critical economic equilibrium be sustained?
- Commodity bulls need to see this index push through resistance at 205 (currently at 196).
- Commodity bears need to see this index hold support at 185, otherwise, major across the board commodity weakness would likely emerge.
Rice, Grain and Cotton Charts B1-B28 in Chart Book
- The impacts of an array of uncertainties weight heavy on grain markets, due to uncertainties about:
- Trade disputes in general and U.S. and China specifically
- Dollar strength limiting foreign countries ability to growth
- Long speculators GLOBALLY misjudge grain near term price weakness
- An array of geopolitical issues have moved many grain investors to the sidelines
- Sustained global growth being questioned
- Potential continued weakness in the commodity index has the commodity bulls in general taking an increasingly defensive position.
Reality – Global growth will be sustained at all costs and demand for commodities in the aggregate will emerge.
Soybeans: Price weakness now dominate. A series of lower highs and lower lows since early March, finally gave way to: 1. Complex market rebalancing; 2. An exit by major outside speculators; 3. Uncertainty about trade dispute outcomes; and 4. Rising uncertainties about export demand, etc. Key considerations: Soybeans should correct their downside move between $8.81 and $9.05 then likely one of two outcomes emerge: First, corrective price move to the upside followed by a decline to test the previous low with prices moving higher, or Second, corrective price move to the upside followed be a decline to new lows. Therefore, we simply follow the charts.
Corn: Key considerations: Corn, like soybeans, likely corrects its downside move between $3.23 and $3.36, then one of two outcomes likely emerge: First, corrective price move to the upside followed by a decline to test the previous low with prices moving higher, or Second, corrective price move to the upside followed be a decline to new lows.
Wheat: Key considerations: Wheat likely corrects its downside move near current levels then one of two likely outcomes emerge: First, corrective price move to the upside followed by a decline to test the previous low with prices moving higher, or Second, corrective price move to the upside followed be a decline to new lows.
Long Grain Rice: New crop price weakness emerging as market participants are sniffing out the potential of planted 2018 U.S. long grain rice acreage exceeding the acreage figure released in the March 29, 2018, USDA Planting Intentions Report. Without a new demand source, fundamentals will weigh heavy on this market.
Cotton: Bullish. Cotton prices remain bullishly sideways to up, with the objective of moving to, and possibly through, the 98-cent area. Trade tensions and profit taking could weigh heavily on this market.
Cotton Video: Dr. Don Shurley, 2018 Cotton Update and Outlook and Seed-Cotton Program Review, 06/14/2018
Description: Demand is growing and the situation for the 2018 US crop is highly uncertain due to dry conditions in some parts of the country and delayed planting due to wet conditions in other parts of the country. Prices have now reached 90 cents. The price outlook for the 2018 crop as of June 14, 2018 is discussed and a review and update on the seed cotton program is highlighted.
Presenter: Don Shurley is cotton economist and professor emeritus of cotton economics in the Department of Agricultural and Applied Economics, University of Georgia. He is widely published in industry media and websites, is a sought after conference speaker, and author of the Cotton Marketing News newsletter through Southern Cotton Growers.
Soybean and Corn Webinar, June 21, 3:00 PM (CST): Dr. Aaron Smith on Marketing Corn and Soybeans during the Growing Season: 2018 Outlook and Pricing Opportunities
Presenter: Dr. Aaron Smith is an Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee - Recipient of the 2015 Premier Forecaster Award by the Agricultural & Applied Economics Association Extension Section
Description: The presentation will examine the current market outlook for corn and soybeans including an overview of global and domestic supply and demand. In-season marketing and risk management strategies and opportunities for corn and soybean producers will be discussed. Lastly, 2018 and 2019 price projections and factors that could influence corn and soybean prices will be presented.
Registration Link: http://bit.ly/UAEX-Marketing-Corn-Soybeans-Smith
Drone Video: Dr. Jim Robbins, What's the Buzz About Drones: The Do's & Don'ts, 6/7/2018
Presenter: Dr. Jim Robbins, Professor and Extension Horticulture and Drone Specialist, University of Arkansas System Division of AgricultureDescription: This seminar will be a fast orientation to world of drones and how you can use them in your agricultural operation. This quick overview should help you decide how to approach this emerging technology to reduce the financial risk of adoption.
Article: Conservation with Pat Westhoff / Special to the Columbia Daily Tribune, Conservation reserve is a case study in competing farm bill forces, June 14, 2018
Our old family farm has not produced crops or livestock since 1996. In that year, my parents signed a contract to enroll the farm in the conservation reserve program (CRP), a USDA program that is part of this year’s farm bill debate.
The CRP makes annual rental payments to landowners who agree to take environmentally sensitive cropland out of production. In our case, the rolling hills were vulnerable to soil erosion, and run-off from our farm could find its way into a local trout stream. Under terms of the CRP contract, land once used to produce corn, oats and hay is now a sea of grass, distinct from neighboring farms in a Google Earth image.
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: firstname.lastname@example.org.
Download Slide Show for charts and expanded details, Click Download Link