Farm Progress

Fed turns dovish – Supportive of commodity prices

Robert Coats

March 20, 2017

3 Min Read
Bobby Coats and Bert Greenwalt, agricultural economists with the University of Arkansas and Arkansas State University, catch up at the Agricultural Council of Arkansas annual meeting in Little Rock.

The U.S. Federal Reserve, true to their verbal guidance, raised its Fed Funds Rate by 25 basis points to 0.75 - 1.0 percent. What made the move by the U.S. Federal Reserve “Dovish” was market participants anticipated three more rate hikes in 2017 and possibly indications that the Fed would shrink its balance sheet.

But the Fed indicated their policy stance remains accommodative basically in all ways and presently planned only 2 more rate hikes in 2017.

  • The day of the Fed announcement markets responded by stocks being up; bond yields were bullish with a lower yield; Dollar weakness and commodity prices, in general, rose on the news.

  • Market participants are not expecting another Fed Funds Rate hike until June 13-14, 2017 and maybe even not then, given potentially emerging global economic headwinds as the year progressives.

Global government and Central Bank or global fiscal, monetary, trade and regulatory policy activities for the week of March 13 were bullish and re-energized the badly-needed global reflation effort. Consider the following potential market impacts:

Near Term Market Summary Considerations Week Beginning March 20, 2017

To view this week’s commodity chart analysis, visit http://www.deltafarmpress.com/marketing/market-price-considerations-week-beginning-march-20.

  • 10-Year US Treasury Yield:

    • Slightly bullish with a potentially lower yield

    • Yield remains in a sideways range between 2.3 – 2.6

  • US Dollar Index:

    • More weakness than strength

    • Trading range between 95 -104

  • CRB Index:

    • Building a base to move higher

    • Global macro forces in general remain supportive as global growth and reflationary forces continue to bear fruit

  • $WTIC Light Crude Oil:

    • Light Crude Oil is presently undergoing corrective price action, which will likely define a near term price floor

    • Fundamentals are bearish and Macro Forces are bullish

    • 2017 – Likely primary range $40 to $60 with possible high in $72 area

  • Soybeans:

    • Corrective price action underway

    • Soybean prices the week of March 20, 2017 need to hold above $9.92 otherwise $9.31 becomes a consideration.

    • Fed dovish stance March 15, 2107 and other factors likely supportive of the $9.92 price area; therefore a potential price move toward the previous June 2016 $12.08 per bushel high or higher is still in play

  • Corn:

    • Corrective price action underway with the potential of achieving a price level of $4.11- plus per bushel remains in play

  • Rice:

    • Given fundamentals, price will move in sympathy with grain prices and global economic momentum

    • Lagging demand increasingly problematic

    • Overplanting in 2017 given present fundamentals would provide added market challenges

    • Rice producers’ overriding consideration for 2017 should be managing for a quality grain kernel

  • Cotton:

    • Complex price action underway with a bullish price objective into the 84-cent area still remains in play. Past negative Fed verbal guidance and fiscal and trade policy considerations impact on cotton market prices appear to be subsiding

  • Wheat:

    • Corrective price action underway, but bullish price potential to $4.95 still a possibility

  • SPY SPDR S&P 500 ETF:

    • Consolidation period underway, corrective price action likely, but price trend remains up

  • QQQ NASDAQ Power Shares:

    • Trend remains up, consolidation period coming

  • EFA iShares ETF - Global Equities Excluding U.S. and Canada:

    • Building momentum and price strength

  • EEM iShares ETF, Emerging Market Equities:

    • Momentum remains positive

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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