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G20 Summit & US-China Truce meetings magnify new normalcy

Dr. Bobby Coats, Economist

July 1, 2019

5 Min Read
cotton-mist - Copy.JPG
Cotton price weakness remains problematic. Ron Smith

President Trump likely accomplished more than most expect in the G20 Summit, US-China, US-Russia, US-South Korea, US-North Korea, etc. meetings, which started June 28, 2019.

Diplomacy in today’s stimulus driven global economies, where governments and central banks are continually intervening to maintain economic momentum, whether individually, bilaterally, multilaterally, regionally, or globally, is an ongoing process, it’s a “journey not a destination,” whether between the G20 countries, US-China, US-European Union, etc. Why? The maintenance economic momentum at any level, from globally to an individual country’s economic momentum, is a challenging process requiring ongoing attention to detail and advanced monetary policy actions, due to burdensome debt drag on economic growth in the world’s economies.    

G20 Summit & US-China Truce

El-Erian in February 2016 coined the phrase “The New Normal” to describe the prolonged slow growth recovery seen in the U.S. and the world’s major economies that still lingers today.

The outcome of the June 28 and 29 G20 Summit and US-China Truce, allowing for continuing policy discussions is a reminder that the new normal evolution continues to evolve and extend the economic growth cycle with increasingly complex stimulative activities. Today, the world’s global economies are moving from embracing globalization, free trade, and capitalism to embracing protectionism, nationalism, and increasingly authoritarian leadership, all of which make trade negotiations challenging and ongoing.

Related:Louisiana cotton acres shrinking

Building global debt continues to weaken the economic foundation of the world’s global economies and this leads to economic uncertainty, which leads to social populist movements and political instability, which makes meaningful fiscal, monetary, and trade agreements increasingly difficult to achieve.

Bottom Line

The bottom line has not changed; globally, the world’s major economies have serious economic problems, which limit their ability to negotiate progressive open market trade deals. The economic state of the world’s global economies is increasingly limiting the existence of open markets in favor of nationalist objectives.  

Countries now must choose between living within their means and embracing open markets or expanded monetary policy options such as money printing to fund excess spending. Most likely, all will increasingly embrace monetary policy options, where, simply stated, printed money will cover excess spending.

Market outlook for the week beginning July 1, 2019

Analysis time constraints limit my market coverage to rice, cotton, corn, soybeans, and wheat for the week beginning July 1, 2019. That said, I will say U.S. and global equities for the most part are likely in a topping process, and oil-driven by geopolitical policy actions likely have more near term downside than upside.

U.S. corn, soybeans, rice and cotton production will be defined mostly by USDA acreage adjustments going forward and favorable or unfavorable weather, insect, and disease pressures’ impact on yield, while prices will be defined largely by global production and demand fundamentals.   

Corn. Bearish Bias. Expect more price weakness than strength, until fundamentals are supportive of higher prices. Corn closed the week of June 24th at $4.32 per bushel, below key support of $4.39 per bushel. USDA’s June 28th acreage report was bearish, and stocks report slightly below expectations. Charts B14 to B17

  • USDA June 28, 2019 planting estimate, 91.7 million acres

  • Average industry estimate, 86.7 million acres

  • Average industry range, 82.0 to 89.9 million acres

  • USDA March prospective planting estimate, 92.8 million acres

  • USDA 2018 final planted acres, 89.1 million acres

  • USDA June 1, 2019 stocks, 5.2 billion bushels

  • Average industry stocks estimate, 5.3 billion bushels

  • Average industry stocks range, 5.2 to 5.5 billion bushels

  • USDA June 1, 2018 stocks, 5.3 billion bushels

Wheat. Near term wheat prices remain a key function of corn prices. Wheat closed the week of June 24th at $5.27 per bushel and will likely fall below key support of $5.08 per bushel the week of July 1, 2019. Wheat losing additional support at $4.76 per bushel will return wheat to a bearish footing, Charts B25 to B28.

Soybeans. Now we watch the price action, given a friendly USDA U.S. acreage and stocks report, but burdensome global stocks remain. Near term, soybean prices likely remain in a sideways trading range of $7.77 to $9.39 per bushel. The June 28, 2019, close was $9.23 per bushel. Soybean prices closing the week of July 1, 2019, above $9.39 per bushel would certainly be reason for some revaluation, Charts B10 to B13.

  • USDA June 28, 2019 planting estimate, 80 million acres

  • Average industry estimate, 84.4 million acres

  • Average industry range ,81.0 to 86.5 million acres

  • USDA March prospective planting estimate ,84.6 million acres

  • USDA 2018 final planted acres, 89.2 million acres

  • USDA June 1, 2019 stocks, 1.8 billion bushels

  • Average industry stocks estimate, 1.86 billion bushels

  • Average industry stocks range, 1.7 to 1.96 billion bushels

  • USDA June 1, 2018 stocks, 1.22 billion bushels

Long Grain Rice. Positive comment - prices remaining above September’s $11.15 per cwt. or $5.02 per bushel keeps prices trending to the upside. The primary trading range presently is September $10.47 to $11.99 per cwt. or $4.71 to $5.40 per bushel, June 28, 2019, September close $11.58 per cwt. or $5.21 per bushel.

USDA’s bearish U.S. and global fundamentals for the 2018/19 and 2019/20 marketing periods will continue providing significant headwinds to this market, Charts B18 to B20.

Cotton. Price weakness remains problematic. Cotton prices need to hold above 64 cents per pound the week of July 1, 2019 or serious price weakness could emerge, June 28, 2019 close 66 cents per pound, Charts B21 to B24.

No Crystal Ball

Since no one has a crystal ball or knows the future, always consult an investment professional or professionals before making investment decisions. The world’s most talented speculators, investors and money managers are challenged by today’s global business environment.   

Source: Bobby Coats is a professor and extension economist in the Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture, Cooperative Extension Service. E-mail: [email protected]. and is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.

 

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About the Author(s)

Dr. Bobby Coats

Economist, Arkansas Department of Agriculture

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