Understanding the complexities and dynamics of today’s global economic, political, social and military setting on global currency, bond, equity and commodity markets has its challenges. Add to that the overall bearish fundamentals of USDA’s August 10, 2018, Supply and Demand Balance Sheet and one needs to slowly work through the likely near-term impacts on an array of global currency, bond, equity, and commodity markets, which is why we include our attached chart pack.

Many major issues weigh heavily on global markets, but what is the key issue Washington and China must agree upon? The answer is technology.

If the issue were just about trade deficits and trade related fairness, the probability would likely be high that some reasonable near-term agreement could be reached between the United States and China that would increase the demand for American exports, especially agricultural products like soybeans.

The major issue that must be resolved between the United States and China, however, is the ongoing “Chinese Cold War” with the United States. Unfortunately, no near-term solution exists. China intends to have: Global technological supremacy within seven years or 2025; Financial supremacy or be the financial hub of the world within 17 years or 2035; and Military supremacy by 2049 or in 31-years. 

Washington’s immediate challenge is defining a strategy to maintain U.S. Technological Supremacy and make sure the U.S. wins the “accelerating technological war between the United States and China.”   

Democracy at risk?

This century belongs to the country that can win that rapidly accelerating technological war.

Global technological leadership will also define the location of the world’s financial hub and the world’s dominant military power. If the United States remains the world’s technological leader, democracy remains. If China wins, simplistically stated, the world’s economies drift toward heavy socialism or communism.

China’s political leaders are rapidly moving to gain longevity of leadership by removing China’s Presidential two-term five-year limit, allowing President Xi potential leadership until his death. Chinese leadership plans include total and complete authoritative control of its citizens through electronic monitoring and suppressing individual and collective activity.     

How does Washington or the U.S. president, Congress, and the central bank limit China’s global ambitions of technological, financial, and military dominance and maintain our global leadership role in these areas? The bigger picture is beyond the scope of this article, but massive investments in technological research must be made immediately and over a prolonged period for the U.S. to maintain its global technological leadership.

Market participants must understand no likely clean near-term solution to the accelerating Cold War between the United States and China exists. Therefore, in coming weeks expect to see increasing levels of market turbulence.

A book worth reading

Death by China: Confronting the Dragon - A Global Call to Action by Dr. Peter Navarro, an American economist and academic who currently serves as the Assistant to the President, Director of Trade and Industrial Policy, and the Director of the White House National Trade Council.

Dr. Navarro says, “The world's most populous nation and soon-to-be largest economy is rapidly turning into the planet's most efficient assassin. Unscrupulous Chinese entrepreneurs are flooding world markets with lethal products. China's perverse form of capitalism combines illegal mercantilist and protectionist weapons to pick off American industries, job by job. China's emboldened military is racing towards head-on confrontation with the U.S. Meanwhile, America's executives, politicians, and even academics remain silent about the looming threat.”

Global growth will be maintained

The world really is the good, bad and ugly. Orchestrated global growth will likely be maintained and a recession will be avoided for two to five years. The resolve of President Trump, Congress, and the U.S. Central Bank, along with their global counterparts, is far stronger than most imagine. Why? In today’s domestic and global economic setting, the economic consequences of anemic global growth are a global recession or worse. A recession would be devastating for the U.S. and the world’s global economies, especially China.

 Market Turbulence Dead Ahead

 Weekly Market Outlook - Beginning August 13, 2018

 Commodity Index, $CRB – A retest of support is underway. Charts (B1-B5) Commodity bulls need to see this index push through resistance at 205 (August 10, 2018, was 191.7). Commodity bears need to see this index lose support at 185. This would likely imply major across the board commodity weakness due to commodity fundamentals and global market uncertainties. Near term, the commodity bears have the upper hand.

 Oil, $WTIC – Slowly losing price momentum, a cautious period. Charts (B6-B9).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 anytime soon, which limits the downside.

Soybeans: Ending the week of August 13, 2018, above November $8.62 per bushel would be price supportive, while ending the week below Friday’s (August 10, 2018) close of $8.62 per bushel implies this market is likely still in search of a bottom. Charts (B10-B13)

Corn: Ending the week of August 13, 2018, above December $3.64 per bushel would be price supportive and near term bullish, while ending the week below $3.64 per bushel implies this market is searching for a deeper bottom. Charts (B14-B17)

Wheat: Near term price momentum appears to have been lost. Ending the week of August 13, 2018, above December $5.00 per bushel would be price supportive and near term bullish. Charts (B14-B17)

Long Grain Rice: Fundamentals are weighing heavily on this market. Closing the week of August 13, 2018, below $10.21 per cwt. implies additional price weakness ahead. (Chart B18-B20)

Cotton: Key consideration: If cotton can remain above December 85 cents per pound, this market still has a bullish bias given today’s global economic setting. Otherwise 77.9 cents needs to hold or serious price weakness will likely emerge. Charts (B21-B24)

U.S. Dollar and Interest Rates: With diplomatic technology talks between the U.S. and China seemingly bearing little fruit and with an array of European, Russian, Middle East, Turkey, Argentine, etc. uncertainties, near term, the dollar will likely have more strength than weakness and the 10-Year Treasury Yield should have additional weakness. 

UA Webinar: What’s ahead for the grain markets after August USDA reports with Bryce Knorr, Senior Grain Market Analyst, Farm Futures, Thursday, August 16, 2018, 3 p.m. CST.              

Bryce Knorr, in addition to analyzing and writing about the commodity markets, is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes outlooks for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. Link to Register: http://bit.ly/UAEX-Grain-Markets-Knorr

UA Trade Video: Trade disputes, farm trade relief and the farm bill, August 2, 2018.

Dr. Patrick Westhoff, Director of the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri–Columbia and a Professor in the MU Department of Agricultural and Applied Economics

As Congress considers a new farm bill, trade disputes have had a negative impact on prices for soybeans and other agricultural commodities, and the Administration has announced plans to provide additional federal support to the farm sector. As of 08/02/18, Westhoff brought perspective to this quickly-changing situation and discussed possible implications for agricultural markets and farm program payments. Video Link:  https://www.uaex.edu/farm-ranch/economics-marketing/food-agribusiness-webinars/

 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

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