The managed global slowdown, which accelerated in the 4th quarter of 2018 was real and unfortunately much needed to manage global asset bubbles, e.g. global equity bubbles, and start the process of a major realignment of global currency, bond, equity, and commodity markets. This collective activity to date is laying the foundation for sustaining global growth potentially for an additional two to five plus years into the future.
Recession Avoidance. Even though many U.S. and global equity markets have rebounded over the previous three months a high probability of a major global economic downturn remains without immediate U.S., Chinese, and other global governments and central banks applying additional accommodative actions. Presently, it appears the dollar will likely have near-term weakness as a period of accommodation unfolds.
Government intervention. Financial engineering allows governments and central bankers to intervene into domestic and global market management through fiscal, monetary, and trade policy accommodation or tightening activities to achieve desired goals. These interventions have met with success in many global markets where success is defined as maintaining global economic momentum with the cost a secondary consideration.
Intervention Success and Failure. The greatest market intervention success has been achieved in currency, bond, and equity markets, while the commodity sector has lagged with dangerously low prices. This is especially true of the soft commodity (cotton, sugar, cocoa, coffee, etc.) and the grain (rice, soybeans, corn, wheat, etc.) sectors. In the U.S., this price lag has had a serious structural impact on farms, supporting infrastructure, and communities.
Next U.S. Recession. In the aggregate, the global growth expansion continues under the leadership and direction of global governmental leaders and central bankers.
How long can this sometimes highly orchestrated and sometimes poorly orchestrated global expansion continue without a major recession or economic contraction? Some analysts suggest the next U.S. recession arrives in 12 to 24 months; others, including me, see the potential of three to five years before the next major recession.
Near term market outlook for the week beginning March 18, 2019
- US Dollar Index: Dollar headwinds are subsiding as global governments’ continued intervention are throttling up U.S. and global growth. Dollar weakness appears to be emerging, providing some near-term support for many U.S. and global equity and commodity markets and hard assets in general, Charts A5 to A8.
- 10-Year U.S. Treasury Yield: 10-Year Treasury investors likely remain fixated on global slowdown uncertainties; therefore, the demand will remain for safe-haven U.S. sovereign debt. 10-Year Treasury Yields should remain sideways with a slight downside bias. The U.S. Federal Reserve FOMC meeting is this week, March 19-20, 2019. Obviously, from this article the U.S. Federal Reserve is focused on meeting core objectives, which near term will be positive for many U.S. and global equities and near term supportive of most commodity prices, but most commodities will remain range bound, Charts A1 to A4.
- $CRB Index: Near-term maintenance of U.S. and global economic momentum trumps U.S., China and ongoing global trade and policy disputes; the operative words here are near term; therefore, the $CRB Index has an upward near-term bias before weakness reemerges, Charts B1 to B5.
- $WTIC Light Crude Oil: Near term light crude remains bullish as it finishes a topping process potentially in the $61 to $64 per barrel area. Beyond a near-term top, fundamentals and political intervention will remain bearish for light crude oil prices, Charts B6 to B9.
- Soybeans: Near term dollar weakness supportive of prices, but not bullish for prices. Without additional concrete trade guidance, a trading range of $7.95 to $9.39 should be given consideration, Charts B10 to B13.
- Corn: much the same as soybeans, near-term dollar weakness supportive of prices. Without additional concrete trade guidance, a trading range of $3.44 to $3.89 should be given consideration, Charts B14 to B17.
- Long Grain Rice: Planted acreage will define the trading range for 2019, presently a near-term trading range of $10.12 to $11.02 per cwt. is pragmatic. Once we know USDA’s March 29, 2019 prospective planting acreage estimate, we can redefine the trading range, Charts B18 to B20.
- Cotton: Without additional concrete trade guidance, a trading range of $0.64 to $0.79 cents per pound should be given consideration, Charts B21 to B24.
- Wheat: Wheat now appears to be displaying a trading range between $4.28 and $4.86 per bushel. We will adjust our estimates as market dynamics unfold, Charts B25 to B28.
I have written extensively on policy and related market realities. Links to my previous nine Farm Press articles and slide shows related to Policy and Market Situation and Outlook are as follows:
World, U.S. and Arkansas rice fundamentals weighing heavy on price, February 18, 2019
USDA 2019 long grain rice, soybean, and corn outlook, February 26, 2019
As hope fades, market realignment intensifies, March 11, 2019
No Crystal Ball: Since no one has a crystal ball, always consult an investment professional or professionals before making investment decisions.
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: firstname.lastname@example.org., 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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