Market Reactions to Friday's USDA Reports

09:28AM Jan 14, 2020
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Here is your weekly grain and livestock market outlook and review for Jan. 13, from the economic experts at Doane Advisory Services.

Major market movers last week:

  • Although the industry was hoping for support from a smaller corn crop forecast on Friday’s USDA reports, as well as increased exports after the Phase 1 U.S.-China trade agreement is signed this week, corn futures sagged as the reports loomed. The fact that futures bounced strongly from the post-report breakdown and ended the week on a strong note suggests sustained strength in the short run.
  • The USDA left its estimate of 2019 U.S. oat production unchanged at 53.148 million bushels, down 5.3% annually. However, the December 1 stocks figure came in 20% below year-ago at 54 million bushels. That result, as well as post-report strength in the main crop markets seemingly accounted for the strong weekly close in oat futures.
  • Soybean futures traded mostly sideways to somewhat higher during the run-up to Friday’s reports, then rebounded from the bearish post-report reaction as well. The market is rather clearly hoping for a surge in Chinese buying once the trade agreement is signed this week.  
  • The soybean meal market continued struggling last week, which seemingly reflected the recent improvement in Argentine weather and prospects for increased product exports by that country later in the South American crop year. Meanwhile, soyoil futures set back as the palm oil rally stalled. However, palm rebounded strongly to end the week, thereby suggesting renewed spillover strength in soyoil futures as well.
  • Rising global wheat prices have recently spurred U.S. futures gains as well, although Friday’s belatedly released USDA Export Sales report again disappointed market bulls. The more confident atmosphere was reflected by the post-report futures gain, with surprisingly small December stocks outweighing the relatively large acreage figure.
  • One has to suspect rice traders were anticipating cuts to U.S. production on Friday’s reports since the market rallied strongly on Thursday. The USDA not only trimmed its 2019 U.S. rice harvest estimate, it did the same to that for 2018 production as well.
  • The cotton market posted a strong performance last week with the move seemingly being powered by expectations for another cut to the U.S. cotton harvest on Friday’s reports and the trade pact signing this week. The rise in the face of weak Export Sales results and the rising dollar made it doubly impressive.
  • The January 3 dive by fed cattle futures seemed to open the door to a big bearish follow-through, but the market staged a dramatic comeback last Monday. Anticipation of another set of strong cash market results seemed to power Friday’s sizable advance. A breakout to fresh highs now appears likely.
  • Feeder cattle futures followed fed cattle higher with Friday’s close in the most-active March contract marking its best since late April. The strength rather obviously reflects expectations for persistently robust feedlot demand for replacement yearlings. Wintry weather might reduce that buying if feedyard conditions deteriorate.
  • Last week’s news indicated Chinese buying had boosted that country’s U.S. pork imports, and the U.S. export total, to all-time records last November. However, the weakness of the November hog and pork markets seemingly persuaded traders that vigorous Chinese buying won’t support the market as strongly as previously thought. Thus, futures fell rather sharply, thereby reducing the premiums already built into prices.  
  • Prospects for the short-term dairy outlook seem rather dim since the market often proves quite weak during the first quarter. The December Milk Production report also indicated no herd culling during November, whereas industry efficiency continued climbing. Friday’s drop seemingly presaged more of the same.  
  • The U.S. dollar sustained a significant comeback from its late 2019 breakdown last week. The rebound probably reflected persistent optimism about the U.S. economic outlook, as well as renewed safe-haven buying amidst investor fears of a U.S.-Iran war.  
  • Last week’s crude oil action reflected the diminished importance of OPEC and Middle East production at this juncture. That is, with the U.S. exporting oil aggressively, it has reduced global reliance upon Mideast supplies. That seemingly explains the sharp reversal of the initial bullish response to the recent U.S. and Iranian strikes.
  • Gold continued its bullish reaction to the early-January U.S. killing of a top Iranian general with safe-haven buying almost surely a major factor driving the yellow metal to fresh highs. However, renewed U.S. dollar strength and the concurrent crude oil setback seemed to cause similar action in gold futures.  
  • Investors and traders in the stock market apparently remained quite confident about the U.S. and global economic outlook, quickly recovering from sell-offs triggered by the U.S.-Iranian hostilities. Friday’s weak close probably reflected the rather disappointing result of the monthly U.S. Employment report.

Likely market movers this week:

  • EIA petroleum status (1/13).
  • USDA Export sales (1/16).
  • Economic reports this week: NFIB Small business index, CPI, Core CPI (1/14), PPI, Empire state index, Beige book (1/15), Jobless claims, Retail sales, Philadelphia Fed index, Import price index, Business inventories, NAHB Home builders index (1/16), Housing starts, Building permits, Industrial production, Capacity utilization, Job openings (1/17).

Dan Vaught is a senior economist with Doane Advisory Services. He has been engaged in commodity market analysis for 27 years. Since earning his master’s degree in agricultural economics from the University of Arkansas, Dan has been involved in commodity market research and analysis, specializing in fundamental analysis and studying supply/demand factors and price charts to find market opportunities for clients. Dan specializes in livestock markets, including cattle, hogs and dairy.

Doane Advisory Services is a market leader for agricultural economic information and outlook. Doane’s economists combine Farm Journal’s deep farm-data content with its proven models and analysis – which distinguish Doane as the only advisory services with direct contact with America’s farmers and ranchers. Started in 1919 by Mr. D. Howard Doane, Doane Advisory Services was built with the vision of creating a more efficient, productive agriculture industry. Our promise is to provide research, analysis and insight with a personal component to each and every client as we celebrate our 100th anniversary and many more to come.