Here is your weekly grain and livestock market outlook and review for Jan. 20, from the economic experts at Doane Advisory Services.
Major market movers last week:
- The early-winter crop market rally seemed to lose upward momentum as the January 15 signing date for the Phase 1 U.S.-China trade deal loomed. Doubts about China’s ability to buy the promised amount of U.S. ag goods undercut the market Thursday, but Friday’s huge rebound seemingly repudiated that bearishness.
- Although the USDA’s January 10 Supply and Demand numbers for oats were largely left unchanged, the market moved higher again last week. We still suspect the 20% annual drop in the December stocks figure is supporting the market.
- Soybean futures tended to mutedly track shifts in corn values last week, which was rather surprising from a historical standpoint. The late-week bounce from major technical support should bode well for this week’s activity.
- The sideways-to-lower trend in short-term soybean meal prices continued last week. Prospect for another set of large production numbers out of South America, as well as elevated soyoil prices appeared to weigh on the market. Soybean oil futures continued their early-2020 setback last week, but major support held at the March contract’s 40-day moving average.
- The U.S. wheat market seemed to continue gathering spillover support from the global markets last week. From a purely pragmatic standpoint, the SRW market’s ability to sustain its uptrend in the face of last week’s corn and soybean setbacks was very impressive.
- In addition to the cuts it made to the 2018 and 2019 U.S. rice harvests, the USDA also put December 2019 rice stocks 10.3% under the comparable year-ago figure. When combined with hopes for increased Chinese buying under the trade deal, the ongoing rally looks quite rational.
- Doubts about the strength of Chinese buying of U.S. cotton in the coming months apparently undercut futures early last week, but the market staged an impressive comeback late in the week. The March contract’s bounce from the 70-cent level confirmed stout support.
- Fed cattle futures sagged last week, with nearby contracts dipping below 40-day moving average support before rebounding on Friday. The late-2019 divergence between rising prices and declining momentum indicators suggest vulnerability to a big decline, but the extended delay in doing so has opened the door to a resumption of the fall advance.
- The late reduction in live cattle premiums over spot quotes imply diminished feedlot demand for replacement yearlings. Conversely, the recent wheat rally seems likely to cause farmers to quickly remove young stuff from their wheat pastures. This may bode ill for the feeder outlook.
- News that China redoubled its pork imports in December 2019 seemingly had the ironic effect of undercutting lean hog futures, since the U.S. market apparently didn’t react strongly to the Chinese buying. Still, the potential for huge Chinese imports should remain a supportive factor.
- Although the dairy continuation charts are pointing sharply lower, the most-active February contract posted a sharp rally last week. That reflects emerging market strength, but may also have marked a response to the promise of Chinese buying stemming from the trade agreement.
- The U.S. dollar index spent much of last week bumping up against stout resistance at its 40-day moving average, then decisively broke out above that level on Friday. That’s quite surprising given the current “risk-off” atmosphere and may bode rather ill for the U.S. ag sector.
- After breaking down in response to the lack of sustained hostilities between the U.S. and Iran the week prior, nearby crude oil futures fell below 40-day moving average resistance last Monday and spent the balance of the week at lower levels. Still, the prospect of resurgent global economic growth seems likely to lend persistent support to the energy sector.
- Gold futures also dipped early last week, but bears couldn’t sustain downward momentum. It would be easy to assume gold will resume its late slide in the short run, but its concurrent advance with the U.S. dollar last Friday suggests substantial buying power under the market.
- It appeared the equity markets might be due for a “buy the rumor, sell the fact” reversal of the gain posted prior to the signing of the Phase 1 trade deal last week. However, the gap to fresh all-time highs posted last Thursday exemplified fresh strength. There’s little reason to think the stock market is topping.
Likely market movers this week:
- EIA petroleum status, USDA Cold Storage (1/22).
- USDA Export sales, USDA Milk production (1/23).
- USDA Cattle on Feed (1/24).
- Economic reports this week: Chicago Fed national index, Existing home sales (1/22), Jobless claims, Leading economic indicators (1/23), Markit Manufacturing PMI (flash), Markit Services PMI (flash) [1/24].
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.
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