Wheat Futures Supported By Possible Signing of Phase One Deal

( Lindsay Benne )

Here is your weekly grain and livestock market outlook and review for Jan. 06, from the economic experts at Doane Advisory Services.

Major market movers last week:

  • The crop markets moved generally higher during the late-2019 holiday season, although corn lagged gains in soybeans and wheat. News that the U.S. and China are set to sign the Phase 1 trade agreement on January 15 gave the markets a boost on January 2, but nearby corn futures gave back the advance on January 3.
  • Oat futures seemed to begin a substantial rebound from their late autumn drop from five-year highs just after Christmas, topping short-term moving averages last Thursday. However, Friday’s dive cut the previous week’s gains in half.  
  • Although the expiring January soybean contract proved unable to challenge its summer and fall highs, last Thursday’s move to $9.49/bushel marked the highest tick on the weekly continuation chart since June 2018. Friday’s setback undercut bullish ideas.  
  • Soybean meal futures continued trading mostly sideways last week, with optimism about potential Chinese demand being at least partially offset by news of good rainfall over Argentine growing areas. Meal may also have suffered from crush spreading as soybean oil futures vaulted to two-year highs. Oil was clearly following palm oil higher.
  • Continued hopes that U.S. wheat will be a Chinese buying target when the Phase 1 trade deal is signed supported wheat futures through the holiday season, but golden grain prices also proved vulnerable to selling last Friday. The uptrend is still intact.
  • The rice market continued benefitting from talk that it will be included in the trade deal as well. The most-active March contract had climbed over $1.20 from its mid-November low to a December 31 close at $13.285.
  • One has to wonder if the cotton market ran out of upward momentum after rallying over five cents during December, since it set back on January 3 despite strong results on the belatedly released USDA Export Sales report last Friday.
  • After sustaining a strong rally since early September, cattle futures turned lower last week. Friday’s drop caused the first February futures close below 40-day moving average support since mid-September. The first-quarter outlook still seems rather promising, but technical factors are now pointing lower.
  • As one would expect, the drop in fed cattle futures translated quickly into feeder market losses as well. Although the yearling market might benefit from potential weakness in corn and soybean meal, the prospect of a cyclical peak in supplies is worrisome.
  • Cash hog prices had recently dipped toward seasonal lows, but are showing signs of winter strength. That apparently didn’t satisfy bulls looking for a strong early-2020 surge, as indicated by Friday’s near limit-down losses in nearby futures.
  • As expected, the cheese market turned lower in December, since most grocers and further processors had completed their buying for the holiday season. That development clearly undercut futures prices, although futures stabilized at relatively elevated levels.
  • Selling stemming from ideas the U.S.-China trade deal will boost the global economy continued undercutting the U.S. dollar through December as traders apparently moved money out of the U.S. and into other, riskier investments around the globe.  
  • Similar ideas about global growth also seemed to power crude oil gains, as indicated by the nearby February contract spiking to a two-year high before setting back sharply. Friday’s sizable drop suggests short-term consolidation may be coming.
  • Gold reacted well to the combination of U.S. dollar weakness and crude oil strength. The nearby February contract tested its summer high before setting back Friday, despite ideas that traders are exiting safe-haven assets, such as the dollar and gold.
  • The equity markets opened 2020 with a bang, with all the major indexes surging to fresh all-time highs. As in the other financial markets, recent trader and investor activity is almost surely being driven by expectations for renewed global economic strength.

Likely market movers this week:

  • EIA petroleum status (1/08).
  • USDA Export sales (1/9).
  • USDA Crop production, Grain stocks, Rice stocks, Winter wheat seedings, Supply & demand (1/10).
  • Economic reports this week: Markit Services PMI (1/6), ISM Nonmanufacturing index, Factory orders (1/7), ADP Employment, Consumer Credit (1/8), Jobless claims (1/9), U.S. Employment, Unemployment rate, Wholesale inventories (1/10).

 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.

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