Doane Weekly Review & Outlook
Major market movers last week:
- The ongoing spread of the coronavirus through China in particular and the world in general became an increasingly large issue in the financial and commodity markets last week. Soybeans and hogs seemed hardest hit, since much of the optimism about the outlook has depended upon Chinese buying. Corn futures felt downward pressure as well, but the recent improvement in export sales numbers apparently offered fresh support.
- The tightening of U.S. and Canadian oat supplies has offered considerable support to the oat market since last summer, although the big January 24 breakdown suggested the rally was ending. Conversely, last week’s action left prices modestly higher than the Jan. 24 close, which was rather remarkable given the bearish atmosphere.
- The soybean market is now facing two big bearish obstacles. First, the South American harvest is accelerating, which implies product from that region will dominate global trading over the next few months. Second, the spread of the coronavirus is threatening to undercut Chinese demand for U.S. beans, despite the promises of improved buying as a part of the Phase 1 trade agreement. Nearby futures dove to an eight-month low as a result.
- As one would expect, the soybean breakdown, and the likely factors driving it, also weighed heavily upon the product markets. The nearby March soymeal contract fell to contract lows, although nearby futures were lower last fall. Meanwhile, concurrent breakdowns in the energy and palm oil markets sent soybean oil futures lower as well.
- Slippage in global wheat quotes, likely combined with the bearish market atmosphere, also weighed upon U.S. wheat prices. However, domestic futures, particularly the HRW contracts, garnered moderate support from state reports concerning winter wheat conditions across the Great Plains. Those fell sharply from last fall.
- It would have been easy to assume rice futures would also have tumbled last week since concerns about Chinese demand and concurrent soybean losses might easily have depressed prices. But March rice edged up to a fresh high last Wednesday and easily kept its upward trend intact through Friday.
- The cotton market had seemingly rejected concerns about Chinese demand amidst the coronavirus outbreak during the week ended January 24. But bulls couldn’t hold the line as selling came into the market last week and nearby March futures ended the week below major technical support around 69 cents/pound.
- The cattle market couldn’t avoid the commodity sector downdraft created by coronavirus fears last week, with the big January 23 breakdown having opened the door to follow-through technical losses. Cash prices fell about $2.00 to the $122 area as a result with the weakness sustained into the weekend seemingly presaging further losses.
- Feeder cattle futures apparently derived support from last week’s losses in corn and soybean meal prices since those imply reduced feed costs, as indicated by firming support later in the week. Friday’s USDA cattle report also looked supportive since it stated the number of yearlings outside feedlots had fallen 2.5% under year-ago levels.
- Worries that China’s coronavirus outbreak will depress that country’s demand for U.S. pork in the coming weeks undercut hog futures. In addition, surprisingly large domestic slaughter and the premiums built into nearby futures rendered the market vulnerable to a sharp breakdown. Nearby futures may find support this week since they’re now trading at significant discounts to the CME Lean Hog Index (which they cash-settle against).
- After having staged an impressive mid-January rally, nearby cheese futures tumbled last Monday. One has to wonder if coronavirus fears also took a toll in the dairy complex, since prospects for Chinese dairy purchases had also seemed to improve significantly in the wake of the Phase 1 trade agreement.
- The U.S. dollar index sustained its early 2020 rally through last Wednesday with the latest gains seemingly powered by safe-haven buying associated with coronavirus fears. However, the market turned lower on Thursday, then plunged to 40-day moving average support on Friday. A surge in the value of the British pound as it exited the European Union seemed to cause the greenback dive.
- Energy traders were clearly worried about the spread of the coronavirus and its potential impact on the global economy and energy demand last week. The nearby March crude contract made a run at the $50/barrel level late in the week, then bounced modestly. Relatively warm weather seemingly helped send heating oil prices to their lowest levels since August 2017.
- In contrast to most other markets, gold prices rallied amidst concerns about a global pandemic. Indeed, the expiring February contract bounced from 10-day moving average support and closed at the highest level on the nearby chart since April 2013. It seems likely to continue rising as long as coronavirus fears remain ascendant.
- The equity markets started last week off by diving rather dramatically in response to the persistent spread of the coronavirus. The DJIA then bounced from 40-day moving average support and firmed through midweek. However, it resumed the breakdown on Friday, with the poor week-ending close doing significant technical damage on the charts. This seemingly signaled follow-through losses, although stock index futures bounced strongly Sunday night.
Likely market movers this week:
- USDA Export Inspections, USDA Fats & Oils, USDA Grain Crushings (2/3).
- EIA Petroleum status (2/5).
- USDA Export sales (2/6).
- Economic reports this week: Markit manufacturing PMI, ISM manufacturing index, Construction spending, Motor vehicle sales (2/3), Factory orders (2/4), ADP employment report, Trade deficit, ISM nonmanufacturing index (2/5), Jobless claims, Productivity, Unit labor costs (2/6), U.S. Employment, Unemployment rate, Wholesale inventories, Consumer credit (2/7).