Doane Weekly Review & Outlook

Major market movers last week:

  • The coronavirus continued spreading through China and in other places around the world, but the markets mostly recovered their footing last week after reacting badly the week prior. Corn futures were rather typical, bouncing from chart support and rallying modestly in the wake of Thursday’s strong export sales news.
  • After having turned sharply lower through late January, nearby oat futures tested underlying support on February 3. But chart support at the nearby March contract’s 40-day average provided a springboard for a big Tuesday rebound. Tight fundamentals seem likely to continue lending support, even if none is bought as part of the Phase 1 trade deal.
  • Accelerating South American soybean production and significantly lower Brazilian prices remain a major deterrent to U.S. soybean rallies. Talk of large Brazilian sales to China emphasized that point last week. Nevertheless, bean futures bounced significantly from their January 31 low.
  • The prospect of increased South American soy production and resurgent Argentine product exports seemed to maintain downward pressure upon soybean meal and oil prices last week. Nearby March meal posted new contract lows, although the nearby contracts saw lower prices last fall. Meanwhile, last week’s big rebound in palm oil prices seemed to offer bean oil renewed support.
  • Despite some renewed firmness in global wheat quotes, U.S. wheat sales proved relatively weak. Still, the most-active March soft red winter wheat contract proved able to sustain pivotal support at its 40-day moving average, which kept its fall-winter uptrend intact.
  • Concerns about the coronavirus situation and its impact upon the Asian markets seemed to extend the rice market losses begun the week prior. But the market rebounded from midweek lows and ended Friday above short-term moving averages. It’s uptrend also remains intact.
  • Cotton traders apparently looked to the equity indexes for leadership last week, with ICE futures generally tracking in the same direction as the DJIA each day. However, intraday gains proved difficult to sustain in the wake of the late-January breakdown, so March futures remained below pivotal 40-day moving average support through the week.
  • Nearby cattle futures dove last Wednesday, thereby seeming to open the door to a big bearish follow-through. However, reports of tentative cash trading in the $120-$121 area, down $1-$2 from the week prior, seemed to bring support into the market. Given the tendency for cattle and beef production to hit annual lows in February and March, futures seem likely to work upward from last week’s lows.
  • Feeder cattle futures sustained the bounce posted the previous week early last week, then gave back the gains as the weekend loomed. Stabilizing grain prices and the inability of fed cattle futures to sustain their weak rebound seemingly undercut the yearling market.
  • Ideas that Chinese pork imports will suffer amidst that country’s coronavirus crisis rather clearly undercut CME hog futures in late January. However, the market stabilized early last week, then turned higher in response to very strong Chinese buying on the latest weekly and monthly export reports. Having the most-active April contract end Friday above 10-day moving average resistance seemed to presage continued strength this week.
  • The dairy markets remained quite strong into mid-January, but apparently suffered badly when news of China’s coronavirus outbreak diminished prospects for active U.S. dairy sales to that country. The resulting breakdown continued early last week, but futures ended the week on a strong note. Bulls are probably hoping improved Chinese buying as part of the Phase 1 trade deal offsets seasonal first-quarter weakness.
  • The breakdown suffered by the U.S. dollar index on January 31 might easily have marked the start of a fresh downward move. But the greenback rebounded from major support last Monday and marched sharply higher through the balance of the week. It looks set to continue climbing in the days ahead, which in turn could diminish export prospects for the various ag commodities.
  • The dollar rebound may have added to the pressure recently being felt by the crude oil market, since crude is priced internationally in dollar terms. The trade clearly views the coronavirus situation as a potentially negative demand element for the energy outlook. It will be interesting to see if long-term trendline support just below the psychologically important $50.00 per barrel is able to halt the breakdown.
  • After making a run at the $1,600 per ounce level late the week prior, gold futures reversed sharply last Monday and Tuesday, which seemingly reflected a general calming of fears about the coronavirus outbreak, as well as recent U.S. dollar strength and crude oil losses. Conversely, the late-week rebound was almost as impressive given current circumstances.
  • The January 31 breakdown suffered by the major equity indices seemed to open the door to a much larger drop, particularly if the coronavirus outbreak gathered increasing global momentum. But the markets settled down from that point, as indicated by the big stock gains posted through midweek. In fact, the indexes hit fresh highs on strong economic data Thursday before setting back to end the week.

 

Likely market movers this week:

  • USDA Export Inspections (2/10).
  • USDA Crop production, USDA WASDE (2/11).
  • EIA Petroleum status, (2/12).
  • USDA Export sales (2/13).
  • Economic reports this week: NFIB small business index, Job openings, Household debt (2/11), Jobless claims, CPI, Core CPI (2/13), Retail sales, Import price index, Industrial production, Capacity utilization, Consumer sentiment, Business inventories (2/14).

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