Global Commodities Newsletter For December

Market Outlook for US and South America Regions

Grains

We doubt that anyone will ever forget 2020.  In 2019 nearby soybean prices ranged from 8.00 to 9.50. In 2020 nearby soybean prices have ranged from an 8.00 low to a recent high above 12.00. Concerns about the COVID-19 related impact on food, feed and fuel demand plus increased tensions between the U.S. and China forced prices lower. Dry U.S., Europe and Black Sea weather patterns moved prices sharply higher. Concern that La Nina weather could impact 2021 South American weather and record China buying U.S. soybeans has also supported prices. In November, managed funds were record long soybeans. Index funds were also record long soybeans. Commercials were record short soybeans. Recent rains across parts of Brazil and Argentina have triggered fund long liquidation.

Lean Hogs

From 2009 to 2010, Chinese pork exports increased by 52.6% from 266,000 metric tonnes to 406,000 metric tonnes. In 2011 China imported 710,000 metric tonnes of pork, a 74.88% increase. Over the next three years imports averaged 710,000 metric tonnes. There was a jump of 32.64% in 2015, followed by a 111.62% increase in 2016 to 2,010,000 metric tonnes. Exports fell off in 2017 and 2018, down 28.6 6% because of the expansion in their refrigerated meat reserve program. In 2018 imports were 1,457,000 metric tonnes. Although there was a drop in 2018, the increase in 10 years from 266,00 metric tonnes to 1,457,000 metric tonnes was a giant leap.

Live Cattle

U.S cattle feedlots will see fewer cattle in 2021. The Coronavirus during April and May 2020 drove cash cattle prices far below profit margins for cattle producers and because of low prices and uncertainty when prices would correct, cattle breeders held back on breeding cows, while culling cows for slaughter. Cattle breeders in western, southwestern and the southern U.S. were forced to liquidate breeding cows because of excessive heat and lack of rain.

Stock Index Futures

S&P 500, Dow and NASDAQ futures advanced to new record highs due to vaccine and fiscal stimulus optimism, along with better than expected quarterly earnings results. In addition, recent gains are linked to ideas that the Federal Reserve will remain accommodative for an extended period. Overall, stock index futures have been able to “climb the wall of worry.”

US Dollar Index

The U.S dollar has been weakening since May amid rising debt levels coupled with expectations for an extended period of low interest rates. In addition, the greenback has trended lower in December, as flight to quality longs were liquidated.

Eurocurrency

The currency of the euro zone began its climb in June when the European Central Bank at its regularly scheduled policy meeting almost doubled its asset-buying program. The ECB is adding EUR600 billion ($675 billion) to the EUR750 billion that it announced in March.

Crude Oil

January crude oil futures advanced over $13 since the lows were made in early November after a weak finish in October. Much of the strength can be attributed to hopes of a global economic recovery due to vaccine optimism. An EIA report showed a larger-than-forecast decline in U.S. oil inventories.

Gold

In recent weeks gold futures have trended higher as the bullish influence of inflation fears has gradually outweighed the bearish influence of flight to quality long liquidation due to vaccine optimism. There is still talk of stimulus from Washington, but it may be a smaller package. Any additional stimulus will increase expected inflation, which should boost the appeal of gold.

Market Outlook for China and Asia Regions

The key Chinese and Asian event over the last 30 days has been China’s record deflation because of the significant drop in pork prices.

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