Global Commodities Newsletter For December
- December 28, 2020
- ADMIS Research Team
- Follow us on Twitter @ADMISI_Ltd
Market Outlook for US and South America Regions
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.
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.
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.
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.
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.
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.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.