Market analyst: The silly season
02/04/20 — Grains recently have been in a bearish funk with soybean prices losing 93c the past month while corn was 13c lower and CBOT wheat only 5c lower. HRS wheat was 25c lower as HRS wheat doesn’t have a lot of competition for acres when soybeans and corn prices drop like they did.
There were a number of reasons for the decline including improving weather for South America as dry areas in both Brazil and Argentina have seen improvements in rainfall in January as well as February forecasts. That means improved yield forecasts are likely to follow, and that always pressures the market at this time of year. But while seasonals show price weakness for soybeans and corn this time of year, usually South American yield disappointments follow in March and April when the bulk of the crop is harvested.
In addition, the U.S. has been enveloped in impeachment hearings the past few months, and that has weakened not only the commodity markets, but stock markets as well. However, that is finally coming to an end — with results predictable months ago including impeachment in the House and acquittal in the Senate. Another result also predictable was that the impeachment proceedings will hurt President Donald Trump’s chances of being re-elected this fall — just as the Democratic House calculated it would. If they didn’t expect it to hurt Trump’s chances, they wouldn’t have proceeded with charges that could never stick. But the extent that it weakened Trump won’t be fully known until November.
A third item that has hurt commodity prices and stock markets is the media hype about the virus that has been sweeping China. The coronavirus is still the lead story in many media outlets.
Once that runs its course, we’ll be back to boring old supply/demand numbers, and that is never very exciting or sexy. But realistically, that is the most important item and probably always will be. So the key to understanding this market will go back to that, and not mere projections about impacts of things like viruses on world demand.
Weather forecasts continue to wax wetter in SAM, with above normal precip forecast the next week in all of SAM. Temps will remain above normal in Argentina and below normal in Brazil — almost an ideal forecast for this time of year. This is expected to continue to improve crop prospects there. But despite all the negative items, Tuesday prices started higher. (Is all the bad news built into the market now?)
The Iowa Democratic caucuses Monday failed to provide immediate election results as their electronic voting apps provided election “inconsistencies.” It doesn’t look good when you are making your case to run the country when you cannot even run a state caucus election! So this is a bit embarrassing for the Iowa Democratic party.
Joe Biden has stated he would remove the China tariffs immediately if elected, so of course China has great incentive to get Biden elected instead of Trump. Hopefully just legal collusion takes place here if a Trump-Biden election ensues.
What impact would the immediate removal of China tariffs have vs. a Trump re-election? This becomes more interesting considering Bloomberg’s report this week that China now is considering asking the U.S. for permission to violate the recent trade agreement before it’s even active Feb. 15 due to the coronavirus. It just gets harder and harder to trust any politician from any country the more their true hearts and souls are exposed. Is it any surprise that the less news we get each day, the better the markets do?