Market Analyst: Has the market tipped?
Markets have been battered since Friday, when media outlets widely reported the new COVID-19 strain from South Africa. Fears rose of another shutdown in the US and world economy -- something that didn't work well for the world economy before.
Crude oil, especially, has been battered, meaning it's likely that travel will be greatly reduced in the coming months.
The grain markets have sagged hard the past few days, led by crude oil's huge decline Friday on the South African variant. Crude oil has now sagged back to those lows after some recovery, and it is not a good sign to see all the other markets sagging as well.
So far, Joe Biden has said no shutdown will occur, or at least he has no plans yet to have a shutdown. But it seems politically popular for his party to do just that, based on Democratic governors' past actions. The problem is, it is to our economic detriment every time. It will certainly exacerbate supply chain woes when and if shutdowns occur, as no production of goods and services happen during a shutdown in an industry.
There is also talk of slower export demand in the U.S., and those estimates being reduced in this month's U.S. Department of Agriculture report, resulting in higher corn and soybean carryout numbers.
Australian wheat estimates are also going up. But the main culprit is the worry over the new strain of COVID-19, which Moderna says might not be prevented very well by vaccines.
Markets seem intent on going lower, as inflation worries will end with more COVID-19 lockdowns. Soybeans traded below the $12.25 January soy futures level. The next support is $12, then the Nov. 9 low at $11.80.
Mostly favorable South American weather and slower soybean export demand is having a negative impact on soybean prices. Brazil soybean plantings are virtually completed, much earlier than last year . That might mean export competition as early as January. Brazil currently is offering soymeal at a discount to the U.S. on the export market. Bulls are liquidating longs as higher prices reduce food demand, leading to a weak chart pattern.
March corn also dropped below $5.72 support, with the next support at $5.55.
Ethanol production could be up from last week, with margins still positive and ethanol price competitive as an additive. Demand is strong for domestic use, but U.S. corn export demand remains below the pace needed to reach the USDA current levels projected. That could lead to another reduction in the December USDA report for corn exports, and thus higher ending stocks. However, support is at $5.50, and should hold until more is known about the severity of the Omicron variant and the Fed's plan to help the U.S. economy while slowing inflation.
Even wheat has suffered recently with fears of reduced world demand from a new COVID-19 variant spreading around the world. New restrictions on travel, work, and other life are also a great market worry.
Rain has returned to east Australia, and this week it increased its crop estimate to a record 34 million metric tons, with 5 million metric tons just feed quality.
The U.S. southern plains remains dry with 44% of the crop rated good or excellent. The trade currently estimates the Canada wheat crop at 21.2 million metric tons vs. 35.2 million metric tons last year, so obviously there is a lot less wheat to export in 2021-22.
Look for more volatile grains trade until we can ascertain whether this market reaction is just a flash in the pan or a flashback to 2020 when prices took a historic dive for months.
Ray Grabanski can be reached at firstname.lastname@example.org.