Global Commodities Newsletter For October

Market Outlook for US and South America Regions

Grains

Corn futures rallied from the recent lows to near 3.60 to 3.98. Drier than normal South America weather and increased China buying offered support. The USDA estimated the U.S. 2020 corn crop will be near 14,722 million bushels. This was slightly below the average trade guess and down from its August guess. The USDA estimated the U.S. 2020/21 corn carryout to be 2.167 million bushels and near the average trade guess, but also was down from August. Managed funds increased their buying. U.S. farmers have been reluctant sellers of new crop. The USDA lowered its estimate of the world 2020/21 corn carryout to 300.4 mmt due to the lower U.S. crop.  

Live Cattle

September is often a month when live cattle futures and cash cattle prices move sideways or turn lower. The last big beef event, Labor Day is over, and grills go into the garage, consumers are paying off summer vacation credit cards and there is money spent on school supplies and tuitions. Beef purchases go from steaks on the grill to ground beef casseroles. However, September 2020 was different. After a brief downturn in the last half of August, cattle futures made a low on September 1, 2020 at $111.02/cwt on the October 2020 live cattle futures and then proceeded to move up to $116.62/cwt on September 29.

Lean Hogs

Hog producers had a month of profitable feeding margins in September 2020. On August 31, the October 2020 lean hog contract settled at $53.17/cwt and finished out the month on September 30 at $72.80/cwt, gaining $19.62/cwt. The demand for hogs was a continuation that began on June 29, moved higher throughout the summer into September. By month end, the federal USDA hog slaughter for 2020 was 1.4% above the same period of 2019. The major strength in the pork market came from strong exports from China and the solid consistent buying from Mexico. Hog futures also gained on news that African Swine Fever was found in wild feral hogs in Germany. Although the hogs were not in commercial German herds, China cancelled exports from Germany and the cancellations gave U.S. hog futures a boost with expectations China would increase buying of U.S. pork.

Stock Index Futures

S&P 500 and NASDAQ futures advance to new record highs in early September before prices set back later in the month. However, in recent days there has been a trend of higher prices due to a flurry of merger and acquisition activity in the tech sector, 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.” S&P 500 futures recently hit their highest level since September 4.

US Dollar Index

The U.S. dollar advanced to a three-week high, but then fell to the lowest level since September 22, as flight to quality longs were liquidated. Investors’ risk appetite increased due to hopes of further stimulus in the U.S. after the White House signaled it is open to negotiations on a large stimulus deal.

Euro Currency

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

Crude oil futures advanced almost $5 from the low that was registered at the beginning of the month, although investors remain concerned over fuel demand recovery. Supporting futures were hopes that U.S. lawmakers can still reach a fiscal stimulus deal. Meanwhile, the OPEC’s Joint Ministerial Monitoring Committee made no mention of any changes to a plan to further ease oil output cuts from January, but it did pledge to support the market. For now, OPEC+ is sticking with a deal to curb output by 7.7 million bpd through December. The Energy Information Administration last week reported a larger-than-forecast, 3.8M-bbl drop, and a 500k bpd drop in U.S. crude oil production to 10.5M bpd.

Gold

In recent weeks gold futures have trended sideways as it remains uncertain if Washington can reach an agreement on a stimulus package ahead of the presidential election. Stimulus adds liquidity to financial markets that can drive up the price of assets including gold, and in so doing, also increases expected inflation, which also boosts the appeal of gold, which traditionally is seen as an inflation hedge.

Market Outlook for China and Asia Regions

The key Chinese and Asian event over the last 30 days has been China recording positive year-to-year growth for the first three quarters, although the third quarter’s growth missed the forecast. In addition, the PMI also remained above 50 implying the growth trend is still in place. The Asian economy showed some improvement, while the Reserve Bank of New Zealand is considering negative interest rates, which pressured the New Zealand dollar.

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