Written Commentary
Market Outlook for US and South America Regions
Read full January edition here
Grains
The USDA’s January report was neutral for corn, positive for soybeans and negative wheat prices. After the January USDA report, March soybean futures traded between 13.50 and 14.00. March corn from 5.85 to 6.08. Chicago March wheat futures traded from 7.70 to a low near 7.37. March Chicago wheat has now traded back to near 7.74 on increased tensions between Russia and Ukraine. March soymeal traded from 418 down to near 389 on better Argentina weather. March soyoil traded from 59.62 down to 57.60. Talk of higher biodiesel demand and higher palmoil prices has March soyoil trading now near 60.60.
Live Cattle
Consumers concerned with the increasing global spread of the Coronavirus variant Omicron and inflation with high grocery prices and escalating energy costs backed off their purchases of beef in December. Compared to 2020, the U.S. Bureau of Labor Statistics reported in 2021 beef prices increased by 20.1%. Choice boxed beef on December 1, 2021 was $276.53/cwt. Retail demand during December was more obvious as high end cuts, such as the choice primal rib sections, dropped from $477.02/cwt to end the month at $339.22/cwt. On December 31, 2021 choice rib sections were $365.66/cwt.
Lean Hogs
December 2021 saw a continuation of downward pricing for lean hogs. The peak at the end of September 2021 at $86.67/cwt for December 2021 lean hogs fell to $70.82/cwt on December 9 with the December contract ending out the month at $72.17/cwt. Fundamental news was not bad during December, it simply was not encouraging. The net export sales average during December was nearly 25,000 metric tons. Mexico, as it was throughout 2021, was the strongest buyer but there was disappointment that China was not buying pork as it had in 2020. Estimates for China were down nearly 45% for the year and reports from China showed their hog herd was back to levels before the outbreak of African Swine Fever. According to the U.S. Meat Export Federation, total U.S. pork meat sales were down 3.0% from January 2021 to December 2021.
Stock Index Futures
Stock index futures finished 2021 on a strong note for its third straight annual gain and largest annual percentage advance since 2019. However, 2022 has started on a weak trajectory as Federal Reserve officials discussed a faster timetable for raising interest rates this year, potentially as early as in March. In addition, the Fed could more quickly scale-back its asset purchases, which are now on track to end in March instead of June. Some officials believe the Fed should start shrinking its massive portfolio of bonds and other assets relatively soon after beginning to hike rates.
US Dollar Index
The U.S. dollar index traded in a broad two-month sideways range before last week breaking to the downside. Oddly enough, the pressure on the greenback took place soon after the Federal Open Market Committee ramped-up its hawkish rhetoric on monetary policy. Enhanced prospects of tighter credit policies are considered to be bullish for the U.S. dollar. That was not the case this time.
Euro Currency
The euro currency advanced above a triple top chart pattern, but failed to follow-through to the upside. In fact, the euro has now fallen under the triple top breakout level, indicating a false sign of strength for the euro.
British Pound
The British pound has steadily marched higher since the third week in December. Most economic reports have been stronger than expected. For example, the U.K. unemployment rate fell to 4.1% in the three months to November 2021, which is the lowest level since the three months to June 2020 and below market expectations of 4.2%.
Crude Oil
Crude oil prices have surged since mid-December reaching multi-year highs. The reason for this is the unexpected product gap. So far for 2022 the oil market is short of product due to unexpected outages, including in Libya, Ecuador and Kazakhstan, which have flipped what was thought to be a pivot towards surplus into a deep production gap.
Gold
Gold futures broke out above a triple top pattern at the 1833.00 level after U.K. inflation data showed prices rose at the fastest rate in 30 years in December. The high inflation environment remains a positive for gold, although a limiting factor is the many central banks are expected to increase interest rates.
Market Outlook for China and Asia Regions
The key Chinese and Asian events over the last 30 days are the better-than-expected export performance and easing industrial inflation. Japan’s PPI remained high. New Zealand is expected to hike interest rates again and Australia remains cautious in cutting stimulus.
With improved market conditions and stronger demand, China’s factory activities accelerated in December 2021, and the Caixin China Manufacturing PMI stood at 50.9, 1 percentage point higher than last month, returning to expansion territory.
The IHS Markit South Korea Manufacturing PMI rose to a three-month high of 51.9 in December 2021 from 50.9 in November.
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