Historic drop for Dow Jones and other economic considerations
Last week's U.S. jobs report showed steady unemployment at 4.1 percent and a better-than-expected 200,000 jobs added while wages have increased. The stock market has been rising steadily for over a year, so all is good ... right?
Unless you haven't been watching the news or checking your retirement account, the stock market has been getting hammered. On Feb. 5, the Dow Jones Industrial Average suffered its biggest single-day loss in history. With some recovery mid-week, this appeared to be a correction for recent strength until another major decline on Feb. 8. So what gives? The major drivers are fear of inflation due to rising wages and the prospect of rising interest rates in the U.S. These factors have pushed stock prices lower after growth to record highs.
So what should those focused on agriculture take from this? Direct links of agriculture prices and the stock market cannot easily be found. But rising interest rates would cut down on investment and could prove to be a stumbling block for farmers. The bigger thing is the value of the U.S. dollar. This has been declining steadily for the last few months, and as the dollar drops, U.S.-sourced commodities become more affordable for foreign buyers. This is generally supportive for agriculture prices. Corn, for example, has seen increased sales in recent weeks due to the affordability of grain abroad, and prices have risen to their highest point since October.
Recall last summer as the Minneapolis wheat futures took off due to dryness in the Northern Plains and Chicago and Kansas City were steady? Well we are seeing the reverse happen now. Chicago and Kansas City prices are rallying as the central and southern Plains in the U.S. are too dry and there is little precipitation in the forecast. Meanwhile, Minneapolis futures have been steady, simply allowing the premium over the other wheat classes to drop.
The U. S. Department of Agriculture released its monthly World Agricultural Supply and Demand Estimates report this week. A drop in export demand for the U.S. led to a bump in ending stocks, providing minimal pressure to the markets. More notably, global production was boosted by improved output from Argentina and Ukraine for the 2017-18 crop year.
The Minneapolis durum market has been steady this week. The USDA did not make any changes to ending stocks in their monthly WASDE report.
The canola market has been steady. Statistics Canada reported canola seed stocks below expectations (by just 200,000 metric tons) but still at a record 14.1 million metric tons. Demand has been good, but with ample stocks and the expectation of increased planted area this spring, a major rally is not expected without broader oils pulling canola up.
Peas and lentils
Stocks of pulses in Canada are huge with the 2017 calendar year finishing up with record inventories. Statistics Canada's report on Dec. 31 stocks showed lentils rising 16.3 percent from a year ago to 2 million metric tons. Stocks of dry peas were also up (by almost 4 percent) to 2.8 million metric tons. The primary driver of these burdensome stocks is the move by the Indian government to increase import duties. Just this week, India increased import duties on chickpeas and sugar (from 30 to 40 percent and up to 100 percent on chickpeas and sugar, respectively). Not surprisingly, prices have been soft for pulses as a result.
Mustard seed prices in Canada have been weaker. Processors are well-supplied and the market has been dropping. No. 1 Canada yellow mustard lost 7 percent in value in the last week.
The lack of Chinese demand for barley remains a concern for the U.S. and Canada as buys have shifted to Australia. The USDA did not adjust their barley balance sheet to reflect fewer exports, however. The February WASDE report held ending stocks at 61 million bushels (unchanged from the January report).