Alex Norton / Beeson Inc
For the past three weeks, the market has been soaking in the glory of a functioning U.S. Department of Agriculture. For many producers across the U.S., one of the biggest things was the ability to apply for aid as a result of the trade war's negative impact on returns. The extension to mid-February allowed for applications to be submitted beyond the initial deadline. For all market participants, the USDA's regular reporting of critical market data was particularly appreciated after over a month of silence.
The U.S. Department of Agriculture had some catching up to do after the government shutdown. There have been a slew of reports coming out over the last week after the reopening of the government allowed for data collection and report preparations. On Friday, some of the key information that the agriculture markets had been waiting for finally came out, and though the market's response was relatively muted, there is a lot of information that had to be digested in a short amount of time.
December and January are typically not very exciting for agriculture markets. Other than the release of winter wheat planted area and quarterly grain stock levels from the U.S. Department of Agriculture, winter months hold less excitement for commodity pricing.
The market likes volatility. And many consecutive years of generally good weather for most crops in the U.S. has limited that volatility (in general terms). A long-term price chart will show just how different the markets have been trading over the last few years. Nearby corn futures, for example have traded in a $1.40 range since the summer of 2014! Supplies of most crops have been comfortable which limits unpredictable, significant rallies.
Traditionally there is a lull that occurs for commodity markets in early January. Holidays have passed and until the U.S. Department of Agriculture reports on stocks, winter wheat acreage, and supply and demand estimates, there is little information for the market to find direction.
It has not been much of a holiday for markets heading into the Christmas holiday.
On Tuesday, the U.S. Department of Agriculture released its monthly supply and demand estimates in the World Agriculture Supply and Demand Estimates (WASDE) Report. Usually, the contents of this report drives prices at least for that day, with changes made to commodity balance sheets that shape the way the markets react. This month, few changes were made to most of the U.S. balance sheets, so reaction may have been somewhat subdued regardless of what is happening in the political world.
With most crops harvested in the Northern Hemisphere and the mounting trade uncertainty from the U.S. and China conflict leading to changing export patterns, this weekend's G20 summit in Buenos Aires has the market's undivided attention. During the week, commodity markets found some support as buyers are stepping in and hedging in case a deal is reached between Presidents Trump and Xi Jinping. There is not a clear indicator that any agreement will be reached, and the U.S. could go ahead with implementing tariffs on Chinese goods. This would be bearish for commodity prices on Monday.
Just over a month ago, crude oil markets were surging higher. The December WTI futures price hit $76.72 per barrel. This week, the same contract hit its lowest mark since December 2017, falling 28.6 percent from the aforementioned high. The market is falling with large stocks and production capacity weighing on markets.
Look at the facts surrounding trade with China heading into Thursday. Mounting tariffs have been put in place on both sides, including Chinese tariffs on U.S. soybeans. Cases have been filed with the World Trade Organization against China for unfair trade practices. The U.S. has historically high expected carry-out of soybean supplies due to a record crop and an expected lack of export business with China.