Global Commodities Newsletter

Market Outlook for US and South America Regions

Grains

Corn futures rallied from recent lows near 3.07 to 3.32. Drier than normal U.S. Midwest weather and an unprecedented almost hurricane like straight line winds flattening the record Iowa 2020 corn crop offered support. The USDA estimated the U.S. 2020 corn crop will be near 15,278 million bushels. This was above the average trade guess. The USDA estimated the U.S. 2020/21 corn carryout to be 2,756 million bushels. This was also above trade estimates. Managed funds reduced their net short positions due to weather uncertainty. Funds are now adding to their net short positions as U.S. harvest nears. U.S. farmers were also good sellers of old crop inventory on the recent rally. The USDA raised its estimate of the world 2020/21 corn carryout to 317.4 mmt.

Live Cattle

Live cattle futures prices showed improvement in July. Although it was not a bull market, the slow shift to higher prices indicated cattle buyers finally needed to buy showlist cattle. This was in addition to the big supply of their own cattle and previously contracted cattle that had backed up when packers slowed in the previous few months.

Lean Hogs

July 2020 lean hogs began the month making a new contract low on July 8 at $47.95/cwt, bouncing to $54.55/cwt on July 27 and settling at $52.00/cwt on July 31. By July, the year to date hog slaughter was 1.0% above the same period a year ago as packers pushed chain speeds during the week and used Saturdays to add more hogs. The lean hog market was off its lows by month end, but traders were disappointed when it became obvious the record pork purchases from China in the first quarter of 2020 were not continuing.

Stock Index Futures

In recent weeks stock index futures have overperformed the news as the technical situation continues to improve. Stock index futures are substantially higher since the lows were made on March 23. In fact, S&P 500 and NASDAQ futures were able to advance to record highs.

US Dollar Index

In mid-May the U.S. dollar broke out to the downside from a two-month trading range. Some of the pressure on the U.S. dollar was due to flight to quality long liquidation in light of higher stock index futures. More recently the greenback fell to a two-year low and took out the double bottom at the 92.475 – 92.510 area. There was recovery for the greenback when the release of the minutes of the July Federal Open Market Committee meeting were less dovish than expected.

Euro Currency

The euro currency 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

U.S. crude oil futures are closing in on a fresh five-month-high as a pair of tropical storms force oil companies to reduce over half of all offshore production in the Gulf of Mexico, resulting in tightening supplies. The government’s Bureau of Safety and Environmental Enforcement said oil production in the gulf was reduced by 58%, or approximately 1.1M barrels on Sunday.

Gold

Since the lows were made on March 16, December gold futures advanced $630.40 to a record high 2089.20 on August 7, as investors are anticipating ultra-low interest rates globally may become even lower. There has been some profit taking more recently, as the U.S. dollar index was able to bounce off a two-year low.

Market Outlook for China and Asia Regions

China’s manufacturing sector continued to recover. In July, the CAIXIN China manufacturing PMI came in at 52.8, an increase of 1.6 percentage points from June and the highest reading since February 2011. Output has been expanding for five consecutive months. Both the new orders index and the production index recorded the highest level since February 2011, as well. Many surveyed companies said that market conditions have gradually recovered from the pandemic and customer demand has increased. New export orders remained in contraction, because of subdued demand. In spite of improved orders, which led to a slight increase in the backlog of surveyed enterprises, manufacturers are still cautious about increasing employment. The employment index contracted for its seventh month in a row in July.

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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

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