Cotton Markets
Cotton markets remain bullish

Stimulus driven global growth returning

Market outlook considerations for the week beginning July 16, 2018

Do not underestimate the resolve of the president and Congress or said differently, global governments and central banks through fiscal, monetary, trade, and regulatory policy actions to extend and maintain global growth.

Their resolve to sustain global growth is far stronger than most imagine. Why? In today’s domestic and global economic setting the economic consequences of anemic global growth mean a global recession or worse. A recession would be devastating for the U.S. and the world’s global economies.

Presidential Diplomacy Underway   

The President and his global counterparts are in serious hands-on discussion about future relationships. This is highly different from previous U.S. diplomacy activities, where the U.S. Secretary of State jets around the world attempting to resolve public policy issues with counterparts.

What are the economic consequences to the U.S. ag sector? First, consider a recession’s impact on the ag sector: Today, allowing the world’s collective global economies to slide into a global recession would guarantee magnified protectionism and nationalism, especially food and agricultural protectionism, throughout the world. The U.S. economy and the ag sector would be exposed to massive deflationary forces, which would collapse commodity prices. Basically, all commodity prices would reset at lower levels as the sector restructured.

Second, consider avoiding a global recession due to ongoing presidential diplomacy’s potential impact on the ag sector: The case for the U.S. Ag Sector being a winner revolves around the United States, China, United Kingdom, European Union (countries collectively and individually), and Russia moving toward a multiyear understanding related to fairness associated with an array of fiscal, monetary, trade, territorial, and military issues.

 The Week Ahead July 16, 2018 

 10-Year US Treasury Yield: Sideways trading range. For a multi-month period this market likely trades in an interest rate range of 2.5 percent to 3.0 percent before moving higher. For the week of July 9, 2018, the 10-Year U.S. Treasury Yield ended the week up 0.35 percent at 2.83 percent.

The Fed Fund Rate was increased .25 percent at the June 13, 2018, meeting to 2 percent. Global fiscal, monetary, and trade policy actions will likely allow a rate hike of .25 percent at the next Federal Reserve Open Market Committee (FOMC) meeting September 25-26, 2018. (Charts A1-A4). Presently, I have no expectation of a rate increase at their December 2018 meeting, but stimulus driven global growth could allow for an increase. The Fed is positioning to maintain a balanced yield curve as the year progresses by continuing to shrink their balance sheet. The upward trend of U.S. interest rates is essential to the financial health of pension funds, individuals, and businesses dependent on a more normalized interest rate.

Prolonged Business Cycle: Understand, global governments and central banks continue positioning to prolong the business cycle for an extended period of two to three-plus years, which implies slowly rising interest rates and inflation over that period.   

U.S. Dollar Index: Sideways consolidation likely this week, but bullish bias near term remains dominant until global growth dominance returns. With the dollar index presently at 94.50, up .78 percent for the week, (Charts A5-A8) and off its low of 88.15, the index is in a slow determined corrective grind to the upside. Why? The corrective global slowdown is normally bullish for the U.S. dollar and this time is no different.

The dollar has entered a possible one to two-plus month period of more strength than weakness with an upside potential target of 97 to 100 before resuming its downside trend. A resumption of the dollar’s downside trend will be a function of the resumption of global growth. This is an extremely challenging market and chart strength or weakness is highly dependent on global government and central bank orchestrated fiscal, monetary, trade, and regulatory policy objectives achieved and resulting in collective global growth.

Since the U.S. Dollar strength has negative economic consequences to frontier, emerging, and developing economies that mostly borrow in dollars, a prolonged rise in the dollar moves from country to country toward their own economic slowdown. This is a key reason for the collective ongoing global economic slowdown; therefore, we will closely monitor this market and adjust our expectations accordingly.

What could keep the dollar index rising? Inaction of global governments and central banks to achieve individual and collective growth.  

S&P 500: This market enters the week at 2801; moving and holding above 2830 lays the foundation to breakout above the previous high of 2873. Bottom-line: Just let price action provide guidance until stronger momentum is regained. Note the collection of attached Equity Charts A14 to A28.

$WTIC Light Crude Oil: Consolidating gains, but stimulus driven global growth and an array of factors likely supportive of prices. Why would oil prices move higher? Stimulus driven global growth over the next two to three-plus years remains the driver as supply increasingly struggles to keep up with demand. The length of the current global economic slowdown is increasingly debatable. I have anticipated a slowdown into mid-August, but that expectation in today’s global economic setting can easily be off plus or minus a month.   

Two major supply concerns:

  1. The Venezuelan economic, social, and political crisis has that country and oil sector near collapse.
  2. Likely Iranian sanctions have the potential to contract global supply, even though significant Iranian oil will likely move through the global black oil market or directly into China.

 An interesting array of factors from fundamentals, to global policy drivers, to social, economic, political, and military uncertainties keep this market at elevated levels and they do not appear to be losing their influence anytime soon.

 CRB Commodity Index: A retest of support is underway. Commodity bulls need to see this index push through resistance at 205 (currently at 193.7). Commodity bears need to see this index not hold support at 185. This would likely imply major across the board commodity weakness for a period.

 Rice, Grain and Cotton Charts B1-B28 in Chart Book

  • Soybeans: Ending the week of July 16, 2018, above November $8.00 per bushel potentially starts a bottoming process. Charts (B10-B13)
  • Corn: Ending the week of July 16, 2018, above September $3.33 per bushel potentially starts a bottoming process. Charts (B14-B17)
  • Wheat: Ending the week of July 16, 2018, above September $5.20 per bushel would potentially reverse the bearish pattern that has been building. Charts (B14-B17)
  •  Long Grain Rice: Finishing the week of July 16, 2018, and holding above $12.60 per cwt would be bullish. Next closing and holding above $13.16 opens the door for a price move to $14.50 to $15.00 dollars per cwt., while closing below this week’s close of $11.99 per cwt. implies resumption of downside price action. (Chart B18-B20)
  • Cotton: Remains bullish. Key consideration: If cotton can remain above 78.6 cents, this market still has a bullish bias given today’s global economic setting. Charts (B21-B24)

 A rice webinar and a seed-cotton webinar both on July 19

Seed-Cotton Webinar, July 19th, 9:30 AM CST: Seed Cotton Decision Aid for Base and Yield Updating with Dr. James Richardson, Co-Director of the Agricultural and Food Policy Center, Texas A&M AgriLife Senior Faculty Fellow, and Senior Regents Professor in the Department of Agricultural Economics at Texas A&M University

The Bipartisan Budget Act of 2018 included seed cotton as a covered commodity and extended PLC and ARC provisions to seed cotton. The Act authorizes owners of a farm with generic base acres and a recent history of planting covered crops a one-time opportunity to update the farm’s payment yield for seed cotton and generic base acres. Additionally, land owners are now faced with the decision to elect either PLC or ARC.

The Texas A&M Agricultural and Food Policy Center’s web-based decision aid will help farmers make these decisions. The Webinar will discuss the decisions cotton farmers are facing and how the decision aid will be useful.

Link to Register:  http://bit.ly/UAEX-Seed-Cotton-Richardson

Rice Webinar, July 19th, 3:00 p.m.: Three Markets You Should Care About: India, China and Chicago, with Milo Hamilton, President and Senior Economist, Firstgrain, Austin, Texas.

The two big elephants of rice are India and China, but for the America’s rice market, Chicago is also important and watched around the world. This talk covers the interplay of India and China in determining price trends and the role of wheat in setting the value of rice long term. This is a talk presented in the Dominican Republic in June, reconfigured for American rice growers and their marketing needs.

Milo says, “There are a lot of misconceptions about what rice futures are and are not. In this talk I will try to add some clarity to your rice thinking. I have traded over $100 million of rice for 18 years and have advised the rice marketing chain for a similar number of years. What you object to about the rice market or do not understand might actually improve your bottom line.  I provide a context for how you view the world of rice. You need to understand how trends happen and turn around. The next one to two years will be exciting times for the food grains, if you can weather the current storm of diminishing profitability.”

Link to Register:  http://bit.ly/UAEX-Rice-MiloHamilton-Webinar

A Rice Video on Cuba

A Cuba/Rice Video, July 12,  featured an Assessment of The Cuban Rice Value Chain with  Dr. Alvaro Durand-Morat, Assistant Professor, Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture.

Little is known about the state of the Cuban rice value chain. In this presentation, Dr. Durand-Morat describes the production, processing, and market features of the Cuban rice sector and discusses the potential implications for U.S. rice.

Registration link:  https://bit.ly/2E2BEla

The Trump Effect on Trade, USA Rice, Federation, July 13, 2018

Where will it go from here? The last several months in international trade have been unpredictable and often contentious as many of the U.S.’s largest trading partners react to the Trump Administration’s recent tariffs.  As the U.S. exports 50 percent of its rice crop each year, any disruption in trade has a major impact on the profitability and viability of farmers, millers, merchants, and others in the U.S. rice industry.

 Continue reading: https://bit.ly/2E2BEla 

Westhoff: Trade fights affect farm subsidies and the farm bill debate, July 13, 2018

Continue reading: http://www.columbiatribune.com/news/20180713/westhoff-trade-fights-affect-farm-subsidies-and-farm-bill-debate

 Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture, Cooperative Extension Service. E-mail: [email protected] Download Slide Show for charts and expanded details, Click Download Link

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TAGS: Rice Cotton
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