Here are the six key fundamental factors that will drive Ag markets in 2020, from Shawn Hackett.
Happy New Year to everyone. As we move into 2020 the key first half drivers for Agricultural markets will be the following:
1) Discerning the truth about the nature of the “Phase One” US-China trade deal.
2) Possible South American/Brazilian drought induced weather market for many Ag markets in February 2020.
3) A more persistent bearish trend in the U.S. Dollar Index and resurgence of the Brazilian real to cause a period of increased Ag market inflation. Typically, a counter rally will take hold shortly after a breakout failure reversal lower sell signal, which occurred on a yearly basis this week. After such, a bounce could be a wild move down. Stay Tuned.
4) An early start to the U.S. spring season causing many Ag areas to see record early and record planting progress. A classic V-bottom construct may develop in April.
5) Discerning the true longevity of the African Swine Fever meat protein shortage in Asia.
6) Discerning the true nature of the banking Repo crisis that has caused the Federal Reserve to enter the repo market with hundreds of billions of purchases and what will be the consequences in markets going forward.
Corn Outlook
We do not see any immediate catalyst to propel corn prices much higher than $4.10. We do not believe the USDA report in January will provide any bullish numbers as many suggest. We also do not like what we see in Smart Money as recent selling has occurred during a flat market price action. Our experience with our Smart Money capital flows Algorithm is that a move to $4.10 would likely trigger a Sell Signal.
The other problem we have with the corn market is that we are forecasting an early spring season, an early start to the planting season with near record progress. History suggests that when planting gets off to a great start, U.S. farmers plant more corn than they originally planned for. Should corn move to $4.10 that would be even more reason for higher corn acres.
Regardless of whether 100 million acres is possible, what matters is whether the computer algorithms that trade corn are willing to trade that bearish fundamental? We believe that they will.
Corn needs a Brazilian weather problem or for the Chinese to buy copious amounts of U.S. ethanol for a sustainable rally higher. For now, we are looking to sell corn on a confirmed Smart Money Sell Signal.
Soybean Outlook
We do not believe the Chinese will run the soybean market up beyond $10 for the foreseeable future post trade deal signage. South American yields are likely going to be down from last year due to very dry weather, but the increase in planted acreage will largely offset that and offer good production unless a renewed drought clips the crop more.
The Chinese do not need to buy Soybeans from the United States other than for them to stockpile inventories for a rainy day when their pig herd begins to rebuild. That time is not yet here. We believe they will be very large buyers of beans on breaks keeping the market from falling apart, but also not running it higher. This can make for a volatile trading range.
While an early spring would be bearish for corn it would be supportive to soybeans as less acres would be planted than expected. For now, we will be looking to sell soybeans on any confirmed Smart Money sell signal with any final run up in soybean prices heading into the January 15th trade deal signage.
Wheat Outlook
As we had discussed in past reports regarding the sudden loss of fortune for the Russian wheat crop production growth miracle, production has fallen for a second year in a row well below the record production set in 2017. Production in each of the last two years is down.
This has caused Russian exports to collapse at a time when they are expected to be the dominant exporter in the world. This has caused global export prices to surge and a rush from foreign buyers to secure available U.S. supplies. There is nothing that can change with this scenario until the next winter wheat harvest in the Northern hemisphere begins in late spring/early summer.
Given our view that the mild spring is going to be fraught with drought like conditions as winter wheat comes out of dormancy sets the wheat market upon for explosive potential.
For now, prices are nearing important resistance as Smart Money selling continues, which should offer a temporary setback in U.S. wheat prices.
This is a special update of Hackett Agricultural Smart Money Insiders Report. Shawn Hackett is founder and President of Hackett Financial Advisors, Inc. hackettadvisors.com You can sign up for his bi-monthly Ag report here
