OPEC is committed to extending production cuts as the global oil market continues to see inventories fall. While the U.S. oil rig count rose, it plummeted in Canada offsetting the gains. This comes after Morgan Stanley reports that crude stockpiles are, "less visible, as supply in Asia and in floating storage have fallen by 72 million barrels this year."
As we began the month of January it appeared that flooding and wildfires in Argentina would be our dominant stories. However, just as conditions in Argentina started to improve, a new U.S. President was being sworn in. It quickly became clear that the new administration would create far more risk and uncertainty than this year’s South American weather.
After doing some technical analysis on the weekly chart of the S&P 500 futures (attached), it looks like if indeed the S&P 500 maintains its strength over the next several months, we could end up seeing 2350 by the summer. That would be around a 4% rally from here, which does not seem too extreme. Major technical indicators still seem bullish for the S&P 500.
While last year’s South American weather problems were much more harmful to corn, we continue the tradition of trading this as a soybean problem. Soybeans broke 50 cents last week on good weather in Argentina and rallied 25 cents on Tuesday, Dec. 27, on dry weather for northeastern Brazil. Reports of record yields in Mato Grosso, Goias and Parana were ignored yesterday, but embraced today. As always, news follows price.
The month of November proved to be a very interesting month for agricultural commodities. After starting with a traditional focus on the U.S. harvest and the record yields in corn and soybeans, our markets were impacted mid-month by a Chinese speculative buying frenzy and late month by the combination of the EPA’s increased biofuels mandate, the USDA’s 10-year Baseline projections, and OPEC’s agreement to cut production by 1.2 million barrels per day.
Soybeans continued their march higher as they closed higher for a 7th consecutive session. The Chinese market as well as the Malaysian palm market closed higher last night giving market bull’s early momentum.