Separating Food from Fuel…Linkages In The Commodity Sector

this commentary coincides & complements my “this week in ag. Commodities” audio…I’VE EMBEDDED IT IN THIS POST AT THE BOTTOM, SO have a listen

My major conclusion from this week’s trade–and as we head into a big USDA-data week + more coronavirus uncertainty–was that the commodity sector as a whole got “lumped-together” in how the futures market traded this sector. It was to me something like this until mid-week: “Dollar Stronger—-Buy Stocks—-China Phase 1 Deal in Question—-Force Majuere in Copper & LNG—-Baltic Freight Index Lower—-Sell Commodities En Mass.” I think a good representation of this mindset earlier in the week can be seen in the Bloomberg Commodity Index Chart below, as well as the other charts included in this update. The Bloomberg Commodity Index really shocked me when I looked-at it today, and I saw that it had sunk to near its all-time close on a monthly basis–in 1999–since its inception in 1991.

By the end of this week, however, we saw a shift between the industrial/basic material commodities & the food-related commodities: I think this made a lot of sense, given that: (1) the report of a Phase 1 delay was denied by the Trump Administration, (2) that the Weekly Export Sales report was strong for most of the agriculture sector, and (3) given that comments about increased pork and beef demand heading-into China was talked-about by Tyson, Mexico, & Brazil. In addition, we saw/heard reports that China had booked 10-15 cargoes of S.A. beans. Lastly, we saw the cash corn basis find quite a bit of support around the country, and with that the corn spread firmed.

I am hopeful that neither the USDA reports next week, nor any worsening of the coronavirus in China, will stop this late-week price-action; and that we’ll continue to see a premium built-into the food-related commodities. One of my sources in China just notified us that the schools in Wuhan will now be closed until March 1st, instead of the middle of the month. I hope this is not an indication of the Chinese Govt. not having work begin once again next week–that they don’t have to delay any longer the country going back to work since the Lunar New Year; I am concerned about this, given that the young doctor in China who tried to report this virus back in early December (and has since now died this week) was reportedly treated very poorly by the police when he tried to sound the alarm about coronavirus. I continue to rely upon the WHO and other scientists for my analysis on how long or how short of a period of time we may be dealing with this virus. –MZ.

Bloomberg Commodity Index: Now Lowest Since 1999 All-Time Low
Bloomberg Commodity Index ZOOM IN
Baltic Freight Index
Copper (Orange) vs. Wheat (Purple)
US Dollar Weekly Continuation
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