As we review the perishable markets here we would note that theses commodities, despite Bullish conditions, are extremely tethered to the outcome of the US and China trade Deal due coming months. When a trade agreement arrives, we expect the US Dollar to commence a longer term decline as global growth prospects recover more robustly on a relative basis than the US. This would inflate all food stocks, metals and foreign currencies.
Soybeans are one of the more China sensitive commodities. While seasonal factors are supportive to Soy prices into July, ample supplies and uncertainty on the timing of a China Trade Deal may keep this market range bound until trade clarity arrives. Coincident with a China agreement on trade will be a top in the Dollar or an acceleration of any downtrends underway. A lower Dollar is essential before Soybeans can sustain an uptrend and breakout above multi-month resistance. Eventually a breakout above the March 2019 highs will project a 4 month target of $10 to $13 in Soybeans. In addition, SoyMeal is also deeply oversold ready to move in sync with its underlying Soybean contract, while Soybean Oil is less Bullish in its current upside price potential once its 2019 upside reversal is confirmed. The oversold level in Hedge Fund net shorts are supportive, yet the price trend is down with lower highs and lower lows.
While Corn is less sensitive to China news than Soybeans, a trade deal confirmation should mark a top in the Dollar and add Bullish winds to Corn. Recent expanded planting intentions by farmers sent prices sharply lower last week. This is quite premature given the growing flood conditions that may delay Corn seeding with a shift to Soybeans. Continued rains in early April will push Corn higher and Soybeans lower on a relative basis. $6 to $8 Corn becomes the target zone once the March and January 2019 highs are broken. The significant oversold condition by Managed Money funds support the eventual upside surge in Corn once the Dollar tops out and begins a lengthy downtrend. Should there be a surprise breakdown in Corn under $3.55 a bushel, then the 3.30’s would be the next major support zone where we would continue to await a China deal and a Dollar top confirmation.
While Minneapolis and the bigger Chicago Wheat contracts are nearing longer term Bullish Buy zones, we have chosen to just highlight the more oversold Kansas City Wheat contract here. While Spring planting intentions are not as sensitive in Wheat as Corn and Beans to rain or drought or as tethered as Soybeans to the China trade outcome, nonetheless, Hedge Funds are nearing major oversold conditions warranting longer term upside positions in Wheat in the 2nd quarter. Sharp reversals above the March highs and over the January lows are needed for long term upside price trends to be confirmed. Like other Ags, Wheat prices will remain vulnerable to the current us Dollar strength and await a rebound in Europe (Brexit clarity) and proximity of a China deal before a lower Dollar can light a fire under prices.
We warned in mid March that Feeder Cattle and especially Hogs were extremely oversold and due for major upside reversals. Now that they have rallied the past couple of weeks and begun to reverse, we would wait for roughly 50% retracements of the rallies from the 2019 lows along with oversold slow stochasitcs before considering new long side entries.
Live Cattle is the only commodity in this report that has recently hit major overbought levels basis Hedge Fund data. Look for the mid April to mid June period for potential oversold conditions basis seasonals while awaiting news of a trade deal. Chinese meat supplies are reported to be at low levels, making the meat complex vulnerable to news announcement by China as current trade negotiations mature.
Coffee: When Hedge Funds became extremely oversold last September we assumed 100 to 102 would offer massive long term support in Coffee. In February that support was taken out targeting the mid 80’s to low 90’s as the next major support zone. Once again Hedge Funds are nearing major oversold levels. The current short term triangle price pattern threatens a breakdown on the charts into the upper 80’s. Should this arrive near mid April it may coincide with record oversold Managed Money flows and another good entry with a monthly perspective. In the 2nd half of 2019 we feel there is potential for a major new uptrend to be established.
Cocoa, like most commodities, has been in an oversold condition basis Managed Money positions. However, prices have shot up out of reach very quickly from support requiring a strong retracement before lower risk entries appear. Breaking above the February and January highs will add longer term confirmation to rallies triggering Hedge Funds to cover their large short positions. There remains some seasonal risk in April and May, but increasingly Bullish tailwinds in the June through August time frame.
OJ along with Hogs reached one of the most extreme oversold net short positions by Managed Money funds we have seen. Orange Juice is a thinly traded market, subject to major volatility, but the 115 to 120 support zone remains attractive for Buying until it’s broken. Any new uptrend that breaks resistance near 131 will target the 140’s. Above that, strong resistance would project price potential into the 160’s by the end of 2019. Until Hedge Funds cover their shorts and attain a strong net long position, we prefer to Buy the dips rather than Sell the rallies.
Sugar has been moving sideways for months. While Hedge Funds are a bit oversold, we also note that seasonal factors are quite negative into June. Look for the January lows and the March highs as the price range to confirm new price trend confirmation that could break this long term congestion phase. The 10 to 11 cent zone is major support should prices fall under the January and March lows. A break above 1340 would hint that Managed Money funds need to liquidate shorts and push prices to multi month highs.
Cotton: Throughout the 1st quarter of 2019 Hedge Funds held major oversold net short positions implying a major low was near. Despite a nice march higher in March, funds still have significant net shorts that could fuel further price gains each time a resistance level is exceeded. Seasonals hint that any new breakout above the March highs should fade out in the late April to early June period in the 80.40’s or perhaps a test of 83.
As mentioned, the periodic oversold Buy zones for most of the commodities in this report that pop up every 3 to 6 months lack follow through due to a strong Dollar, global trade uncertainty surrounding China and to a lesser extent Brexit and other trade agreements. The US Dollar needs to begin a multi month downtrend to sustain major uptrends in most commodities. It’s impossible to have certainty on the timing of political negotiations, as it has also been with North Korea, but we suspect there are enough actions taken by the US and China to feel comfortable that a new Trade Deal win is coming in 2019. The stimulus actions by China and their acquiescence to US demands in some areas have added a strong tailwind to US equities and further actions may randomly pop up directly boosting a commodity such as Hogs, Cattle or Soybeans. Most of the markets in this report are currently at or nearing longer term Bullish price zones, but await global news clarity and Dollar weakness before stronger trends can materialize.