Market Outlook for US and South America Regions
Read full April 2022 edition HERE
The USDA’s April report was bullish for new crop corn, positive for soybeans and neutral for wheat prices. Grain prices are adjusting to higher food, fuel, wage inflation and job shortages. Commodity prices are also trying to adjust to expectations that the Federal Reserve will raise interest rates in 2022.
The first week of March 2022 live cattle futures saw a continuation of the downturn in prices that began in February. The most actively traded month, April 2022 live cattle, in February traded from the high on February 10 at $148.70/cwt to the low on February 28 at $140.25/cwt, which was a drop of $8.45/cwt. On March 1 April live cattle opened steady but closed lower with sellers pushing the market down to a low at $133.50/cwt on March 4 and settling the day $135.77/cwt. The last time April live cattle was as low was October 1, 2021.
Spread trading and volatility defined lean hog trading in March. High hog prices, high prices for all meats, global concerns about the Ukraine and Russian war and fewer hogs for slaughter along with the influx of speculative funds were factors influencing the volatility. For example, April 2022 lean hogs on March 1 began the month at $103.02/cwt, dropped to a low on March 7 to $100.27/cwt, moved back to a high on March 28 at $108.45.cwt and ended the month at $101.75/cwt.
Stock Index Futures
Futures trended lower in April as Federal Reserve officials discussed a faster timetable for raising interest rates this year. It is widely expected that the Federal Open Market Committee will hike its fed funds rate by 50 basis points at the May 4 policy meeting. In addition, there may be a series of half point increment increases in the Fed’s key interest rate.
US Dollar Index
The U.S. dollar index has been very strong and remains close to the highest level in nearly two years. Much of the strength is linked to Federal Reserve officials indicating a readiness to take more aggressive steps to bring inflation under control, including a likely 50 basis point fed funds rate hike in May. Fed Chair Powell’s comments at the National Association for Business Economics meeting set a more hawkish tone when he said he is ready to back a half-point hike in the fed funds rate in May if inflation continues to run hot.
The euro currency depreciated to under the $1.08 level for the first time since May 2020 due to uncertainty about the timing of interest rate hikes from the European Central Bank. In addition, economic indicators in the euro zone have been generally on the weak side. The ZEW Indicator of Economic Sentiment for Germany decreased by 1.7 points to -41 in April, which is the lowest level since March 2020 but is above market expectations of -48.
The Japanese yen fell to its lowest level in nearly 20 years. Recent pressure on the yen is linked to the Bank of Japan’s firm commitment to maintain ultra-easy monetary policies, which contrast sharply with other major central banks that are hiking interest rates.
Crude oil prices firmed in April due to concerns about Libyan supplies, adding to the mix of constrained OPEC output and relatively strong demand. Oil analysts are expecting Libyan output to fall by more than 500,000 barrels a day after the country’s Sharara oil field was closed due to a growing political crisis.
June gold futures hit a five-week high of 2003.00 on April 18 due to the precious metal’s safe-haven status amid ongoing geopolitical uncertainty. In addition, there are the increasing inflation concerns. Any Ukraine conflict escalation will drive economic disruptions and more persistent inflationary pressures, which will lead markets to adopt a more risk-off mood and in turn, underpin gold prices.
Market Outlook for China and Asia Regions
The key Chinese and Asian events over the last 30 days are China’s worse than expected slowdown in the manufacturing sector, high industrial inflation in Japan and New Zealand’s decision to increase interest rates.
China’s consumer prices rose 1.5% year-on-year in March, thanks to eased pork prices and moderately increasing vegetable prices, which fell 41.4% and rose 17.2% year-on-year respectively.
The Reserve Bank of New Zealand raised its official cash rate (OCR) by 50 bps to 1.5% during the April meeting, compared with expectations of a 25 bps increase. This was the fourth straight rate hike amid persistently high inflation.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.