A strong argument can be made that January 2020 was the most bearish start to a new year and new decade in history for the commodity markets.
Consider that the CRB index, weighted to grains and livestock, fell to a four-month low, and the Goldman Sachs commodity index slipped to a five-month low.
Individual markets such as copper, crude oil, cattle and soybean prices fell to five-month lowd. Hog prices hit a 12-month low. Most other commodities also showed unusual weakness in January, a rare phenomena.
By any measurement, January was one of the most bearish starts to a new year and new decade ever seen.
However, stocks as measured by the Dow Jones also stumbled in January, also a rare scenario. On the final session of the month, the Dow fell a few ticks shy of 600 points. The loss wiped out the gains seen since the first of the year with the Dow now in the red by 1%.
More damning and telling are the following comments from CNBC News with a headline that blared, “Friday’s massive sell-off ruins ‘January barometer’ market signal.”
Here are a few observations from the CNBC article that need to be read and read carefully:
• “Going back to 1950, when the S&P 500 was positive in January, 86% of the time, the full year turned out to be up, according to Stock Trader’s Almanac.”
• “The track record is even better in presidential election years. Since 1928, when January is up in an election year, the year is up 100% of the time with an average S&P 500 return of 16.6%, according to Bank of America.”
The weakness with stocks and commodities to start 2020 is generally attributed to the spread of coronavirus from China to the United States and other parts of the world.
Investors, traders and agriculture producers were caught off guard in the middle of January and a tsunami of selling unfolded that caused paper and hard assets to do a nosedive.
Of course, it is still too soon to predict the final outcome of the virus, but the markets did what the markets always do: Shoot first and ask questions later.
Many on Wall Street tout the first trading day of the year, or the first month of the year, as a harbinger for what lies ahead. For years, Wall Street has proclaimed, “as January goes, so goes the rest of the year.”
They may be right because since the huge loss on the final day of January, stocks as measured by the Dow Jones have rallied quite dramatically to a new all-time high.
Commodity values also have bounced higher in the first week of February. Such gains in February suggest the weakness flashed on the final day of January was a head fake and nothing more.
But here is my spin on what may unfold in the period ahead for stocks and the U.S. ag markets, grains and livestock. Of course, I may change my mind as the year unfolds in light of “events,” and the main event on the lips of investors, traders and ag-producers is the coronavirus and how it will impact the markets.
It seems as if the virus is being well contained, which suggests it will have a minimal impact on the markets. But it is way too premature to make such a bold prediction.
Stocks: I have little desire to be long either stocks or bonds. Both markets are historically pricey. My work shows here is more downside risk than upside potential from current levels. Time will tell.
Livestock: The upside leader in the world of the U.S. ag markets should be livestock. In fact, in my twice a day newsletter, Commodity Insite, I have stated repeatedly that 2020 will be “The Year of the Livestock Markets.” I am comfortable with that forecast.
Grains: In 2019, 15 million to 20 million acres of farmland were not planted due to wet and cold conditions at planting time. In 2020, the odds are great those acres will make their way back into production which will, with normal weather conditions, keep grain prices on the defensive into early spring, or longer.
To those who do produce grain, I suggest hone your marketing skills. The key to success in agriculture is marketing, pure and simple. Here in 2020, when those 15 million to 20 million acres come back into production — and they will — marketing skills will need to be razor sharp.
And all ag producers should watch the weather carefully as, I still fear greatly, “climate change” issues move forward.