October 04, 2022

Commodity Insight: What a week it was

There was limited bullish or bearish news over the weekend and consequently most analysts were predicting a subdued week of trading. Instead, virtually all markets caught a stiff bid on Monday and the session turned out to be quite bullish and eye-popping volatile.

The strength Monday sparked the rest of the week into very volatile trade, as well. Let’s look at each day this week to fully grasp how wild and crazy the markets have become.

Monday, Nov. 1

The oat market posted a new all-time high of $7.63, a gain of 23 cents. Wheat in Minneapolis, Chicago and Kansas City were up 21 to 23 cents, new contract highs.

Minneapolis wheat hit a high Monday of $10.81. The high posted in the drought year of 2012 was $11.20. But the all-time high was $24.25 in February 2008. And one private research firm pegs North American spring wheat as down 42% from last year and the lowest in 19 years.

However, feeder cattle basis front futures fell to a new six-month low and shed 260 points. But cotton futures were up the limit of 500 points and closed within a blink of $1.20 a pound. A year ago cotton was trading under 69 cents. Also on Monday, crude was within a few cents of $85 a barrel and a year ago was under $38 a barrel.

Note, too, that all stock indexes, the Dow, S&P and so on, posted new all-time historic highs. The first day of the week was bullish toward hard assets and the same can be said about the U.S. equity markets, as well. The bulls did well everywhere.

Tuesday, Nov. 2

Overnight, Paris wheat prices rose sharply to a new all-time historic high and the Chinese government urged their citizens to stock up on rice, cooking oil and other necessities in case of emergencies. Both bits of news were, by any measure, bullish.

As a result, wheat prices rose to new contract highs, oats rose to another new all-time high of $7.79 per bushel and cotton prices were also sharply higher to $121.67, a level not seen in 10 years.

Tuesday was wildly bullish and sparked the following headlines to be written. From Reuters News: “China urges families to keep stocks of daily necessities ahead of winter.” From Yahoo.com: “Wheat closes at highest since 2012 as food inflation fears grow.” Also from Reuters News: “Wheat highest since 2012 on supply concerns, strong global demand.”

The headline news early Tuesday was poker-hot bullish. However, Tuesday was bullish in the morning, but by the close wheat and corn prices were lower.

And that means those grains were lower on good news. History shows that markets that go down on good news are markets that want to go down.

Wednesday, Nov. 3

On this day the main topic of conversation was the Fed and what it would state regarding monetary policy and inflation. Most markets did a nosedive before the Fed issued a statement out of fears of higher interest rates.

Shortly before the report, crude oil dropped over $3 a barrel, the worst decline since July. Wheat prices fell sharply with Minneapolis posting its worst one-day decline since June.

All other grains were sharply lower and so were all the metal markets. Wednesday was even more bearish than Tuesday.

From CNBC regarding the Fed statement on Wednesday: “Fed to start tapering bond purchases later this month as it begins pulling back on pandemic aid.”

There also was only a slight change to Fed’s view on inflation. The post-meeting statement kept the word “transitory” to describe price increases that are running at a 30-year high. Most markets were sharply lower because the Fed views inflation as “transitory.”

Thursday, Nov. 4

After digesting the Fed policy statement from Wednesday, the U.S. dollar rose sharply, unexpectedly, a very big surprise. The dollar shot upward to end at a new three-week high.

History shows that a strong dollar can weigh heavily on commodities, per se, and that is exactly what unfolded. The dollar was back to being king and virtually all commodities closed poorly.

And the dollar back to being king was the big story of the day and the week. As a result, most commodity markets were lower, making for another bearish trading session.

Friday, Nov. 5

The big news on this day, however, was the October employment report showing job creation came roaring back as payrolls jumped by 531,000. The result was virtually all markets of all kinds were higher as the bulls were smiling everywhere.

It turned out to be quite the week. A bullish week at that.

I cannot emphasize how volatile it has become with entire Big Four — stocks, bonds, currencies and commodities. Trading and price movements are simply surreal.

And I still only see two long-term bull moves unfolding that appear to be high in probability and profit potential. Most other markets scare me to death.

And if you wish to know what those two markets happen to be, go to commodityinsite.com and consider the offer.