March 03, 2024

Commodity Insight: From the lips of John Wayne

Those who follow my column in this newspaper know I am quite bullish toward the food and energy markets and have been for some time. They also know that my forecast for those markets to turn bullish has not yet come to fruition.

Each day and week that goes by, I keep saying to myself and others, “Come on, let’s get going! The time is right for a bull move!”

But what I should be saying is what the great, late and legendary John Wayne said loud and clear in the movie, “The Cowboys,” from 1972.

His character says to some inexperienced boys as cowhands trying to get his herd to market on time in face of a rough drive and looming dangers, “Slap some bacon on a biscuit and let’s go! We’re burnin’ daylight!”

However, the time may finally be at hand to watch the food and energy markets shoot higher as a great deal of daylight has been burning for some time regarding those two markets.

Here is what I posted on my X account, @commodityinsite.com, on the final day of August: “August is one of the most bearish months of the year. Yet, crude oil, cotton (a leading indicator for grains) and the Goldman Sachs index ended the final day of August by posting impressive ‘upside breakouts.’ An omen for September? Yes, indeed.”

A few days later, CNBC posted this headline, “Op-ed: Commodities indicators may signal sustained uptrend.”

A few days earlier, Bloomberg had a headline that blared, “India’s tight grip on rice exports puts wheat and sugar in focus.”

On the final day of August, this headline came from AgWeb, “El Niño poised to impact global food prices.”

And from Forbes on the second to the last day of August posted, “Bearish commodities investors should brace for an epic agriculture rally.”

The most recent employment report is being viewed as a reason for the Federal Reserve to pause with further rate hikes.

The economy was strong enough to create more jobs than expected, but there were enough layoffs that the rate of unemployment rose a bit. The inflation rate was a tad higher.

It was the sort of report that hints loudly the Fed may indeed pause with further rate hikes. If true, the food and energy markets may start to ratchet higher.

This week, Saudi Arabia and Russia announced plans to further reduce crude oil production into the end of the year. Following that news, crude oil prices rose sharply and nearly hit a new one-year high.

Crude prices rose 10 days in a row without a lower close, the best performance in four years. History shows that crude oil is a leading indicator for commodities, per se. The Goldman Sachs index, weighted towards crude oil and grains, hit an 11-month high.

History also shows the tropical markets can be viewed as a leading indicator for commodities similar to crude oil. And this week, cocoa and sugar prices hit their highest levels since 2011.

A few weeks ago, the juice that comes from an orange hit the highest levels in history — a handful of food markets are indeed moving to the upside.

The soybean market is made or broken in August. That is an old saw that is perfectly accurate.

From mid-May to mid-June, the U.S. grain belt was the warmest and driest in history. The mid-August to mid-September period is already being described as the warmest and driest in history and worse than 2012, “the great drought year.”

Earlier this week, the U.S. Department of Agriculture lowered the crop ratings for both corn and soybeans more than expected. The decline in the U.S. soybean crop was 5%, a huge decline.

And on Sept. 12, the USDA will guess the yields on the major crops. Should the yields on soybeans fall to 50 bushels an acre or less, a rise to new contract highs is likely.

Should yields decline to something crazy and far below expectations of 49 bushels or less, the upside for soybean prices may be widely bullish.

The Australian equivalent of the USDA, the Australian Bureau of Agricultural and Resource Economics and Sciences, a day ago lowered the estimate of its supplies of wheat. It now pegs ending supplies at the second lowest in 25 years.

And there is so much rain and flooding in Brazil that some estimate 85% of its wheat crop is under threat of serious yield damage, or worse.

The news and market performance this week with crude oil, an energy market, and a host of various food markets such as sugar, cocoa, orange juice and grains simply convinces me that moving forward an interesting and bullish period lies ahead.

I feel like yelling out the words of John Wayne in that old western, “Slap some bacon on a biscuit and let’s go! We’re burnin’ daylight!”

The food and energy markets are poised to head higher and leave all other markets in the dust.