Hello, market watchers. The new year is underway. Let’s hope these resolutions still stand.
There’s always Chinese New Year to (re)start a resolution, as I often allowed myself to do when I lived there. The Lunar New Year falls on January 22 this year and begins the Year of the Rabbit.
The market will continue to watch China’s reopening from zero COVID restrictions with great concern. While traffic trackers show a 30% increase in vehicle movement in China, it will be a bumpy ride for the economy, but even more so for the humanitarian aspects. The overwhelmed health care system that we experienced in the US during the height of COVID is now manifesting itself in China only several times and many times over. Chinese cities are much more densely populated with vertical living.
Another complicating factor stems from the Confucian concept of filial piety known throughout Chinese culture, where grandparents live together as a way of caring for them. Nursing homes have not traditionally been a concept in China and are just emerging. Therefore, elderly people affected by COVID create an unpleasant situation in apartments where their children and grandchildren live. Especially outside of Tier 1 cities, healthcare lacks a lot of modern technology, let alone the capacity to handle a large influx of patients. All of this means that China’s reopening will take time and lead to some debilitating situations, so be careful when buying the market betting on a big and immediate recovery in this economy.
About 400 million people in China travel (home) for Chinese New Year. This is likely to lead to a faster and wider spread of COVID across the country. A faster spread will lead to a faster peak in cases, but also a faster escalation of market disruption. China’s 14th National People’s Congress (NPC), its annual legislative session that appoints top leaders and is expected to confirm Xi for a third term, begins in Beijing on March 5, when the worst the spread of COVID. end up. I suspect this was largely a plan to time the reopening alongside the growing outbreaks of unrest in China that threaten the power of the Communist Party.
The extent to which China can achieve a successful reopening will have a major impact on the global economic outlook for 2023 and likely for several years to come. Many countries now require COVID tests for travelers arriving from China. This is as important for agriculture, specifically beef, pork and beans, and energy commodities as it is for stock markets and global inflationary pressures. Keep a close eye on this part of the world, which, surprisingly, must have been covered very extensively by now.
The media has had plenty of coverage this week out of Washington, DC, as the Republican-controlled House failed to elect a speaker after 13 votes at the time of writing. This situation looked more like a coalition in the UK Parliament than in the US Capitol. Unfortunately, the political divide in our country seems to be deepening, which does not give one much hope for progress in 2023.
It’s been a tough week for ag, energy and equity markets, although firmer fundamentals have been found through Friday. A strengthening US dollar and weak US grain exports pushed wheat, corn and beans lower. Rains in Argentina and thoughts that any crop shortfall could be more than offset by a bigger crop in Brazil sent March soybeans down 64 cents in three trading sessions through Thursday before rebounding on Friday. This was the third hottest December in Argentina, but the fourth coldest in Brazil. Recent rains in Argentina have been spotty and the forecast for the next two weeks is drier than usual.
Soybean futures could see another bull run early next week, and if so, I would recommend downside protection ahead of Thursday’s USDA WASDE and Crop Production reports.
The corn and wheat markets have lost all the value gained in the previous nine trading sessions in four trading sessions this year. Markets weighed on talk of a big Russian wheat crop that resulted in record January exports and a big Australian crop. While Russian exports will continue to be a threat, we are hearing that ship insurers are beginning to cancel coverage on ships in Russia, Ukraine and Belarus due to heavy losses. This in itself will increase uncertainty in the reliability of grain exports from these countries. Major producing states released the first monthly wheat crop conditions of the year this week and are supporting prices. Kansas conditions were 19% good to excellent, compared to 33% last year and 21% when this year’s crop conditions were last reported in late November. Nebraska hit 18% compared to last year’s 39% and last November’s 20%. Oklahoma conditions improved to 38% from 31% in November and 20% last year, and Colorado improved to 50% from 30% last November and 25% last year.
There is talk of rain coming into the wheat belt in the next few weeks, but it remains very dry over a large area and it will take widespread coverage and meaningful rainfall to make any significant impact. U.S. wheat planted area will also be announced on Thursday. We usually see a gathering after this message. Consider bullish positions if you sold wheat before this news. There are reports of cold weather coming into Russian wheat areas with limited snow cover. However, it may only be 15% of the area, although we will know more next week.
The cattle market found strength midweek with weaker feed grains. As grains stabilized and economic concerns took center stage with a handful of major U.S. corporations announcing major layoffs, the cattle market fell victim to profit-taking. March feeders rose over $3.30 to $188.750 on Wednesday before a two-day reversal took almost all of those gains back. There remains a gap on the March feeders that will be filled at $190,600. I believe this gap will close in the coming weeks and if and when we get there, I will recommend downside protection. March is always an uncertain market for the feeder market. There is a lot of uncertainty in the markets at this time and you never know when a Black Swan might approach, as it often does in the market in March.
La Nina, which has been responsible for the extreme dryness, is likely to end this year. Tropical waters are warming, although the outlook is much debated. Weather models largely favor getting to El Nino in the spring and summer. The faster the water warms, the greater the chance for cooler, drier patterns. The slower the warming, the drier and warmer it is based on past patterns.
I wish everyone a successful business week.
Sidwell is a Series 3 licensed commodity futures broker and principal of Sidwell Strategies. He can be reached at (580) 232-2272 or at [email protected] Futures and options trading involves a risk of loss and may not be suitable for all investors. Please read the full disclaimer at http://www.sidwellstrategies.com/disclaimer.