It’s been many years since I last stuck my neck out and publically looked at the potential moves for the year ahead. It’s my favorite forecast as I try to look at the big picture and don’t get caught up in the daily trading noise that is todays’ volatile markets. So, for what it’s worth, I’d like to dust off the crystal ball and give it a go.
I do believe that 2020 will be the year that commodities regain some attention (and respect). We all know that is long overdue. To put it in perspective, the S&P index has recently been trading at about 40 times the value of the Bloomberg Commodity Index (an extreme record high). For comparison, the S&P was 17.3 times the BCOM index when the Dot Com bubble burst in January of 2000. That highlights how undervalued commodities are today compared to the companies that profit off them. On the other hand, just 11 short years ago when commodities peaked in June of 2008, the S&P was only 5.5 times the BCOM index. When I mentioned in a previous thread that stocks and commodities often alternate leadership, I wasn’t kidding. Now that the US Federal Reserve has clearly stated it welcomes inflation and has been actively injecting cash into the system through the Repo market, commodities could quickly come back into favour.
Closer to home, corn looks to be a major benefactor in such a scenario. China will likely be the trigger, whether through direct purchases of US corn or indirectly by purchasing much of the corn South America has to offer, then South America purchasing US corn to fill the void (already happening). They also have a significant need for ethanol (if they want to reach their blending targets) and are looking for ways to buy US ag products to satisfy the phase 1 trade deal requirements. The result may well be an increase in corn demand from the US ethanol industry to meet those sales. With declining carryover stocks prior to the added (export and ethanol) demand, prices look poised to rally. Referring to the charts for targets, it looks like the 2019 high of $4.64/bu will be tested and a close above that should result in a rally to $5.30 initially with a test of $5.63 possible (resistance from July, 2013).
Such a move would certainly help Chicago (Soft Red Winter) wheat rally out of the saucer bottom formation I mentioned on another thread. Carryover for the 2019/20 crop year in the US is predicted to fall to 111 mil bu (by the USDA) compared to 158 mil last year and 205 mil bu the year before. Nothing cures low prices like low prices (and horrible weather in 2019). In the coming year we should see resistance near $6/bu violated with a move up to $7.50/bu US quite likely. This will certainly help spring wheat along the way.
Oilseeds are a little trickier as the soybean crush is usually driven by the demand for meal. Right now, vegetable oils are the hot commodity and look to carry on that way for the foreseeable future. The monthly soybean oil chart has a huge double bottom on it with a measured move up to $.50/lb (from the current $.3478 level). This may be too much to ask for in one year and may drag out to 2021 but would certainly benefit canola.
In the non-ag world, I expect gold and silver will be the big winners of 2020. Given inflation is the stated goal of central bankers around the world now and there appears to be a lack of confidence in world currencies, precious metals are gaining traction (the Chinese Yuan is out of favour after the trade war, the Euro is a mess as is the Yen and the White House wants a cheap US dollar to help exports). As a result, the monthly gold chart has a fantastic looking saucer bottom forming that suggests the record high of $1923/oz will be challenged, possibly in the year ahead (currently $1518). Silver has a similar base forming but it may take a few years before it challenges its record high of $49.82/oz set in April of 2011.
With that, my New Years’ wish to you is that this opinion is worth more than you paid for it (by working out
), Happy New Year to all!!
And remember, take time to do something you enjoy today…
I do believe that 2020 will be the year that commodities regain some attention (and respect). We all know that is long overdue. To put it in perspective, the S&P index has recently been trading at about 40 times the value of the Bloomberg Commodity Index (an extreme record high). For comparison, the S&P was 17.3 times the BCOM index when the Dot Com bubble burst in January of 2000. That highlights how undervalued commodities are today compared to the companies that profit off them. On the other hand, just 11 short years ago when commodities peaked in June of 2008, the S&P was only 5.5 times the BCOM index. When I mentioned in a previous thread that stocks and commodities often alternate leadership, I wasn’t kidding. Now that the US Federal Reserve has clearly stated it welcomes inflation and has been actively injecting cash into the system through the Repo market, commodities could quickly come back into favour.
Closer to home, corn looks to be a major benefactor in such a scenario. China will likely be the trigger, whether through direct purchases of US corn or indirectly by purchasing much of the corn South America has to offer, then South America purchasing US corn to fill the void (already happening). They also have a significant need for ethanol (if they want to reach their blending targets) and are looking for ways to buy US ag products to satisfy the phase 1 trade deal requirements. The result may well be an increase in corn demand from the US ethanol industry to meet those sales. With declining carryover stocks prior to the added (export and ethanol) demand, prices look poised to rally. Referring to the charts for targets, it looks like the 2019 high of $4.64/bu will be tested and a close above that should result in a rally to $5.30 initially with a test of $5.63 possible (resistance from July, 2013).
Such a move would certainly help Chicago (Soft Red Winter) wheat rally out of the saucer bottom formation I mentioned on another thread. Carryover for the 2019/20 crop year in the US is predicted to fall to 111 mil bu (by the USDA) compared to 158 mil last year and 205 mil bu the year before. Nothing cures low prices like low prices (and horrible weather in 2019). In the coming year we should see resistance near $6/bu violated with a move up to $7.50/bu US quite likely. This will certainly help spring wheat along the way.
Oilseeds are a little trickier as the soybean crush is usually driven by the demand for meal. Right now, vegetable oils are the hot commodity and look to carry on that way for the foreseeable future. The monthly soybean oil chart has a huge double bottom on it with a measured move up to $.50/lb (from the current $.3478 level). This may be too much to ask for in one year and may drag out to 2021 but would certainly benefit canola.
In the non-ag world, I expect gold and silver will be the big winners of 2020. Given inflation is the stated goal of central bankers around the world now and there appears to be a lack of confidence in world currencies, precious metals are gaining traction (the Chinese Yuan is out of favour after the trade war, the Euro is a mess as is the Yen and the White House wants a cheap US dollar to help exports). As a result, the monthly gold chart has a fantastic looking saucer bottom forming that suggests the record high of $1923/oz will be challenged, possibly in the year ahead (currently $1518). Silver has a similar base forming but it may take a few years before it challenges its record high of $49.82/oz set in April of 2011.
With that, my New Years’ wish to you is that this opinion is worth more than you paid for it (by working out
), Happy New Year to all!!And remember, take time to do something you enjoy today…
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