What 3 Key ‘Outside' Commodity Markets Are Telling Us About Grains Prices This Week
Grain futures market prices are impacted daily and on a longer-term basis by how a select number of other important commodity markets are behaving. Let's look at three key 'outside markets,' their present price postures, and how they relate to corn (ZCN25), soybean (ZSN25), wheat (ZWN25) (KEN25), and oats (ZON25) futures.
U.S. Dollar Index Bulls Working on a Price Uptrend
The U.S. Dollar Index ($DXY) (DXM25) is a basket of six major global currencies weighted against the greenback. It's an important market for grain traders because most grain traded on world markets is priced in U.S. dollars.
The USDX had been trending down from January to late April. That meant U.S. grains were less expensive to purchase on the world markets, in non-U.S. currency. However, present near-term chart posture for the USDX has turned bearish for grains. The USDX is presently in a price uptrend on the daily chart and prices last week hit a four-week high.
If the USDX continues to trend higher, the upside potential for grain futures markets may be limited. Resumed and sustained USDX weakness would be bullish for grains.
Crude Oil Trading Likely to Turn Choppier and More Sideways
June Nymex crude oil futures (CLM25) made a good rebound from the early May low but late last week sputtered after the International Energy Agency lowered its global crude oil demand growth forecast. The lower outlook is due to broad economic uncertainty amid a global tariff war led by the U.S. and China.
Also, the U.S. and Iran have been in talks to ease their tensions. The U.S. says Iran must stop its progress toward making a nuclear bomb or suffer dire consequences. The U.S., in turn, would lift economic sanctions on Iran, including its crude oil exports. It appears Iran is heeding the U.S. threat and wants to talk more about the matter. Lifting sanctions on Iranian oil would put significantly more crude oil on the world market.
The factors mentioned above suggest less demand and more supply, which is price-bearish for crude oil. It's likely that Nymex and Brent crude oil futures prices will trade only sideways at best in the coming weeks or few months, barring a breakthrough on better global trade relations, which cannot be ruled out.
Crude oil is the leader of the raw commodity sector and if crude can't sustain a price uptrend, then other raw commodity markets, including the grains, are also much less likely to do so. Conversely, uptrending crude oil prices would be a significantly bullish element for the grains as well as other commodities. Such could indeed occur in the coming weeks if the U.S. and its major trading counterparts, namely China, continue significantly easing trade tensions.
U.S. Stock Indexes Are Rallying and That's Limiting Selling Interest in Grains
The major U.S. stock indexes last week hit 2.5-month highs and are trending up. That strongly suggests better trader and investor risk appetite in the general marketplace and that's bullish for commodity markets, including the grains.
If the U.S. stock indexes continue to trend higher, then speculative grain market bulls will be more compelled to play the long sides in grain futures. Significant selling pressure in the U.S. stock market would re-energize the grain market bears.
My Bias on the Key Outside Markets Is Grain-Markets Bullish
If U.S.-China trade relations continue to improve, and I believe they will, that would be stock-market bullish, USDX bullish and crude oil bullish. Trader and investor risk appetite would continue to improve.
Given the turmoil in global markets leading up to the recent thawing in U.S.-China trade relations, it sure seems U.S. President Donald Trump and Chinese President Xi Jinping will want to keep the ball rolling on better trade relations.
So, two of the three outside markets for grains would be bullish (higher oil and higher U.S. stock indexes), while one would be bearish (higher USDX). In such a scenario, I believe the outcome would be significantly more bullish for grains market futures than bearish.
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