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November 2019 - Monthly Commodity Outlook Sample

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Softs

The US sugar beet crop must be harvested by the first freeze.  Prices have tended to rally from mid September as harvest begins and by the end of October as it ends.  Thereafter, the market declines again as cane harvest continues and stocks build.

The US cotton crop harvest is October-December.  By late November, harvest has passed its midpoint, exports surge, and domestic mill consumption begins to rise.  After trading lower into First Notice Day for new-crop December (this year on 11/22), supply has typically been fully discounted and the market reverses and begins a seasonal uptrend that lasts into the new year.

Energies

Consumption of crude oil may be greatest in the fourth quarter, but the market comes to it well prepared.  Inventories are already high.  But refiners in several large-producing states are subject to tax on year-end stocks.  Thus, refiners spend much of the fourth quarter actually working their stocks down by maintaining their runs with those supplies and trying to postpone new purchases as long as possible preferably into the new year.

Heating oil consumption is, of course, greatest during winter.  Again, the industry is not unaware of this seasonal dynamic, so it prepares well in advance.  Inventories are accumulated, and still refineries operate at capacity
to maximize production of heating oil.  As cold weather arrives, distributors eagerly and aggressively begin to liquidate their stocks.  Further, those refiners in states subject to tax on year-end inventories of crude and its products have great financial incentive to flush as much product as possible into the pipeline by the end of December.  Hence, nearby contracts suffer pressure more from supply than demand.

Currencies

The Canadian $ has tended to rise from mid spring into the autumn equinox.  That is the season during which agricultural and mineral resources are harvested and sold for export, upon which a large part of Canada's economy depends.  By November, however, that window is closing for the coming winter in the Far North during which fewer C$ are needed in order to purchase those products reducing demand for C$ and pressuring its value lower.

A quirk in Japanese accounting makes the half fiscal year, ending September, nearly as important as the full year.  Japanese multinationals have traditionally repatriated funds in order to dress up balance sheets.  Thereafter, that internal demand declines as does the value of the yen.


Metals

Copper is consumed most heavily during the construction season.  By its end, inventories are low and must be rebuilt.  The industry does so during winter in order to be prepared by spring.  Thus, deliveries against December futures tend to be eagerly taken, and prices have rallied into First Notice Day.

Although gold jewelry is most in demand during the fourth quarter for holidays, festivals, celebrations, prices have tended to droop from late November into mid/late December.  But traders, beware!  Price movement has been volatile in both this and past years.

Stocks & Bonds

After a typical September/October cleansing, stock indices traditionally rally into the end of the year.  The DJIA has regularly run higher from mid November (although last year was disastrous).

This dynamic has been particularly reliable in the S&P 500 from late November into early December, perhaps given it is the last chance in the year for money to be invested at the beginning of a month.  Are stock markets consolidating or topping?

Bond prices often decline from September into early/mid November as the new US fiscal year begins.  But from mid month into month end, and often into December expiry, prices have run higher.

Soy Complex

The US soybean crop is harvested mostly October.  During and after, processors operate at capacity to produce soyoil and soymeal.  Soyoil tends to trade sideways/higher because it has so many competitors and substitutes, many of which are harvested at the same time.  Nonetheless, prices tend to be higher by early January as the complex recovers from its harvest lows.

But it is soymeal that is in great demand.  Unable to maintain large inventories because it can turn rancid and with the peak in consumption during the cold of winter dead ahead, livestock producers will aggressively purchase soymeal for the next several months.

Meats

Because feed is such a primary but variable cost, livestock producers want to feed as many animals as possible when feed is most plentiful and thus usually least expensive.  For US producers, that is during and immediately after the corn harvest of October and November.  Hog weights soar in October, but marketings peak in or by early December.

Cattle are also pressured by the flood of pork coming to market.  Further, demand for beef tends to be slow around the holidays as grocers feature poultry and pork (Thanksgiving turkey and holiday hams).

Last Updated on Wednesday, 30 October 2019 08:16  
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