Grain prices plunge following the release of crop estimates. The result may be a benefit to consumer inflation, but what about farmers already struggling with the tariff war.

Stock Market Outlook for August 13, 2019

Grain prices plunge following the release of crop estimates. The result may be a benefit to consumer inflation, but what about farmers already struggling with the tariff war.

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*** Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities. As always, the use of technical and fundamental analysis is encouraged in order to fine tune entry and exit points to average seasonal trends.

Stocks Entering Period of Seasonal Strength Today:

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Mesabi Trust (NYSE:MSB) Seasonal Chart

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The Markets

Stocks continued to slide to start the new week as trade concerns and other geopolitical risks plagued markets. The S&P 500 Index slipped by 1.23%, continuing to show resistance around its 50-day moving average. Daily momentum indicators remain in bearish territory, suggesting that we are not out of the woods yet with this summer correction. Horizontal support at 2800 remains an important pivot point to watch.

Catching our attention on the day was not the broad market selloff, which was already anticipated to continue following last week’s rebound attempt, but rather the downshift in an area of the market that has seasonal significance around this time of year. The price of corn fell by around 6% following the release of crop estimates from the USDA, which showed that farmers planted far more acres this year than analysts had forecasted. The price of the agriculture commodity has retraced more than half of the spring gains, falling to the pivotal 61.8% Fibonacci retracement level and the 200-day moving average. Seasonally, the commodity remains in a period of seasonal weakness that began in June, a trend that typically reaches a low sometime in August or September. Consumer food inflation had been trending above average through the spring, in part due to the rise in grain prices through the month of June, but the pullback over recent weeks certainly eliminates these pricing pressures. This is good for the consumer, but not so good for farmers that were already hurting amidst the tariff war. The golden lining to this downfall in prices for an industry that has been increasingly pinched by the escalating trade war is the resulting pressure that President Trump may feel from his base going into the heart of the election cycle. Elected representatives know that an economy under strain typically leads to a turnover of leadership, therefore the Trump administration will want to assure that the economy is thriving in order to assure that their chances of re-election remains upbeat. The self imposed wound can only fester so long before the Trump administration is forced to backtrack on aggressive rhetoric, that is if Republicans continue to desire to hold the top office. When voters hit the ballot boxes in over one year’s time, it will be the economic activity over the prior 12-months that will influence decisions; that window is rapidly approaching.

Corn Futures (C) Seasonal Chart

The USDA report was released at 12pm ET on Monday, leading to a swift reaction in grain prices immediately thereafter. Shares of Mosaic were lower by over 8%, while CF Industries and Nutrien were down by over 4% during the session. Seasonally, fertilizer stocks tend to hold up better than the broader market in July and August, ahead of the fall harvest, but this is proving not to be the case this year. The broader fertilizer industry, as gauged by the Fertilizer ETF (SOIL), is reverting to levels around 52-week lows. The ETF continues to resist around its declining 200-day moving average, unable to regain the positive longer-term trend that benefitted the space between 2016 and 2018. Agriculture stocks, more generally, tend to rally through the fourth quarter of the year as proceeds of the harvest are put to use following growing season; weakness between now and October may provide appealing entry points to add to agriculture exposure for the fourth quarter surge.