Raw commodity futures markets, including most grains and livestock markets, were hit hard late last week by rising trade tensions between the U.S. and its major trading partners. 

A few futures markets traded down their daily price trading limits last on Thursday, April 3 and Friday, April 4, including live (LEM25) and feeder cattle futures (GFK25) on Friday and cotton (KGK25) on Thursday. For speculative traders who help provide the needed liquidity to all futures markets, there’s an old saying for which they pay heed: “When in doubt, get out.” Such was the case late last week.

The resilient outlier was corn (ZCK25) futures, which on Thursday and Friday managed to eek out small price gains despite the carnage seen across the raw commodity sector. That’s a very positive signal for the corn market.

Plummeting U.S. Stock Indexes Spooking All Traders and Investors

Indeed, fear and anxiety are presently gripping the general marketplace, with traders and investors especially eyeing U.S. stock indexes, which saw S&P 500 Index ($SPX) futures shed around 500 points last week, or around 9% in value.

Fed Funds Futures Signaling U.S. Economic Recession

The Fed funds rate futures (ZQJ25) market (a barometer of the Federal Reserve’s key interest rate) on Friday was pricing in five U.S. interest rate cuts this year. At 0.25% for each cut, that’s a 1.25% total interest rate cut from the Fed this year. Analysts are saying the Fed funds futures are pricing in a U.S. recession. A U.S. and/or global recession would be bearish for commodity markets, from a demand perspective.

The Historical Nature of Futures Traders Provides Valuable Clues

I have been in the commodity markets business for 40 years. The trainwreck in the raw commodity sector late last week is one of the worst I’ve ever seen. 

Importantly, futures markets traders generally tend to overdo on the upside significantly bullish fundamental events and overdo on the downside significantly bearish fundamental events. Such is very likely the case with global economic growth and world trade uncertainties at present. 

That likely means value-buying opportunities are lurking in many commodity futures markets, including grains and livestock. 

Legendary investor Warren Buffett has said in the past that he likes to buy stocks when there is blood in the street. He also has said when most others are greedy, he is fearful, and when most others are fearful, he is greedy. Most market watchers would agree blood is in the street and investor fears are very high at present. 

Two Key Markets to Monitor Very Closely This Week

Commodity and all other market watchers need to monitor the U.S. stock market extra closely in the near term. When the major U.S. stock indexes rebound and appear to have put in market bottoms, such would also likely be the case with most commodity markets, including grains and livestock. And my bias is that this will occur sooner rather than later. Don’t let one solid up-day price rebound in the stock indexes fool you. It will take at least two sessions of strong up-days for prices — not necessarily in a row, but still near each other. 

The other market that merits very close observation is crude oil futures (CLK25). Crude is arguably the leader of the raw commodity sector. Last Thursday and Friday, Nymex crude oil futures shed close to $10 a barrel, or around 14%, and hit a four-year low. That’s a dagger in all raw commodity market bulls. For the grains and livestock futures markets to begin to recover and be able to sustain price uptrends, it’s very likely crude oil prices would need to at least stabilize, if not move back toward $68.00 a barrel.

From a technical perspective, short-term oscillators (relative strength index, slow stochastics) are presently showing the U.S. stock indexes and crude oil prices are short-term oversold and due for corrective bounces very soon.

It’s my bias that this week is likely to see climaxing price moves in these two critical markets.

Slumping U.S. Dollar Index Is One Bright Spot for Ag Markets

The U.S. Dollar Index ($DXY) last week hit a six-month low, but did show a solid rebound on Friday. The USDX is a basket of six major world currencies weighted against the U.S. dollar. While a down-trending USDX is bearish for the U.S. economy, it also suggests U.S. exports on the world trade markets will be more price-competitive, given that most world agricultural market trading is conducted in U.S. dollars.