By studying the price history of markets over the past decades, or even longer, one can make a strong case that shocks to markets many times cause significant over-reactions among traders, who at first fear the worst outcome and in turn push prices to levels that are ultimately not sustainable and they then correct back to not far from where they were when the shock first hit the markets.
Price action in several markets the past several days, including some ag futures, suggests the coronavirus outbreak event will be factored into most market prices sooner rather than later—and may be already factored in altogether. The sharp to even daily-limit price moves seen in some impacted futures markets recently suggest extreme reactions to a situation that is not yet extreme. Unless the coronavirus situation becomes much more serious, look for the futures market lows in grains, livestock and cotton scored this week, to likely be the lowest of the coronavirus event.
Of course, right now it’s still too early to tell if the markets have indeed fully factored in the coronavirus outbreak and its impact on the global economy. By early next week, traders and investors should have a better idea whether the outbreak has mostly run its course, from a markets-impact perspective.
Importantly, the price action in some key outside markets the past several weeks, including their reactions to the coronavirus shock, has altered their short-term and even in some cases their longer-term technical postures. Such is likely to have some degree of an impact on the agricultural futures markets in the coming weeks, or longer.
Nymex crude oil
The first week in January nearby crude oil futures prices hit a nine-month high of $65.65 per barrel. Since that spike high prices have backed off to around $53.00 as of this writing. There is strong longer-term technical support around $50.00. Look for the $50.00 level to stop the current price decline—unless the coronavirus turns into something catastrophic that seriously dents global economic growth in 2020. It’s likely that crude oil prices in 2020 will spend most of the time trading between $50.00 and $60.00 a barrel. If that’s the case, crude’s impact on agricultural market prices would be minimal.