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Coronavirus creates volatility in commodities

By Staff | Feb 8, 2020

Brazil’s soybean harvest is just starting to get underway, with nearly 4 percent complete. A majority of the harvest is still a couple months away, but a good reminder that South American soybeans will be hitting the market sooner rather than later. Thus far the crop as a whole looks to exceed in both the USDA and CONAB’s estimates, as we move into February we will get a better handle on crop size. Some areas have seen stress, but have very little impact on the crop size overall.

Rains in parts of Brazil have recently delayed soybean harvest, also slowing the seeding of the safrinha or the second corn crop. The safrinha crop is reportedly only 3 percent planted versus last year’s 15 percent and the average of 9 percent for this time or year. Concerns are being raised that the later planting will push pollination deeper into the growing season when temperatures are typically warmer. It could have little consequence to the market, or create some volatility. The extent of this will not be known for a few months.

JBS South America and China’s WH Group, who owns Smithfield, entered into a new partnership between the two countries. This will provide more fresh beef, pork, and poultry from Brazil to China. The deal could amount to $717 million annually, the agreement gives JBS direct access to Chinese consumers by the way of WH Group’s 60,000 points of sale across the country. The first shipments from JBS will start in the first quarter of the year. This deal adds more export competition for the U.S. in China.

News about the spread of the Coronavirus pressured all markets for most of the week, including financial, commodities and energy markets. As of the writing of this article, 8,000 people have been infected with the disease, killing 170 so far. Also, the first person-to-person spread of the coronavirus in the U.S. has occurred. Chinese markets have been on the sidelines, taking a break, as the Chinese Lunar New Year celebration is going on through the end of the week. China’s markets are closed until February 3rd due to the celebration and many traders are waiting until the Chinese market reopens. Many correlations being made to the SARS outbreak in 2002-2004 where over 8000 were infected and nearly 800 people died.

Soybeans have fallen over 70 cents off of recent highs that were hit on January 2nd. Support has been hard to find as increasing pressure from strong South American crops continues. Production expectations for Brazilian Soybeans continues to be right around 123 million metric tonnes.

Bloomberg reported that the U.S. has developed a vaccine against the African swine fever and it has proved to be 100 percent effective according to the American Society for Microbiology. A principal investigator with the U.S. Department of Agriculture stated the “new experimental African swine fever vaccine shows promise, and offers complete protection against the current strain currently producing outbreaks throughout Eastern Europe and Asia”. This is welcomed in an Asian market where pork prices have sky-rocketed.

Cumulative corn sales are just short of 800 million bushels. This is the slowest pace since the drought of 2012 when supply was a huge issue. Sales are 550 million bushels behind last year, which is alarming as the USDA is forecasting a 290 million bushel year-over-year decline. The USDA decreased corn exports by 75 million in the last report and expectations are to see further reductions in future reports. As the United States becomes more competitive, perhaps buyers will return.

For more information, you may contact Alex Londerville at (515)-341-7040, or e-mail at alonderville@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Alex Londerville. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.

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