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Coronavirus fears dominate trade

By Staff | Mar 20, 2020

Volatility has increased substantially across many of the outside markets in recent trading sessions due to the increasing concerns with the continued spread of the Coronavirus. The potential impact of the pandemic has dominated the global economy in recent trade. Massive closures of scheduled events, increasing amounts of travel bans, cancellations of daily activities and classes across colleges, universities, and schools has sent panic throughout trade. The Dow Jones recorded the largest one-day drop since 1987. The Wall Street “fear index” known as the VIX, jumped to the highest levels seen since the 2008 financial crisis.

Pressure on the markets has also been from the news of tensions between Russia and Saudi Arabia. Crude oil recorded a massive 22 percent drop on March 9th. This was the largest single-day decline since the Gulf War. Tensions between the two countries intensified at the beginning of the month when Russia refused to abide by OPEC plans to reduce production. Saudi Arabia escalated the price war by pledging to increase production to a record 12.3M barrels per day, an increase of 25%. Russia responded by saying they can also increase production.

Not much has changed in the grain market in terms of fundamentals; unfortunately, the market has focused on the fear surrounding Coronavirus and the price war that erupted in the oil markets. Therefore, now fundamental news has little impact on the grain markets.

The USDA published their monthly World Agricultural Supply and Demand (WASDE) on March 10th. The release was as expected. Very few changes were made to the domestic balance sheets. Carryout totals were unchanged from the February report for corn, soybeans, and wheat. U.S. corn carryout came in at 1.892 billion bushels. Soybean ending stocks totaled 425 million bushels and wheat carryout was at 940 million bushels.

Only slight changes were made to South American production estimates in the release. Corn production for both Brazil and Argentina were left unchanged at 101 million metric tons (MMT) and 50 MMT respectively. The USDA increased both Brazil and Argentina’s soybean production forecast in their update. Brazilian soybean production is now forecasted at 126 MMT, 1 MMT higher than their February estimate. Argentina’s forecast was also increased by 1 MMT to 54 MMT. Combined, these two countries are estimated to harvest 6.6 billion bushels of soybeans.

The Brazilian government agency CONAB also released their updated production estimates recently. For corn, they slightly decreased their estimate to 100.1 MMT. They attributed the decrease to the smaller second crop or the safrinha crop. There was also an increase in their soybean estimate by 1 MMT to 124.2 MMT, which would be an 8% increase over last year’s crop.

Despite the increased estimates for South American soybean production by the USDA and CONAB, other sources are claiming that recent weather has had more of a negative effect on production. The extension service Emater, located in Rio Grande do Sul which is the 3rd largest soybean producing state in Brazil, has reduced their production estimates. They reduced their regional soybean production by 16% due to the irregular weather. The Rosario Exchange in Argentina decreased their forecast by 3.5 MMT to 51.5 MMT.

Argentina’s farmers and exporters are warning that smaller soybean production is expected in coming years due to the increase of the soybean and product export tax. Government officials in Argentina elected to increase the current export tax from 30% to 33% for producers who harvest more than 37,000 bushels. Data from Ag Ministry shows that only a quarter of Argentina’s farmers will be hit with the higher tax, but three quarters of the soybeans produced in that country are grown by the farmers facing the higher taxes.

For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at mhoover@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. 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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