Grains find support despite continued coronavirus concerns

The grains tried to put in a firmer performance to start the month of March but concerns about the coronavirus continue to hang above the market and are preventing the market from seeing any impact from what is considered as friendly news. And there has been some friendly news that should help give the grains support.

The market continues to try and sort out what sort of impact the coronavirus will have on the market, and probably more important, its impact on the economy.

The G7 conducted a conference call this past week and most were expecting the group to announce some sort of economic stimulus package for the impacted countries. But instead the G7 decided to take a wait-and-see attitude. The market did not take that news well, and the aftermath was a sharp drop in stocks.

With the lack of urgency from the G7, individual countries took things into their own hands and started to offer some help. The U.S. Federal Reserve took the lead, and in a surprising move, cut interest rates by a massive 0.5%, which was followed by Canada responding in kind. Other countries followed suit as Malaysia and Australia cut rates as well.

The stimulus is a great idea to help prop up the economy, but it will not likely help in the short term as consumer confidence is weak, which means consumers are not out shopping or eating at restaurants or going to large crowd activities in fear of getting infected with the virus. No amount of stimulus will improve that stigma, but once the fear of infection decreases, any influx of cash to the consumers will certainly help. The biggest impact from the virus so far has been the broken supply chain, drop in travel, lower attendance of public activities, and closures of schools and business. The stimulus will not help with those issues, but it will bring stability and liquidity to the stock markets, which in turn will bring stability to business and consumer confidence. But the sad truth is the outbreak in the U.S. will likely get much worse before it gets better.

China seems to be seeing improving conditions while the new hot spot has become Italy. The main concern for the virus continues to be its economic impact, as reports have China’s manufacturing industry at a record low, dropping 14% due to the outbreak. As of last week, China’s number of cases have been decreasing, which is a signal that China has gotten ahead of the virus. To add to that, the Chinese Shanghai index has recovered all of it losses since the virus outbreak and is now trading at pre-virus levels.

The OPEC+ countries held a meeting at the end of last week to discuss production cuts. Rumor has Saudi Arabia asking for a 1.5 million barrel per day reduction. Russia is still against any cut in production but might consider the original 600,000 barrel per day cut offer. At this point, some sort of production cut has to be done because of the massive cut in demand or crude faces further pressure. A compromise will likely result in a 750,000 barrel per day cut, which would be friendly energies.

February is the month that sets the base prices for crop insurance. The price is based off the average of the harvest month daily close during the month of February (September for Minneapolis wheat, December for corn, and November for soybeans). The final prices came in at $5.56 for spring wheat, a decline of 21 cents from last year. Corn is at $3.88, down 12 cents from last year, and soybeans at $9.17 are 37 cents lower than last year. This puts the ratio between soybeans and corn at 2.36 versus 2.39 last year. The price for barley was set at $3.14 (2 cents lower than last year), canola at $16.40 (70 cents lower than last year), and oil sunflowers at $16.90 (up 20 cents).

The impact on 2020 acreage should be limited as no crop stands out. The ratio between corn and soybeans does favor corn to a slight degree but likely not enough to cause the Corn Belt to change their planting rotations. That means if the U.S. is going to plant 94 million to 96.6 million acres of corn, the acreage increase will have to come from the fringe areas like North Dakota, northern Minnesota, Wisconsin, Michigan, the Delta, and Eastern Seaboard. But with the heavy rains in the Delta, it might be to tough to get corn planted in a timely way. And with the issues in the northern tier states, it is unlikely producers will have the chance to plant that much corn on time as well.

As we are approaching the end of March, a lot of firms will be releasing their acreage estimates for 2020. The Ag Outlook Forum released its estimates at the end of February. Last week, it was Farm Journal. Farm Journal’s acreage survey put U.S. 2020 corn acreage at 96.6 million, 2.6 million higher than the Ag Outlook Forum. Soybean acreage is estimated at 80.6 million, a decline of 4.4 million acres from the Ag Outlook.

As for the U.S. commodities, soybean meal has been the bright spot in the U.S. grains. Argentina has decided to halt all exports until further notice. Argentina made if official that it will be increasing its export tax on soybeans, soybean meal, and soybean oil 3% to 33%. This could be enough to result in some export business to switch back to the U.S. But likely only soybean meal and soybean oil will see an increase as Argentina is the world’s largest exporter of soybean meal and soybean oil. Brazil will continue to capture the whole soybean export market (in the short term) because of large harvest expectations and weakness in its currency, the real.

Saskatchewan is reporting 2 million acres of crop remain unharvested. Short term weather forecasts are calling for improving conditions and producers are hoping they can get out and resume harvest.

As for the U.S. winter wheat crop, the major production states are starting to release weekly crop progress reports. The three major winter wheat states (Kansas, Oklahoma, and Texas) are reporting conditions weekly. Last Monday’s estimates were negative as they showed another solid increase in ratings with Kansas's crop improving 8% to 43% good to excellent, Oklahoma’s improving 11% to 57% good to excellent, and Texas’s crop improving 5% to 36% good to excellent. The recent rains and warming temps have helped the winter wheat crop improve dramatically.

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