Technical buying stepped in to help push the grains higher the fourth week of March. Strong export demand as confirmation of Chinese purchases helped to give the market strength. Could this be the start of the phase one purchases, or is the buying tied to the reports of shipping issues in South America? Ports in Argentina are closed because of coronavirus issues while Brazil’s ports are not running at full speed because of logistical problems, not only due to reduced labor force but also due to the slowdown in grain movement.
South America’s problems are turning out to be U.S.’s gain as importers of corn and soybeans are likely going to have to come to the U.S. to get their needs met. And with the recent sell off in the U.S. grains, they should be anyway. The sharp increase in the dollar has offset some of the price reduction, but even the U.S. dollar is under pressure to help encourage buying of U.S. products.
The increase in exports has helped to push May-Chicago wheat 91 cents from its recent low. May soybeans have improved 75 cents. The disappointing corn market has only seen 18 cent gains from its low.
The market performance has been nothing but disappointing this year. The grains were hammered in January and February, with September Minneapolis dropping 39 cents, July Chicago losing 37 cents, July Kansas City dropping 41 cents, December corn giving back 25 cents, and November soybeans fading 60 cents. Seasonally, the grains should be starting to see some strength, but the coronavirus has put too much uncertainty into the marketplace.
In the second half of March, the grains are trying to divorce themselves from the coronavirus concerns and concentrate on recent demand spikes. The fact that China was in and buying wheat, corn, and soybeans is a good sign. But the fact that we are likely the only game in town might have been more the reason that anything. Argentina has shut down their ports in an attempt to get ahead of the coronavirus, which means the U.S. now becomes the main supplier of soybean meal to the world. This is why soybean meal had been the market leader up to this point. It is also why the funds have switched from being net short meal to now be net long.
Exports in Brazil and Argentina are extremely labor intensive. It takes a lot of human involvement to get grain from the fields to the shipping ports. In the U.S., exports are more automated. The recent virus outbreak has slowed the timetable for exports in South America but it has not resulted in adjustments in the U.S.
Strong domestic demand continues to support the wheat complex as domestic millers try to gear up to keep up with the spike in bread demand. In times of crises, people respond by hoarding certain products. Bread is one of those and because of the virus, grocery stores are unable to keep bread on the shelves. It only took a pandemic to help increase wheat demand.
Production concerns are starting to stack up in wheat’s favor as well. European Union and Black Sea regions are seeing weather issues as well as the U.S. Southern Plains. The western regions of the Southern Plains remain dry while the Delta and southern Midwest continues to get saturated with rain. The expectations that spring wheat acreage could be lower is adding to the strength.
Corn continues to struggle. It was good to see China buying, but most traders took the export news in stride because of the expected decrease in ethanol demand. Ethanol prices have been hit hard on lack of demand because of the coronavirus.
The lack of demand along with Saudi Arabia’s and Russia’s increase in production is starting to result in an increase in stocks. Reuters reported Trump has agreed to intervene to try to get Russia and Saudi Arabia to stop their production wars against each other. Expectations of increased 2020 planted corn acreage added to the lackluster performance. It is very likely that the Prospective Plantings report will show higher intended corn acreage, but it probably won’t be the reality.
Soybeans are seeing spill-over support from the sharply higher soybean meal market. Expectations that 2020 planted soybean acreage could be less than expected is adding to the strength in soybeans. In addition, if China wants just in time inventory shipments of soybeans, the only destination that can accomplish that is the U.S.
The market has been seeing estimates for the March 31 Prospective Planted Acreage report and Quarterly Grain Stocks:
Wheat stocks: 1.43 billion bushels versus 1.593 billion bushels last year
All wheat acreage: 44.98 million versus 45 million in the Ag Outlook Forum, 45.16 million last year.
Spring wheat acreage: 12.63 million versus 12.66 million last year.
Corn stocks: 8.125 billion bushels versus 8.613 billion bushels last year
Corn acreage: 94.33 million versus 94 million in the Ag Outlook Forum and versus 89.7 million last year.
Soybean stocks: 2.24 billion bushels versus 2.73 billion bushels last year
Soybean acreage 84.87 million versus 85 million from the Ag Outlook Forum and 76.1 million last year.Producers should continue to be patient on marketing product. Another 20 to 30 cent push would have had the grains at sellable levels, but it is likely we won’t see those levels until we get deeper into the 2020 planting season.
The third virus aid bill has made its way through the Senate and House. The price tag of the third round is up to $2 trillion.
The aid package will be very critical to the U.S. economy as at this point, 23 million jobs are in jeopardy of being lost because of the economic slowdown. The jobless report was just a sign of what is to come as last Thursday’s report showed the largest number of jobless claims in U.S. history (over 3 million).
The cattle markets continue to show extreme volatility. It seems that Congress could be taking another serious look at the cattle industry as the livestock industry might see some federal stimulus aid
Cattle futures are at 10-year lows and cash is following close behind. But boxed beef prices are at 4.5-year highs because of strong retail demand as with toilet paper and bread, grocery stores cannot keep meat in the coolers.
There seems to be a very large disconnect between the live product and the finished product. For the week ending March 15, Americans spent $890.6 million on fresh beef, up $376 million or 73% from last year. Over 50% of the beef produced in the U.S. flows through foodservice, 12% through exports, and the rest through retail level. Last week, cattle started to trade a little more in line with the fundamentals as the futures market and cash market recovered and traded to be more in line with reality.
The volatile environment in the cattle markets has made hedging almost impossible. It is not easy, but producers will have to try and moderate growth and be ready to market cattle in the cash market when the time is right.
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