Grain markets are mixed as a re-ignition of the coronavirus spreading in China is renewing uncertainties of economic activities.
“You can make a lot of mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you’re too inefficient.” – Sam Walton (founder of Wal-Mart)
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How Soon Will China Recover from Coronavirus Epidemic?
Grain markets are mixed as a re-ignition of the coronavirus spreading in China is renewing uncertainties of economic activities. In Canadian grain markets, concerns are mounting over CN’s railways have been virtually shut down due to pipeline protests, despite the large majority of Canadians and indigenous groups in support of said pipelines. With the law not being enforced to clear these blockades, there is undoubtedly an absence of leadership from the Canadian federal government that is negatively affecting more Canadians every day.
Yesterday, headlines around the world talked about the spike in the number of cases of people diagnosed with the coronavirus in China to nearly 60,000 and more than 1,300 who have passed away from it.  With Monday being a holiday and grain markets closed (as well as no Breakfast Brief), trading may be a bit volatile ahead of the three-day weekend. Also, Tuesday’s February WASDE report now seems to be already forgotten by grain markets.
What’s not lost on me though is that, despite all the swirling factors, grain trade must continue. That said, while cash grain trade is very much done person-to-person, the business behind each person is a close second element that people consider. In line with that thinking, In our most recent update of Combyne, our next-generation cash grain marketplace, we’ve added a Business page.
This is a page that helps showcase the type of business or farm operation you run and your Connections can now see this, in addition to your personal profile. If you put up a Listing on the public marketplace, people that you’re not yet connected with can see what sort of operation you run, what grain you buy or sell, etc. etc. You can easily create your business page my clicking on the My Profile link (top right on the Combyne website where your name is shown, or bottom left icon on the Combyne mobile app).
India Buying Less Pulses?
The chairman of the India Pulses and Grain Association was quoted recently as saying that India’s imports of pulses in the 2020/21 crop year could drop by 60% from 2019/20 volumes.  The reason behind the shift is, once again, government intervention as India’s leaders work on trying to maintain strong domestic prices and boost domestic production. Expectations for the 2019/20 rabi winter crop in India are quite strong, including the chickpeas harvest, which should top last year’s output of 10.13 MMT. Given that yellow peas are often imported as a substitute for chickpeas, it could intuitively put a damper on prices for these pulses a year from now. For some context, here’s a snapshot of average yellow pea prices in Western Canada through last week.
Of course, at face value, this isn’t especially positive for those thinking about putting in peas, lentils, or chickpeas for the upcoming growing season. As a reminder, Agriculture Canada said in their first forecast of acres for Plant 2020 a few weeks ago that the area planted into pulses will be little changed compared to Plant 2019. Quite literally, AAFC is expecting lentil acres in Canada to be the same as last year at 3.78M, Canadian pea area might increase by 5,000 acres to 4.34M, and chickpeas will fall by 96,000 acres to 297,000 (albeit that’s still 16% above the five-year average).
All things being equal, India has no consistent track record when it comes to farm policies, something that Saskatchewan’s agriculture minister, David Marit, called on India to improve at the Pulses Conclave conference in New Dehli this week.  The President of the Global Pulses Confederation, Cindy Brown, echoed this sentiment but also mentioned that net-exporters of pulses have found new markets, noting the increase in the buying of pulses by China, Bangladesh, and others.  Nonetheless, India remains the largest consumer of pulses in the world with annual demand topping 26 MMT and that’s hard to ignore if you’re a grower, exporter, or importer.
China Dealing with Tough Coronavirus Logistics
In yesterday’s USDA grain exports report, we learned that a little more than 69,000 MT, or about one boat load, of U.S. soybeans headed for China. That’s the lowest volume of weekly shipments to China since mid-April 2019 as the slowdown in demand in the People’s Republic is becoming quite evident. Total soybean sales though came in at 651,100 MT, at the bottom end of pre-report expectations. Despite this, soybean prices were the leader of grain markets yesterday, with the March 2020 contract touching the $9 USD/bushel handle before closing just above $8.96. Given the net-short position of money managers, any sign of more soybean exports sales could catalyze a solid rally for soybean prices.
Coming back to China though, we know that there are some ships that are being diverted to ports in other parts of Asia instead of their original destinations around China.  This is a clear indication of the domino effect of quieter consumer demand in China. More succinctly, with workers and consumer being told to stay home across China, this slows down grocery store and/or restaurant trips, meaning that meat is in less demand. Therein, meat has to stay refrigerated somewhere and that somewhere is the port. Thus, with no additional storage space, the USA Poultry & Egg Export Council says that boats of refrigerated chicken are docking instead at ports in Vietnam, Hong Kong, South Korea, and Taiwan instead.
The obvious macro threat we’re looking at is how China will be able to meet its targeted purchase of U.S. agricultural products, as agreed to in the Phase One trade deal signed one month ago. Foreign Policy magazine suggests that China could easily back away from their commitments, especially in energy and agriculture, due to the coronavirus quarantines weakening consumer demand. As a result, cities of millions of people have become de facto ghost towns, as this Getty Images photo of Dongsi Shitiao crossroad in Beijing from earlier this week suggests!  Nonetheless, China is planning to cut existing tariffs on $75 Billion of U.S. goods by half in order to comply with another component of their side of the Phase One deal. 
Ultimately, the implementation of the Phase One trade deal between China and U.S. was set to take effect 30 days after the signing on January 15th, 2020. Today is that day number 30 and that might be why soybean prices found some strength yesterday as traders get optimistic of increased purchases going forward. However, we also know that China is selling off some of its reserves – including 1.32 MMT of corn yesterday – to feed processing firms to ensure availability of raw grains to mill.  The bottom line though is that the ongoing spread of the coronavirus in China will continue to complicate any excitement over the Phase One trade deal, effectively maintaining a murky crystal ball for grain markets for the next couple of weeks. 
Happy Valentine’s Day and have a great long weekend!
At 7:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.325 CAD, $1 CAD = $0.7547 USD)
Mar Corn: unchanged at $3.795 USD or $5.028 CAD
Mar Soybeans: +0.3¢ (+0.03%) to $8.965 USD or $11.879 CAD
Mar Soybean Meal (per short ton): -$1.10 (-0.4%) to $290.80 USD or $385.32 CAD
Mar Soybean Oil (cents per lbs): +0.21¢ (+0.7%) to 30.93¢ USD or 40.98¢ CAD
Mar Oats: -0.5¢ (-0.15%) to $2.953 USD or $3.912 CAD
Mar Wheat (Chicago): +2.3¢ (+0.4%) to $5.465 USD or $7.241 CAD
Mar Wheat (Kansas City): +0.8¢ (+0.15%) at $4.668 USD or $6.185 CAD
Mar Wheat (Minneapolis): +1.5¢ (+0.3%) to $5.285 USD or $6.999 CAD
Mar Canola: -0.9¢ (-0.1%) to $10.51/bu / $463.40/MT CAD or $7.932/bu / $349.73/MT USD
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.