Grain markets are mostly green this morning as we start to contemplate what commodities – such as durum prices – could provide light on when the rebound happens.
“Short-term pain leads to long-term gain.” – Charles Glassman (American medical author)
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Will Durum Prices be the First to Rebound?
Grain markets are mostly green this morning as we start to contemplate what commodities – such as durum prices – could provide light on when the rebound happens. While the sell-off in equity and grain markets continues to feel irrational and overblown (especially given the trillions of dollars that world governments are injecting into their respective economies), grain prices being mixed today may be the light on the horizon we’ve been looking for.
Before getting into the thick of today’s Breakfast Brief, there’s a few fundamentals to look at. First, AgRural dropped its soybean harvest estimate in Brazil to 124.3 MMT, down 1.3 MMT, citing drought conditions in southern states.  They also note that the harvest is nearly two-thirds complete as of last week. That said, the Brazilian Real has fallen significantly against the U.S. Dollar (much like most other currencies) and that has catalyzed stronger selling by Brazilian farmers of their corn and soybeans. 
On the other side of the world, some untimely rains and hail damage will have a negative impact on India’s rabi winter crop, namely pulses, wheat, and rapeseed.  As I said last week, pea prices will be watching India closely and if the quality of the chickpea crop doesn’t meet requirements of India’s buyers, they’ll likely be looking to source elsewhere. Since yellow peas are a strong substitute for chickpeas, this could be a positive price event and might be an indicator of a small rebound in pea prices. That said, if you’ve still got some old crop, or looking to price new crop, why not list your peas on Combyne?
Durum Prices and Intense Demand of Food Staples
One of my important Twitter follows these days is my old boss, Keith McCullough (Hedgeye CEO), who, with the help of his team, is navigating the markets like Bobby Orr on an end-to-end rush. That said, one of his more notable calls was that “Assets flow to assets with lowering volatility from assets with higher volatility”. Put simply, agricultural commodities are a more stable market to trade in that that of oil or equities and so perhaps that’s why we’re seeing grain markets not seeing the same downward correction as broader markets. 
In that line of thinking, Karen Braun of Reuters continues to provide some excellent perspective on what grain prices may do from here.  As Ms. Braun points out, compared to the other great stock market declines of 2008 and 1987, grain prices are mirroring the latter more than the former. The only thing to keep in mind here is that 2008, corn prices topped $8/bushel on a bad crop and the ethanol industry was starting to ramp up.
Speaking of ramping up, amidst the sea of red on the futures boards, cash wheat and durum prices have found some subtle gains in the last few days. Most can agree that demand for food has spiked as people look to stock their fridges and freezers for at least a few weeks of isolation.  With the shelves of staples such as rice, oatmeal, canned beans (including chickpeas), and pasta looking pretty thin, the processing companies of these foodstuffs will have to work hard to fill the pipeline. That said, durum prices are finding some new highs on what’s likely some speculative buying on the expected increased demand.
While it’s inherently hard to estimate what this surge in demand looks like, durum prices are also contending stronger demand. it will have some serious competition with international demand as shipments picked up pace at this time a year ago, especially in Canada. That said, through week 31, Canadian durum exports are tracking 41% higher than a year ago with 2.85 MMT sailed (this is also a few boatloads more than the three-year average!). Similarly, U.S. durum exports are nearly double what they were a year ago. That said, while old crop values have climbed, we’ve also seen new crop durum prices climb by a similar amount in Western Canada.
Renowned food supply chain expert, Sylvain Charlebois, says that “Canada will be the last country in the world to run out of food.”  However, he also notes that with Canadian borders closed to non-citizens, the flow of about 60,000 seasonal labourers will squeeze the output on fruit, vegetable farmers in the Great White North.  Finally, the petro-currency of Canadian Loonie dropping 5 cents USD in a week (and nearly 10% for the year), combined with some intense levels of sustained demand, likely means that grocery bills should increase a little bit. 
COVID-19 Happenings That I’m Thinking About
The S&P 500 climbed 6% yesterday but is dropping like a baby giraffe out of the womb again this morning. Helping lead the profit-taking/sell-off is oil prices, which are hitting their lowest levels since 2003 with WTI crude oil trading under $26 USD/barrel at the time of writing. 
Multiple provinces and states have declared states of emergencies to help mobilize additional resources – namely cash – to help push back on the spread of the coronavirus and minimize the impact on their respective healthcare channels. In a move that mirrors the U.S. and Canada, the European shut its border to all non-EU citizens for at least 30 days.  Inherently though, the fact is that the move likely comes to late as the number of coronavirus cases continues to climb.
Dr. Michael Ryan is the World Health Organization’s Executive Director and has dealt with many health crises before, including Ebola outbreaks. In one of his news conferences last week, he stressed that “if you need to be right before you move, you will never win. Perfection is the enemy of the good when it comes to emergency management. Speed trumps perfection. The greatest error is not to move; the greatest error is to be paralyzed by the fear of failure.” 
The positive reality is that where the coronavirus originated – China – things seem like they’re starting to rebound after 6 weeks of effectively being on lockdown. On FedEx’s earnings call yesterday, the company’s executives said they’re seeing renewed strength in the Chinese economy.  That said, the WHO’s assistant director general, Bruce Aylward, says that rampant testing and isolation of cases were what stopped the spread of COVID-19 in China, not travel restrictions and lock down. 
Arguably, asking people to shelter in place for the next few weeks is a form of isolation, but also giving governments time to collect more testing kits and get their procedures in place. Ideally, they can also set-up drive-through testing like in South Korea where they’re processing about 10,000 people/day and new coronavirus cases have dropped sharply (basically, it’s argued that they’ve got things under control in South Korea). 
All things being equal, FedEx executives reported seeing renewed strength in the Chinese economy while admitting that European business is sagging but ecommerce orders are booming in North America. In fact, Amazon says it’s planning to hire 100,000 additional workers and give raises to current employees to help with surge in orders.  The bottom line is that it’s going to take some time (read: patience) and a lot of people acting as a community of one, instead as individuals, to help push us back into times of normalcy.
At 8:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.4373 CAD, $1 CAD = $0.6958 USD)
May Corn: -7.5¢ (-2.2%) at $3.365 USD or $4.837 CAD
May Soybeans: +4¢ (+0.5%) to $8.273 USD or $11.904 CAD
May Soybean Meal (per short ton): +$4.50 (+1.5%) to $302.80 USD or $435.21 CAD
May Soybean Oil (cents per lbs): -0.25¢ (-1%) to 24.99¢ USD or 35.92¢ CAD
May Oats: +1.3¢ (+0.5%) to $2.548 USD or $3.662 CAD
May Wheat (Chicago): +4.5¢ (+0.9%) to $5.038 USD or $7.24 CAD
May Wheat (Kansas City): +7¢ (+1.6%) at $4.393 USD or $6.313 CAD
May Wheat (Minneapolis): +1.8¢ (+0.35%) to $5.11 USD or $7.345 CAD
May Canola: +6.6¢ (+0.65%) to $10.346/bu / $456.20/MT CAD or $7.199/bu / $317.40/MT USD
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither th 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.