Feb 3 – With China Closed Off, What Happens to Grain Prices?

Grain prices are mostly lower as the complex starts February with most eyes on China, namely the impact of the coronavirus and demand for agricultural goods.

“If you want to get to the top, there’s always the risk that it will isolate you from other people.” – Magnus Carlsen (Norwegian chess grand master and current World Champion)

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With China Closed Off, What Happens to Grain Prices?

Grain prices are mostly lower as the complex starts February with most eyes on China, namely the impact of the coronavirus and demand for agricultural goods. With January 2020 now in the books, it was a month that most would like to forget, especially the back half of it as grain prices took a major hit, culminating in some major losses for the month. Also, Punxsutawney Phil didn’t see his shadow yesterday so it looks like we’ll see spring sooner than later (if you believe in his weather forecasting powers, that is). [1]

Take a look below at a how front-month contracts performed last week, as well as how they and 2020 new crop grain prices on the futures board fared for the month. Worth noting is that soybean prices (what I discussed in Friday’s Breakfast Brief), closed lower for the 9th straight trading session to end last week.

Futures grain prices dropped hard the last week of January 2020 on China fears

Grain prices futures front-month contracts monthly performance for January 2020

Grain prices new crop futures contracts monthly performance for January 2020

The other major event that the broader markets are watching is what happens now that “Brexit” has passed, with the United Kingdom officially leaving the European union on Friday, January 31st. Now begins an 11-month transition where the UK will still abide by EU rules and regulations but, over that time, negotiate a new trade deal for the two “nations”. [2] That new deal has to be in place by December 31st but the U.K. will also have to negotiate new trade deals with the likes of the United States and Canada.

The impact on agricultural trade is uncertain at this point, but myself and many others talked about the importance of keeping tradeflows, specifically for wheat, open in a CBC article over the weekend. [3] Staying in the wheat market, the International Grains Council is forecasting more wheat in the world this year. [4] Russia is planning to keep its wheat close to the chest going forward though as Oksana Lut, the Deputy Ag Minister, said last week that that Russia plans to set up grain export quotas each marketing season, not just the remainder of 2019/20.

China Is Being Cut Off; What Now?

The American government as since declared a public health emergency regarding the coronavirus: except for immediate family members of U.S. citizens and permanent residents, they have barred foreign nationals who have travelled to China in the past 2 weeks from entering the United States. [5] Other countries imposing travel restrictions on any travelers who have recently visited China include Japan, Singapore, Indonesia, New Zealand, and Australia. Conversely, those countries in which China holds some sway, opinions about China and the coronavirus have been much quieter. [6]

As discussed in the Breakfast Brief last Wednesday, the coronavirus impact on grain prices has been immediate on the futures board (and thus, cash markets), but demand for agricultural goods in China hasn’t necessarily declined. What has declined, however, is the optimism that a globalized trade network will be able to function as it has normally for the last number of decades. Think about it this way: how many things that you either use today or buy on a weekly basis are made in China?

The bottom line is that factories in China supply a plethora of products around the world. As Washington Post reporter David Lynch wrote yesterday in a great article, “Some of the United States’ best-known manufacturers such as General Electric, Caterpillar and the Big Three automakers, along with many smaller American businesses, depend on what is made in Chinese factories.” [7] Further quoting Mr. Lynch, “After four decades of growing integration with the rest of the world, China almost overnight has become an economic island.”

I usually only quote people when I don’t think there’s a better way for me to explain it to you, the reader. That said, U.S. Commerce Secretary, Wilbur Ross, said last week that the spread of the coronavirus in China, might be America’s gain. The hard-line ex-banker, in an interview with Fox Business said, “I don’t want to talk about a victory lap over a very unfortunate, very malignant disease (but) I think it will help to accelerate the return of jobs to North America. Some to the U.S., probably some to Mexico as well.” [8] On the flipside, perhaps this is the opportunity for Canada to work on improving its own relations with China? [9]

Ultimately, as companies have to think about re-drawing some of their supply chains for the second time in as many years (the first time because of the trade war), the maneuvering is reducing economic optimism. Therefore, equity and grain prices are falling as investors head for the sidelines with a clear line of sight as to when things might improve. Some good news though is that there has some success in treating the coronavirus in Thailand with a combination of medications for the flu and HIV! [10] However, over the weekend, the number of coronavirus victims in China surpassed what we saw in 2003 from the SARS outbreak. [11]

Combyne Tip of the Day

We continue to see farmers and grain buyers across north America join our next generation cash grain marketplace, Combyne. Farmers are inviting their trusted trading partners to join their network on Combyne and buyers from large grain buying companies, ethanol plants, and livestock operators are jumping into Combyne and quickly realizing the efficiency gains of the tool.

Why are farmers and grain buyers doing this?

Today, you have to have multiple conversations about the exact same thing in order to share or extract information that will help you get your next grain deal done. Instead of having the same conversation over and over again of “this is what I’m thinking for my next deal”, posting your Listing lets your trading partners know where you’re sitting today. Helping set these expectations upfront with your trading partners is core to Combyne’s efficient effect of helping manage all these relationships. You can invite your trading partners through a variety of means on the Connections page.

Combyne cash grain marketplace invite new connections

If your trading partners aren’t in your Combyne network, then you should expect to continue to take and make more phonecalls about the exact same information multiple times. Make it easier on yourself: invite your trusted trading partners to your Combyne network so you’re not blindly calling each other ever again. Also, if I see you’ve invited quite a few people (i.e. more than 10 people), and they all get onto Combyne, you might receive a phonecall from me to have a one-on-one review of your current grain marketing plan.

P.S. let your cash grain trading partners know that this tool is free; if they want more questions answered send them to Combyne’s FAQ on the homepage!

Hope you start a great week with a great day today!

To growth,

Brennan Turner
TF: 1-855-332-7653
@Combyne on Twitter

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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 = $1.3241 CAD, $1 CAD = $0.7553 USD)

Mar Corn: -1¢ (-0.25%) to $3.803 USD or $5.035 CAD
Mar Soybeans: -0.3¢ (-0.03%) to $8.723 USD or $11.549 CAD
Mar Soybean Meal (per short ton): -$0.50 (-0.15%) to $290.50 USD or $384.64 CAD
Mar Soybean Oil (cents per lbs): -0.05¢ (-0.15%) to 29.89¢ USD or 39.58¢ CAD
Mar Oats: +1¢ (+0.35%) to $3.048 USD or $4.035 CAD
Mar Wheat (Chicago): -3.5¢ (-0.65%) to $5.503 USD or $7.286 CAD
Mar Wheat (Kansas City): -2.8¢ (-0.6%) at $4.628 USD or $6.127 CAD
Mar Wheat (Minneapolis): -1.5¢ (-0.3%) to $5.323 USD or $7.047 CAD
Mar Canola: +2.9¢ (+0.3%) to $10.247/bu / $451.80/MT CAD or $7.739/bu / $341.22/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.

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