Grain markets this morning are mixed as disruptions in the global food supply chain challenge Plant 2020 headlines for attention from traders.
“There are two ways to go when you hit that crossroads in your life: There is the bad way, when you sort of give up, and then there is the really hard way, when you fight back.” – Matthew Perry (Canadian actor)
Food Supply Chain Coming into the COVID-19 Crosshairs
Grain markets this morning are mixed as disruptions in the global food supply chain challenge Plant 2020 headlines for attention from traders. Winter wheat prices are leading the complex as cooler temperatures in the Southern Plains could negatively impact a crop that’s just starting to get growing again. Outside markets are mostly higher as investors cheer on the net-new number of COVID-19 cases AND deaths starting to slow, including in some of the worst-hit European countries, Spain, Italy, and France. As a reminder, this trading week is shortened as markets are closed on Friday in observance of Easter Good Friday!
Food Supply Chain Macro Thoughts
If you’re a Breakfast Brief reader, you’ll know that I have a knack for gather information, giving it order, and regurgitating it to you in a comprehensible form (at least I think that’s the case with over 60,000 readers!). That said, given all the headlines flying around in outside markets, I’m going to be readily sharing more macro viewpoints that I’m considering, with an asterisk on the impact for agriculture and our food supply chain. The bottom line is that, should the world be under COVID-19 quarantine for a few more months, then the food supply chain will see some significant stress. 
Bloomberg’s economists are estimating that the American job losses data in April could be 30x what the 701,000 in March was. Keep in mind that the data we received last Friday was completely preliminary as the 10M people who filed for unemployment benefits in the last two weeks of March aren’t counted. Therefore, with April’s job losses likely coming in over 20M people in the United States (!!!), I must agree to the Keynesian theory that $350 Billion won’t help save America’s small businesses.  The alternative is to print up another $2 Trillion to pay full wages & benefits to any one who has lost their job. 
The alternative would be to get these people to do some sort of work, any work! The first thought that comes to mind is getting the recently out-of-work onto farms and/or everyday or just food supply chain roles that there’s a clear increasing need for. It’s not technically like there’s a food shortage, it’s just that there’s too much food in the wrong places and the food supply chain is backed up! 
And with a lot of people out of job now, food banks have extreme pressure on them (especially since they’re somewhat at the bottom of the pecking order when it comes to the food supply chain.  That said, if foreign farm workers don’t show up in the U.S. and Canada soon, then indeed, there will be a production shortfall in the coming months, which will place even greater stress on our food supply chains. 
The flipside is that if there’s a COVID0-19 outbreak amongst farm workers, it would be catastrophic.  Perhaps the army will start sending troops to work on farms? There’s also the fact that people are acknowledging the need to prepare for the long-haul and be more self-sufficient so it’s no surprise that demand for bread-makers in March in the U.S. was 13x higher than what we saw in February.  Further, vegetable seeds are quickly becoming the new toilet paper when it comes to consumer demands. 
Also, there’s a lot of buzz for a new estimated $2 Trillion infrastructure bill and that actually might be a good start because it’s a double-win. First, while we should probably delay it until it’s “safe”, it will get people working again (even if some people might have to trade in their white collar for a blue one) and (2) it fixes a crumbling highway and road system.  Why this is important to grain markets is because there’s a chance some of this money could go to upgrading America’s inland river system, as it moves roughly 60% of U.S. soybean and corn exports! 
Thinking bigger picture, participants of a recent Focus Economics survey say that we’re likely to see at least two quarters of economic contraction (read: recession).  However, they say, “the risks are clearly skewed to the downside given uncertainty over the duration of worldwide containment measures and the effectiveness of stimulus packages.” According to Google’s country-by-country mobility reports, there are a couple of industries that already facing the brunt of this downturn as people stay at home. 
Of note is events (i.e. conferences, festivals, etc.), restaurants/dining (especially the sit-down ones), and travel (i.e. hotels and airlines). For example, Delta is predicting a 90% drop in sales in the second quarter (which just started).  For restaurants, there’s obviously a lot less near-term demand for things like meat and milk, which is why you’re starting to see prices drop for these types of commodities in the food supply chain. The simplest way to explain this is with less milk needed, this likely means more animals going to slaughterhouses, which means more supply pressure on the protein markets, and thus lower prices per animal. Very clearly, the food supply chain is closely correlated, and the ripple effects can be widespread.
All in all, 8 out every 10 counties in the U.S. under lockdown orders, and they represent about 96% of all economic activity in America. Moody’s Analytics is suggesting that with this much economic activity under siege, nearly 30% of the U.S. economy is offline, compared to a month ago.  While they’re only expecting the downturn to last for 2 months until we can get in front of the spread of COVID-19, the impact will be long-lasting in terms of the number of business who just won’t be able to weather the storm, as well as the many food supply chain processes that are now under high stress and will most certainly be revamped over the next year.
Global Food Supply Chain Upended?
At a global food supply chain level, countries are very clearly acting like consumers and starting to stockpile food.  Reuters has actually started to put together a pretty good list of countries who are putting some sort of restrictions on their export-level food supply chain systems. 
In Argentina, bottlenecks are starting to clear for grain exports as federal lawmakers work on supersede local mayors who are defying orders from the top.  However, this comes as the soybean harvest has been downgraded by 2.5 MMT by the Buenos Aires grains Exchange to 49.5 MMT thanks to drought conditions.  When you look at drought, export taxes on grain, persistent inflation, and now some drought conditions, I honestly feel for the farmer in Argentina and it makes you realize how bad it could be. 
However, one outlier is India, where, despite the many flaws in their own food supply chain, it doesn’t appear that they will limit their rice exports.  That said, there continues to be logistical issues and hesitancy by international buyers to sign new rice contracts, given the slowdown in not only ocean freight but also truck freight in the food supply chain.  Conversely, Cambodia is banning some rice exports while Vietnam, the world’s third-largest rice export has not yet lifted its ban on new rice export contracts, although it was supposed to be lifted on March 28th.
For these southeast Asian countries, food security will be paramount in the next few weeks, but the impact of reduced production could be even more significant. It’s also why, as mentioned in Friday’s Breakfast Brief, we saw lentil prices for spot movement jump by more 30% on our Combyne cash grain marketplace, as speculative buying has opened up a lot of bin doors in the past few weeks! Frankly speaking, given the sporadic buying, putting up your price indication on Combyne. Post your public Listing on Combyne here.
Feed Grain Prices to Climb?
On Friday, we got an announcement from the USDA that China bought 567,000 MT (or 22.44M bushels if converting metric tonnes into bushels) which helped corn prices. However, front-month corn prices lost more than 15¢ or 4.4% as traders are a bit more inclined to sell the rallies and take profits while they can.
Ultimately, we’ll need to see some increased international purchasing if corn prices are stay above $3 on the futures board, and China is probably best poised to do some bargain buying.  Worth noting is that southern China has gotten a ridiculous amount of rain in the last month (more than 36 inches cumulatively in some areas!), but there’s been absolutely no mention of it! 
China is also buying up more feedstuffs, matching the likes of Saudi Arabia who was initially looking for 720,000 MT of feed barley, but ended up purchasing 1.2 MMT.  Feed barley prices landed in the Kingdom for May-June delivery was just under $200 USD/MT (or $4.35 USD/bushel and $6.16 CAD/bushel or $283 CAD/MT). Comparably, feed barley prices landed in China from Australia are sitting around $220 USD/MT (or $4.79 USD/bushel or $6.78 CAD/bushel and $311.40 CAD/MT).
As mentioned in the past few week, corn demand (and prices) are lower because of the weaker demand from the ethanol sector, which is struggling because of the weaker gasoline demand. With ethanol production down, there’s already a shortage of DDGs, which is having a clear and immediate impact on not only livestock rations, but also the prices for said feedstuffs.  Last week on the Combyne cash grain marketplace, we saw elevated feed grain prices, with a notable move for both feed barley prices and feed wheat prices.
As we eventually push to a new supply/demand equilibrium in our COVID-19 food supply chain, I’m cautious of significant further upside except for the fact that fertilizer deliveries will start to make freight more expensive. The downside factor glaring us in the face is the amount of corn that is no longer accounted for by the ethanol column. In that vein, you’ll never be a more efficient grain marketer than with our Combyne cash grain marketplace as we’ve removed every single obstacle to help any buyer (both the ones you know and new ones) see the deal you’re looking to make.
Have a great week out there!
At 8:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.4108 CAD, $1 CAD = $0.7088 USD)
May Corn: -2¢ (-0.6%) at $3.288 USD or $4.638 CAD
May Soybeans: -4.8¢ (-0.55%) to $8.495 USD or $11.985 CAD
May Soybean Meal (per short ton): +$3.20 (+1.1%) to $300 USD or $423.25 CAD
May Soybean Oil (cents per lbs): +0.02¢ (+0.1%) to 26.45¢ USD or 37.32¢ CAD
May Oats: -6.3¢ (+2.3%) to $2.79 USD or $3.936 CAD.
May Wheat (Chicago): +10.8¢ (+1.95%) to $5.60 USD or $7.901 CAD
May Wheat (Kansas City): +10¢ (+2.1%) at $4.82 USD or $6.80 CAD
May Wheat (Minneapolis): +6.5¢ (+1.25%) to $5.31 USD or $7.492 CAD
May Canola: -1.6¢ (-0.15%) to $10.449/bu / $460.70/MT CAD or $7.406/bu / $326.54/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.