Grain prices are in the red, alongside pretty much all other commodities and equities, as we start the week much like last Monday: extremely volatile.
“This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.“ – Sir Winston Churchill (former British Prime Minister)
(Thanks to my old boss, Daryl Jones for sharing the quote this morning!)
Grain Prices Continue Slide (with Everything Else)
Grain prices are in the red, alongside pretty much all other commodities and equities, as we start the week much like last Monday: extremely volatile. The VIX – an index of volatility within the market – is currently trading at 70, and it was September 2008 the last time it was at these levels. As governments urge its citizens to stay home and help minimize the spread of the coronavirus (COVID-19), the obvious fact is that economic activities will dwindle, potentially setting us up for a recession.
To help maintain some liquidity in the market, on Sunday, the U.S. Federal Reserve cut their key lending rate to 0% and will initiate a $700M quantitative easing program.  The move that the Fed made that I’m a little more concerned about is that they cut reserve requirements of a few thousand banks to zero. This means that banks can borrowing against their entire balance sheet of assets, instead of the 90% or so that’s been considered ‘safe” in the past. This means that some banks will be 100% leveraged and those same high levels of leverage (amongst a few other factors, namely sub-prime mortgages) helped lead to the crash in 2008. Granted, as mentioned above, we’re already at 2008 from a volatility standpoint so the unknown unknowns remain omnipresent.
In a bit of good news out of Ottawa for the Canadian agriculture industry, Parliament ratified the new North America free trade agreement, USMCA, before it went on recess for the next 3 weeks.  With a few Parliamentarians already in self-isolation quarantine (including Prime Minister Trudeau, who’s wife, Sophie, tested positive for COVID-19), the government is trying to minimize the spread of the virus and prevent an overload on the Canadian medical institutions.
Grain Prices Fall with Everything Else
It’s unlikely that the volatility within the markets will get better any time soon. As these are unknown times, there is obviously a lot of fear in the market and accordingly, things get volatile, but mainly, fear is a price killer.  Because of said fear, the March WASDE report came and went last week without much of a sniff, although it was a bit of a snoozer by normal grain prices standards anyways.
This is the same for grain prices, albeit there is a clearer understanding of supply and demand for foodstuff commodities. That said, grain prices are just as susceptible to wild swings as the stock market. Therefore, there’s likely to be further rollercoaster rides for grain prices, with lows already been seen below what Friday’s markets closed at.
Where grain prices – and specifically corn and low-protein wheat prices – could start feeling a demand pinch is from the ethanol side of things. With remote work policies in place at those companies who can don’t need people physically on-site (mainly white-collar occupations), demand for blended gasoline in America is expected to fall by about 20%. Therein, Refinitiv Eikon (via Reuters) shows that ethanol refining margins are at their worst since March 2012 at -6 cents/gallon (yes, they’re losing 6 cents on every gallon refined).  This likely means some plants will reduce its production hours, or temporarily shutter their operations.
More broadly, all grain prices tend to follow oil prices, which continue to be suppressed on global level, thanks to the “we’re not talking to each other anymore” relationship between Russia and Saudi Arabia regarding oil production volumes. However, depending on what scare tactics may next come from the media, increasing interest in food supplies could start to show up. While it’s not a perfect indicator, net-short positions held by money managers in corn and soybeans are sitting at their smallest since early February and mid-January, respectively. 
That said, while Chicago wheat investors continued to extend their long positions last week, HRW wheat sentiment got more bearish with the largest weekly sell-off since July 2018 and the net-short position in Minneapolis HRS wheat grew for the 6th straight week and is now near a record-short position. Keep in mind that flour and byproducts like breads and crackers are staples in times like these and given the bearish sentiment, wheat prices might start to rebound soon. If realized, I believe that this would be good for grain prices in general.
Some other headlines that I’m watching for grain prices include the NOPA soybean crush report, set to be released later this morning. Estimates are that soybeans processed in February totaled 164.956 million bushels (or 4.489 MMT if converting bushels into metric tonnes). This would be a noticeable decline from January’s 176.94M bushels (or 4.816 MMT) but a marked improvement from March 2019’s 154.49M bushels (or 4.205 MMT).
Some Words of Encouragement
To help put things in perspective, here are a few messages worth sharing amongst your circles, especially those who may not be in rural areas and don’t have a year’s worth of frozen good in the basement!
First and foremost, we’re going to get through this. Countries like Hong Kong, Singapore, and Taiwan took some drastic steps that last a few weeks but are now on the rebound.  We have to admit to ourselves that, yes, things are going to be uncomfortable for awhile, and we need to be comfortable with that. Thereafter, our daily lives will gradually start to get back to normal but slowly, not all at once. The sooner you come to terms with this, the better you will be mentally enduring the next few weeks. For the parents that are reading, here is a list of online education companies who are offering free subscriptions to their services and can help keep your kids busy. Don’t allow the extra time at home become a vacation.
Second, while I’m relatively young (born in 1986), my parents and grandparents have seen this before. For my parents, it was the implementation of social distancing during the scare of polio spreading around the world. While we have to thank the scientists, who made the polio vaccine, society had to take some extra cautious for awhile in the late 50s, early 60s.  If you don’t believe me, ask your parents or grandparents and they’ll tell you stories about the community-building and neighbourly acts during tough times – history can be a great educator.
The difference this go around is, it’s not the young that are more susceptible, but instead, your parents and grandparents (put simply, they’re battling against an unseen enemy for the second time in their lives). That said, we have the technology that was not available in previous pandemics – virtual lunches and happy hours are becoming a thing! Who were you supposed to grab lunch w/ this week? Another trend that we’re seeing is the number of Combyne users are building their Business Pages (found in My Profile) – if you could tell prospective buyers how or what you farm, what would you share? Take it a step further: what would you tell the consumer if they came across your farm’s or agribusiness’ page on the internet?
Third, I’ve seen some great analogies in the past few days of why it’s important to chill out and reduce unnecessary movement for a week, maybe more. Probably the best one is that of rainfall. Everyone appreciates rain that comes over many weeks and months versus 4 or 5 inches in one hour. Similarly, the efforts today of the coronavirus containment are meant to help it move through our communities like a slow rain. Otherwise, there’ll be a run on our healthcare systems, somewhat like a one-hour rainfall of 5 or more inches will make a run on your crop and/or soil health.
The bottom line is that, if we can, as a society, collectively and coolly confine ourselves, we’ll could be laughing in 3-4 weeks. If not, there’ll be no laughing. As mentioned by the Ghent University Medicine and Health Sciences professor, Wim Derave, in an op-ed this morning, “This is a historic opportunity. We can now really mean something for each other and for our country. Our task is clear.” 
Have a great week!
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 = $1.3919 CAD, $1 CAD = $0.7185 USD)
May Corn: -5.5¢ (-1.5%) at $3.603 USD or $5.014 CAD
May Soybeans: -5.8¢ (-0.65%) to $8.513 USD or $11.848 CAD
May Soybean Meal (per short ton): -$2.10 (-0.7%) to $297.40 USD or $413.95 CAD
May Soybean Oil (cents per lbs): -0.49¢ (-1.85%) to 25.88¢ USD or 36.02¢ CAD
May Oats: -15.3¢ (-5.7%) to $2.53 USD or $3.521 CAD
May Wheat (Chicago): -7.5¢ (-1.5%) to $4.985 USD or $6.939 CAD
May Wheat (Kansas City): -6¢ (-1.4%) at $4.255 USD or $5.922 CAD
May Wheat (Minneapolis): -2.5¢ (-0.5%) to $5.055 USD or $7.036 CAD
May Canola: -14.7¢ (-1.45%) to $10.14/bu / $447.10/MT CAD or $7.285/bu / $321.22/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.