Jan 29 – Coronavirus Spread Pushes Markets Towards Peak Panic

Grain markets are mixed as the spread of the coronavirus has seemingly hit peak panic after the sell-off seen over the past week.

“Panic causes tunnel vision. Calm acceptance of danger allows us to more easily assess the situation and see the options.” – Simon Sinek (British-American author and speaker)

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Coronavirus Spread Pushes Markets Towards Peak Panic

Grain markets are mixed as the spread of the coronavirus has seemingly hit peak panic after the sell-off seen over the past week. Grain markets aren’t sliding because of the coronavirus explicitly, but moreso falling because investors are pulling out on fears of an economic slump caused by the coronavirus. Corn prices did rebound a little yesterday but today it’s the oilseed complex that’s trying to reverse course.

How Does Coronavirus Impact Grain Markets?

Various countries around the world are recommending to not travel to China right now, with explicit instructions to avoid key areas in the People’s Republic where the coronavirus is active. British Airways has suspended all of its flights to and from China, with dozens of other airlines significantly reducing the number of routes as they try to minimize their roles as agent of spreading the coronavirus. [1]

Oil and copper prices – two the of the benchmarks for not only global commodity trade but also general economic indicators – have dropped to multi-month lows. [2] The reason behind this happening is a general slump in demand for these types of commodities and others. Basically, with less travel, less going out, and thus, less need for various goods and/or services, there are less needs for these types of commodities so positive economic behaviors by people starts to sink.

For example, think about the number of flights that have been cancelled and all the fuel that they would regularly consume. Now think about all the people who’s jobs require them to travel to China – can their level of productivity remain at pre-coronavirus levels? That’s highly unlikely. Further, global brands like Starbucks and McDonald’s are closing a large significant amount of storefronts in China as a precaution against the growing fears that their customers and employees could catch the coronavirus.

Thus, the coronavirus doesn’t have a direct impact on grain markets, and instead an indirect one. Economic activity is all linked together and expectations were high going into the Chinese New Lunar Year celebrations but people have basically been told to stay home. Now they can’t spend their money on eating out, or maybe that big meal for their family at home. It might not mean much when you think of it in terms of one or two families, but when 100s of millions of Chinese all slow their economic activity because of the coronavirus, this would be like a bullet train slowing its speed from 200 mph to 20 mph.

Accordingly, we’re talking about less meat consumption by the world’s largest market of meat eaters. That means that less feedstuffs for the animals are needed since there’s not as much demand for said animals. This in turn means less likelihood that China ramps up its soybean buying from the U.S. (or any other agricultural product for that matter!).

Other Grain Markets Factors to Watch

While the uncertainty of the impact of the coronavirus has recently absorbed most of the headlines in the grain markets, there are some supply and demand factors that I’m still watching. In meeting the WTO’s ruling that China must allow private buyers to use its unused wheat import quotas, China recently bought some wheat from Australia, Canada, and France, which caught grain markets a bit off guard as it wasn’t really expected. [3] On a related note, Tunisia’s state grains agency has asked suppliers to avoid buying French wheat due to the disruption in shipments due to the labour strikes there. [4]

In my 2020 outlook for canola prices that I published three weeks ago, I explicitly asked “Given the recent rally in canola prices, I’m starting to ask how much more room does the market have to run?” All it takes is a small disruption (rather, the fear of disruption) to the market like the coronavirus and all its uncertainties, and those gains have been erased. That said, new crop November 2020 canola prices are still sitting at $490 CAD/MT.

The fall in canola prices has largely been the following of soybean prices, which have had negative closes in 8 out of the last 9 trading sessions since the U.S.-China trade deal was signed 2 weeks ago! [5] With those sort of losses in mind, grain markets are basically telling American farmers to plant less soybeans, and instead more corn. [6] While we’re still a few months away from the thick of Plant 2020 starting, as I mentioned in Monday’s Breakfast Brief, the weaker demand for soybeans could easily mean more corn acres.

If that’s the case and U.S. farmers plant something in the neighbourhood of 94 or 95 million acres of corn, that could mean a 2020/21 U.S. corn carryout of nearly 3 billion bushels (assuming trendline yields). [7] The bottom line is this is all speculative at this point but it’s important to recognize the different scenarios that could play out here.

Combyne Tip of the Day

I’m in Edmonton, AB this week for the annual FarmTech conference and we continue to see and hear a lot of great feedback on our next-generation cash grain marketplace, Combyne. Our new platform is built on greater trust and better communication with both your current trading partners and also potential new ones. If you haven’t already invited your current trading partners, you can easily help share your price expectation with them by sharing your Listing with them!

Go to your My Listings tab and click on the deal you want to share. If you’re using the mobile app, you want to tap the arrow button on the top right (as shown in the screenshot on the right below) and share the deal by whichever means you want. If on your computer, copy the link provided for you on the right side of the screen and email it off to those trading partners that should know what you’re thinking in terms of your next deal.

Combyne cash grain marketplace - share your listing with your trusted trading partners

As a reminder, you can invite your trusted cash grain trading partners through the Connections tab and click in the Add Connection icon on the app or Send Invite on the website. Our mission at FarmLead is to make cash grain trade easier. Removing all the hurdles – including transaction fees and anonymity – to be able to share price expectations and communicate effectively and efficiently is critical to aligning with that mission.

To growth,

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

Due to some early morning travel, futures grain prices are not included in this morning’s Breakfast Brief but you can review them here at your convenience.

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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