Grain markets are mostly in the green as demand for essentials like pulses, meat, and cereals continue to help the complex.
“If patience is worth anything, it must endure to the end of time. And a living faith will last in the midst of the blackest storm.” – Mahatma Gandhi (Indian lawyer and civil rights leader)
Are Pulses Dealing with a Perfect COVID-19 Storm?
Grain markets are mostly in the green as demand for essentials like pulses, meat, and cereals continue to help the complex. As mentioned in Monday’s Breakfast Brief, wheat prices have continued to lead grain markets higher. However, corn prices look like they have some risk to the downside after it was suggested yesterday that U.S. ethanol producers may take about 2 billion gallons offline due to the depression in gasoline demand. 
Outside markets continue to be volatile, with the Dow Jones stock market rebounded 11% yesterday – its best one-day performance since 1993 – as investors anticipated a multi-trillion dollar economic stimulus plan from the U.S. government.  However, with a $2 TRILLION dollar stimulus announced late last night, investors’ relief has started to fade and equity markets are mostly lower this morning. That said, volatility remains the name of the game and the markets activity continues to be more whip-saw than anything.
Speaking of activity, we’ve seen a significant uptick of activity on the Combyne cash grain marketplace over the last 2 weeks as farmers look to lock in movement before seeding or for the summer months, while buyers are securing supply for the same timeframes. One Saskatchewan farmer who has been building his list of Combyne Connections for the past few months shared with me yesterday that “It’s incredible how quickly all these buyers engaged with me once I listed my few feed barley, despite my price being a little high to start with.” You can easily list your next deal on the Combyne cash grain marketplace to help set some expectations. As a reminder, Combyne is completely free to use.
Brazil and China Soybean Update
Karen Braun of Reuters noted on Monday that there has been significantly less boat traffic coming out of Brazilian ports so far in January and February, but that March is looking like a record month.  In fact, through last Friday, 7.2 MMT of soybeans have been shipped out of Brazil and it appears that the 9 MMT record for March set in 2017 could be broken. Conversely, with China’s ports opening back up and soymeal supplies quite tight (Dalian futures prices hit limit up yesterday), they’re looking to buy more soybeans.  In fact, China has imported 6 times more soybeans from the U.S. in January and February (6.1 MMT) than they did over the same two-month period in 2019 (1.04 MMT).
However, a few of the key towns in Mato Grosso, Canarana and Rondonopolis, has shut down any movement of agricultural commodities in or out of their cities in order to slow the spread of COVID-19 in the region.  These cities are important dots on the map as they handle a significant amount of grain and especially since Rondonpolis have a few crush plants there owned by COFCO and Bunge.  Further, Canarana saw roughly 6% of the entire 2018 Brazilian soybean harvest move through it, making it a key pit-stop town on the way to the ports. 
Complicating things are port workers who continue to threaten strikes and the obvious potentially of COVID-19 shutdowns.  While the cities are in lockdown, it’s still go-time for farmers as the soybean and first-crop corn harvest are underway, with 68% and 52% of the crop cut through last week (both of which are in line with last year and the seasonal average).
Pulses Earning A Demand Push
In India yesterday, Prime Minister Modi initiated a plan this week to lockdown the entire country – AKA 1.3 Billion people and nearly a fifth of the world’s population – for the next 21 days.  Like most other countries, essential services like food stores, banks, and gas stations would be exempt from the lockdown, but anyone else caught refusing follow the restrictions could face up a year in jail. Intuitively, this created a mad scramble for food supplies with the Trade Promotion Council of India reporting a doubling of demand for “essential commodities such as rice, wheat, and pulses. 
While officials in India say that there’s about a year’s worth of food supply (especially with the winter rabi crop coming off as we speak), any concerns about ensuring people can eat will fall on logistics and supply chain challenges.  If there are any food shortages in India from the heightened demand, you should absolutely expect some sort of social revolt. Already, global trade for agricultural commodities is being tested as countries start to hoard food, providing a new form of populist protectionism we haven’t yet experienced.  For example, Kazakhstan has banned all exports of carrots, sugar, potatoes, and wheat flour (despite being one of the world’s largest flour shippers) while Vietnam has suspended new rice export contracts until further notice.
That said, history is our best educator here and we can look to just a few years ago in Egypt, where limited bread supplies catalyzed a revolution (and continue to create unrest).  In an effort to stall any food-based social unrest in the People’s Republic, China is encouraging its local governments to stockpile food supplies – notably poultry and aquaculture products – in order to support increased agricultural production.  This again though points to countries acting like consumers in that they hoard essentials like cereals, meat, and pulses. My next best guess is that this may lead to wartime rationing, notably price controls (albeit we know India is good at this already when it comes to minimum support prices for its pulses and other crops).
On that note, here in North America, the New York Times is reporting that pulses processors are seeing demand spikes anywhere from 40% to 400% from a year ago.  And we know that consumer demand for pulses in North America as evidenced by the empty grocery store shelves as people look for options that are cheap, nutritious, and have an expiry date that’s years away. Accordingly, prices for pulses in the cash market have risen a little bit, but limited farmer selling has kept the prices for pulses in check a bit.  That said, I’m cautious of any major move to the upside for pulses in the cash market without a major event in India or another major pulses-consuming country.
COVID-19 Stimulus Doesn’t Include Agriculture
Overnight, the White House and Senate agreed on a new COVID-19 stimulus funding bill that amounts to more than $2 Trillion USD in government spending and tax breaks.  Of note is that lower- and middle-income U.S. families of four could receive direct payments of up to $3,000 USD, as well as unemployment insurance being extended by 4 months and will cover more types of workers.
From a corporate standpoint, the U.S. government is providing about $500 Billion in lending to the likes of U.S. airlines ($50 Billion) and small businesses ($367 Billion), the latter of which is used to provide up to eight weeks of assistance to help “keep paychecks flowing” while workers stay home. All in, between this $2 Trillion and the $4 Trillion in increased lending from the U.S. Federal Reserve have already injected into the economy, the total COVID-19 stimulus package would total roughly $6 TRILLION dollars.  That’s a little less than one-third of the entire American GDP!
In Canada, a $82 Billion stimulus package was passed late last night, including $27 Billion in direct payments and $55 billion in the form of tax referrals.  While Prime Minister Justin Trudeau announced $5 Billion in new lending for the Canadian agriculture industry, the Grain Growers of Canada (and many individual farmers) denounced the aid, saying they need tools to succeed (i.e. open railoads/ports and no carbon tax) instead of drowning in more debt. 
Shaun Haney from RealAgriculture wrote an excellent op-ed outlining how the Canadian and American governments are trying to support their respective agriculture industries but are taking divergent paths in their approach.  While I think you should read it, the bottom line is that the current Canadian government has opted for more lending whereas the U.S. has gone with direct payments to farmers.
Make it a great Hump Day!
Due to some technical difficulties, the grain markets futures data isn’t available in today’s Breakfast Brief but you can view them here at your convenience.
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