Mar 20 – King U.S. Dollar, Food Supply Chains, and Plant 2020

Grain markets are all in the green this morning as the U.S. Dollar maintains its strength and the agriculture industry starts focusing on Plant 2020

“When the dollar collapses, it’s not doing it in a vacuum. If the dollar loses value, it’s doing so relative to some other currency. So the purchasing power that we lose, somebody else gets.” – Peter Schiff (American economist)

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King U.S. Dollar, Food Supply Chains, and Plant 2020

Grain markets are all in the green this morning as the U.S. Dollar maintains its strength and the agriculture industry starts focusing on Plant 2020. There’s a lot to get through today, including the most amount of supplemental reading I’ve ever put in a Breakfast Brief, so grab your coffee and let’s go!

The U.S. Dollar Gets Help From COVID-19

After some promising results in China and few other places, an old anti-malaria drug, Chloroquine, is in high demand around the world, including the U.S., China, and Europe. [1] In a very ironic move, considered consumer enemy #1 just a few months ago because of its Round-Up lawsuits, Bayer, is now being praised for donating 3 million tablets of the chloroquine, anti-malaria tablets to the U.S. government. [2]

Given the amount of fiscal and monetary stimulus that the U.S. government and lending agencies (i.e. the U.S. Federal Reserve) have provided, it’s no surprise that the U.S. Dollar has made some significant gains against almost every other currency these last few days. [3] A couple of notables include the Australia Dollar falling to an 18-year low against the U.S. Dollar at $0.55. Indonesia’s Rupiah is sitting at 20-year lows while the Bank of England cut their interest rate to 0.1%, pushing the British pound to 35-year lows against the U.S. Dollar. [4] Meanwhile, the Canadian Loonie is starting weather the storm a better against the U.S. Dollar, thanks to a slight rebound in oil prices and borders still being open for trade with the U.S.. [5]

Performance of the U.S. Dollar index over the past 2 weeks through March 20, 2020

Performance of the Canadian Loonie over the past 2 weeks through March 20, 2020

The reality is that the market will not stop being so volatile until either the rate of new COVID-19 cases in the world starts to level off, or the market believes that all this government liquidity is enough to keep the economy going. However, Ray Dalio (who I regard to be one of the smartest individuals in the market), points out though that the effectiveness of fiscal and monetary stimulation tools will be significantly lowered with interest rates at 0%. [6] His argument is that looser fiscal policy (AKA cheques from the government) is going to be more impactful at sparking the economy back up. Further, with the U.S. Dollar so high, American goods headed for the export market are now more expensive for other markets.

We’re also starting to see more governments looking into boosting the oil market, which has helped oil prices pick up a bit from earlier this week when they hit their lowest levels since 2002. [7] That said, if you’re not locking up fuel supplies now for this year and next, I think you’re crazy trying to bet that oil prices will go even lower. Are you really willing to bet on another $5 or $10/barrel drop in oil prices when they’ve already fallen by $40 in the past 2.5 months?! From an intervention standpoint, President Trump said they might get involved in the Russia-Saudi Arabia production war and the Canadian government is looking to provide $15 Billion CAD in relief to its country’s oil and gas industry. [8]

One activist investor, Bill Ackman – who is probably one of the loudest in the market right now – went on CNBC yesterday for 30 minutes to say that unless the U.S. shuts down the country for the next 30 days, many companies will not survive this downturn. [9] He believes that unless there’s a hard, unequivocal stop to all non-essential activity, the U.S. economy won’t survive a creeping 18-month shut down. However, he believes that companies can manage a 30-day “rip of the band aid”, maybe even 60 days. That said, everyone is asking for money from the government to keep them afloat. [10]

Questioning Food Supply Chains

While there are certainly some farm labour issues, undoubtedly governments around the world will ensure that there’s a full pipeline of food. For the record, there already is today a lot of food to lean on and we won’t be running out any time soon, says the CEO of U.S. grocery-store chain Kroger, Rodney McMullen. [11] And while meat demand has left many grocery store shelves empty, fresh supplies are on their way. However, company executives are warning that if COVID-19 quarantines are prolonged, meat demand will subside over the long run and cattle prices could pull back to that seen in 2002. [12] Coming back to the present though, food shipments that were originally intended for restaurants are now being re-routed to grocery stores. [13] Ultimately, the food supply chain is quite complex, so re-adjusting routes is a bit tricky, but it will get done.

That said, General Mills is admitting that there’s been a demand surge for their cereals, soups, and other food staple products. [14] This backs up my suggestion from Wednesday that durum prices could be leading indicator for grain markets and partially why we saw wheat prices jump more than 5% yesterday in Chicago and are in the green again this morning.

Elsewhere, Russia has closed its borders and has said that they may limit some food exports, but that there’s no shortage of grain. [15] The bottom line is that the develop world’s food supply chains are robust (especially here in North America). And while there’s been a surge in demand, which has created some gaps in available goods, freight providers are working over-time to play catch-up with their supplies. That said, the Wall Street Journal is reporting that, just as Asian ports are opening back up from a two-month near-standstill, the ports of western economies, like the U.S., are hunkering down themselves. [16]

If we trace it back though, while rail traffic is starting to rebound, we’re weeing a significant slowdown in containerized shipments of grain and it’s likely to stay that way for foreseeable future. [17] This is a combination of slowing demand from abroad as countries go into lockdown (especially China), which means it’s easier for container-loading companies to go idle, especially when recommendations are to keep employees at home. While this likely will weigh on prices pulses and speciality crops, there are some strong bids on the Combyne grain marketplace for small red lentils in central Saskatchewan and yellow peas in NW Alberta (Hint: add these buyers to your Combyne networks!).

Plant 2020 Planning

While many urbanites are sheltering in place, farmers in the northern hemisphere are getting prepped for Plant 2020! As mentioned above, if you haven’t locked in fuel (or at least hedged your fuel bill), you should be doing so now. In Europe, rain has limited spring sowing in a few countries, namely France, as wet fields been less spring barley planting is way behind its normal pace (34% complete this week vs the five-year average of 96%). [18]

In North America, ADM says that when it comes to fertilizer supply (and prices) all eyes will be on the U.S. river system. [19] There continues to be more suggestions of a big 2020 U.S. corn crop with private estimates sitting around 95M acres. [20] The annual producer survey by U.S. brokerage shop, Allendale, pegs U.S. corn acres for Plant 2020 at 94.63M, soybeans at 83.74M, and wheat at 44.47M. [21] This would translate to a production of 15.37 bbu of corn, 4.163 bbu of soybeans, and 1.874 bbu of wheat. Ultimately, given all the shutdowns with COVID-19, we should likely expect government estimates of Plant 2020 acres to be delayed. [22] This is notable for the U.S. March Prospective Plantings report, which is set to be published on Tuesday, March 31st.

From a weather standpoint, while yesterday was technically the first official day of spring, there are some winter storms hitting the eastern Cornbelt and Northern Plains. The bad news is that the NOAA, in their spring outlook yesterday, suggested that there’s an increased chance of major flooding, this spring, which will intuitively challenge Plant 2020 progress. [23] However, the NOOA is also forecasting that no part of the U.S. will have below-average temperatures this spring, so hopefully the Sun does its job of helping dry out some fields. The opposite is expected for Western Canada until at least until May, with big swings in temperatures and limited precipitation expected until then. [24]

The NOAA's outlook for Plant 2020 unfortunately includes some heavy flooding

Keep your chin up and have a great weekend!

To growth,

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

At 7:50 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.4289 CAD, $1 CAD = $0.6999 USD)

May Corn: +8.8¢ (+2.55%) at $3.543 USD or $5.062 CAD
May Soybeans: +11.8¢ (+1.4%) to $8.55 USD or $12.217 CAD
May Soybean Meal (per short ton): +$1.60 (+0.5%) to $316.40 USD or $452.10 CAD
May Soybean Oil (cents per lbs): +0.46¢ (+1.8%) to 25.94¢ USD or 37.07¢ CAD
May Oats: +6.8¢ (+2.6%) to $2.68 USD or $3.829 CAD
May Wheat (Chicago): +9.8¢ (+1.8%) to $5.448 USD or $7.784 CAD
May Wheat (Kansas City): +8¢ (+1.7%) at $4.735 USD or $6.766 CAD
May Wheat (Minneapolis): +4.8¢ (+0.9%) to $5.245 USD or $7.494 CAD
May Canola: +4.8¢ (+0.9%) to $10.569/bu / $466/MT CAD or $7.397/bu / $326.13/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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