Weekly Market Update – March 6, 2020

The commodities have finally decoupled from trading lockstep with the equities market. There is still some correlation, but not nearly as much as we close down a few today with the Dow finishing down over 1000 points. This is a good thing for us. Cooler heads are prevailing and everyone agrees that even if we experience an economic slowdown due to the virus, it will not drastically change the grain or oilseed fundamentals. The actions taken by the Fed and the tools available to other central banks are friendly for most of the ag commodities, not bearish. All federal officials, treasury and USDA continue to be very upbeat about China honoring its commitments despite the virus. The market is still skeptical, but all officials, without exception, remain positive. The little chatter coming out of China is also positive. They say they are rebuilding their hog herds this year and will need the ag purchases.

We will get USDA’s March S&D next Tuesday March 10th but that report is usually very quiet. The next big report will be Planting Intentions and stocks on March 31st. The market has already priced in big corn acres but the long term forecasts will also start playing into the trade as we move through the next few weeks.

The best thing going for corn right now is strength in soybeans. As soy has rallied, it has helped keep all the acres from going to corn. We still have a ways to go, but this has been a big move in the right direction. Corn exports this week were good. We are not hopeful about getting a boost from USDA’s resurveys of old crop. It will be interesting how they handle the March 31st stocks report with so many already reporting quality issues in feed and ethanol plants. It is going to take more of this corn to get the same energy as last year’s corn. The spreads have all tightened up significantly in corn and basis has remained strong indicating significant tightness in the old crop, despite the board drop. Futures prices can be misleading when they fall victim to outside market forces. Spreads and basis are much more reliable indicators.

What To Do?
If you need money in the next 30 days or less, you need to be scaling sales in now! Yes there is tightness in the old crop. Yes we have upside potential. Yes we have stopped bleeding in the street for now whenever the Dow drops 1000 points. BUT its like we have a sword hanging over our head until we get this virus under control. If you need cash soon, you are not going to have time to wait out another leg lower if it happens again. Last week should be a reminder how quick something completely unrelated can pull the rug out from under us. Sell old crop and work new crop at close to $4 Dec.

Soybean exports this week were very disappointing. Soybeans got a huge gift that has not been talked about enough since its been overshadowed by the virus panic. Argentina enacting export taxes and controls is them shooting themselves in the foot much to our benefit. When China slapped retaliatory tariffs on our beans it made our beans more expensive for them and other countries beans less expensive. Argentina is helping make theirs more expensive which will make ours cheaper for China. We are usually not competitive this time of year when South America has new crop and we have old, but this will help equalize that, for Argentina at least. Beans have a lot of potential with small changes to yield in the US. Beans will be sensitive to weather and if we see China start making moves at buying US beans it will be a huge bonus.

What To Do?
Similarly to corn, if you need cash soon, scale beans sales in now! Basis is very strong and now over the May so you can move beans on basis. If you can be patient for a couple months, beans may get some help from acres, weather or China. Be patient on new crop.

Wheat has not recovered like the other grains. Warm weather in the plains aiding development and favorable weather in Russia is causing the weakness. A cold snap or any change in weather will change wheat quickly. Exports were good this week and rumors of China buying US wheat will help. Be patient on wheat.

Cotton was able to close in the green despite 1000 point drop in the Dow. But cotton has not been able to recover like corn and soybeans. It is the most sensitive to economic growth and global movement being curtailed in an attempt to stop the virus is having a significant impact on cotton trade. Exports were exceptional today which gave it the boost. Until we get some positive economic news, cotton is going to struggle to recover. Be patient on cotton.