March USDA Report – March 10, 2020

Another week has started off with blood in the street. To sum it up quickly, Russia and Saudi Arabia were trying to come up with an agreement to reduce oil production to support oil prices and they had a falling out. Saudi Arabia threatened to flood the world with oil and walked out sending oil prices plummeting. Not so long ago, a huge drop in the price of energy would have been a huge boost to the US economy. Now that we produce so much oil, the parts of the economy related to oil production will be hurt by this and only the parts not related will benefit. This turmoil is then added to the building panic from coronavirus.

The virus seems to be under control in China. There are almost no new cases and all temporary quarantine areas have been emptied. The existing healthcare infrastructure can handle the remaining cases and the Chinese president visited ground zero to show the world that it is now under control. The rest of the world is about three weeks behind this, so there may still be some fireworks ahead before things are under control, but China has shown it can be controlled.

I wrote last week that our ag markets have finally decoupled from the panic in the equity markets and even after Monday’s bloodbath I will say that is still the case. After the equities closed down more than any day in 12 years, I still have to count corn down 3, beans down 17 and wheat up as a victory. We benefited by the fact the funds are short corn and wheat so when they liquidate in panic, they are buying contracts not selling. Corn is still a good way from the recent lows.

USDA March Estimates
The march report barely deserves much space as there were not many changes at all. Resurveys of corn left in the field are not back in yet so they were not reflected in this report. China has started making purchases of wheat and milo but has not bought significant amounts of beans yet so USDA has not increased numbers to China. World corn demand is climbing and carryouts are tightening. World bean supplies are also tightening even without a big increase from China. South American crops are getting a little bit bigger, but Argentina’s barriers to export will help support price. Wheat demand was estimated slightly higher than last month.

We still have the March prospective plantings looming over the market. If you need cash soon, get orders working in mid 380’s. Work new crop around 390. Friday and Monday were quick reminders there is still some volatility left in this market. The old crop is tight and the new crop will be plentiful until the market sees a threat to it. University of Illinois economist estimates that 10% ethanol blend remains competitive until oil drops below $20/barrel. We are currently at $30 so we still have a ways to go before that is threatened. Lower price will increase demand for all gas too which will help. It is very wet in the Delta. It is a bit early to matter yet, but definitely something to watch. If the market senses a planting delay, we do not have the buffer of old crop we did last year. We probably have not seen the last of the volatility so sell small and sell often.

Corn has the prospective plantings report hanging over its head, but beans have priced in very large South American crops and not much increase of purchases from China. Beans feel like they have a lot of room to move with any kind of a surprise. If you need cash now, you need to be selling on an up day. There could still be some volatility ahead, so sell on your own terms when the market gives you a positive bounce. I would be patient on new crop. If you have the beans in your bin and can be patient, I would wait. Basis continues to strengthen. A move in beans will help corn especially if it can happen before acres go in the ground.

No major changes in wheat. Weakening Russian currency and warm weather in the central US has pressured wheat. A weakening US dollar and fund short has helped support. Be patient on wheat.

USDA lowered cotton yield again. This was not much help right now because cotton is trading all outside markets. China getting a handle on the virus is a big positive as they can get back to work now. Now we are going to have to watch other countries take their turn getting it under control. Weakening crude is another negative to cotton, but once we get past this, cotton could find itself down more acres than it can afford this year.