Agriculture Archives - Page 27 of 27

Corn planting continued at a great pace around the country in the last week as weather has stayed favorable in some of the largest corn growing states. Weather looks good into the end of May for planting in most areas which would be bearish for the market. The next USDA report comes out on May 12^th which will give some more insight into the supply and demand for the rest of the year. If you’re looking for any positive corn news in the short term, keep an eye out for updates on ethanol production, crude oil demand, and unexpected weather issues.

U.S. Soybean markets are keeping their eyes on Brazil and China as the U.S. continues to battle it out against Brazil for Chinese Soybean purchases. With increased political tensions, record Brazilian exports, and lagging demand, it’s looking like China will struggle to meet the Phase 1 agreement. Soybean planting continued over the week and is off to a great start at 23% planted and with a good weather outlook for the week should continue.

Crude oil storage & oversupply continues to make the market unstable; to help offset that risk, FCM’s have begun to add precautionary measures to reduce and eliminate speculative risk to customers in the front month by restricting to high net worth investors. June crude oil has rallied 269% since its low on April 21 at $6.50, while December crude has rallied 20.4% since its low on April 22^nd. This shows that the major risk for prices is in the short run while further off markets have stayed calm. In addition the largest oil ETF, USO had a reverse stock split 1:8 and has diversified the funds exposure out across the curve. USO represents roughly 6% of the oil market with open interest of over 2 million as of May 7.

(eia)

The government is looking at intervening in the meat packing industry as struggles continue. Foreign interests in both ends of the process has the U.S. government looking to make sure we have control of the process and it is fair. The biggest focus in the meats industry is the plant closures and disruptions in the supply line from COVID-19.

Some U.S. meatpacking plants shut down because so many people were out sick they couldn’t function, or were ordered to close so public health investigators could make sure the workplace was safe…. The meat industry must balance consumer demand with worker safety, when historically the industry’s concern — from the design of plants to employee protocols — prioritizes mass production.” – Green Bay Gazette

Relief Package
The House will be debating a bill to add another $38 billion to the Commodity Credit Corporation (CCC), brining available funds to $68 billion. The USDA allocate this money to fund MFP3, direct commodity purchases, and other programs like WHIP+. Both sides are arguing about oversight of the distribution of the funds, but the bill is expected to pass later this spring.

DOW
After a historic rebound in the month of April, the Dow seemed to come back to earth to start May as we saw a 680-point drop last week. There is a lot of uncertainty about a possible second wave of shutdowns as the country begins to open back up, along with concerns about how China will respond to U.S. politicians calling for accountability in their transparency, or lack thereof, in the early stages of the COVID-19 crisis.

Via Barchart.com

We’ve talked recently about African Swine Flu sending the Hog market for a ride, and that’s just the sort of thing we imagined in our 2019 Outlook whitepaper when we talked about the “return of Ag.” There’s been four straight years of volatility contraction for the Ag markets, and there’s a real threat that the increasingly connected global food supply and increase in the volatility of the weather causes some outlier moves in Ag markets.

Enter Bloomberg, with their Pessimist’s Guide to 2019: Fire, Floods, and Famine, a sort of worst case scenario they imagined where record forest fires, bigger and costlier hurricanes, and hotter and longer droughts unfolded into a sort of global nightmare situation with resulting food riots, bread lines, and all the rest.

Here’s the pretend headline from the future they imagined:

“The heat El Niño released into the atmosphere helped push up world temperatures, making 2019 the warmest year on record. The disruption it brought to weather patterns unleashed floods and droughts, sparking forest fires, displacing people, creating food shortages, and upending energy and commodity markets.”

It’s as out there as you can get – and they even admit that maybe it “…sounds far-fetched” before pointing out that “all of the weather scenarios and most of the policy scenarios described here have happened in the past, just not at once.” Bloomberg references case studies throughout the article where situations like this have all happened before – like the 2011 Brazilian Crop Devastation, and the 1993 Japanese Rice Crisis.

Don’t remember those crisis periods as well as the ’07/’08 financial crisis here in the U.S.? Neither did we. So we looked up a couple of these examples to show how the futures prices were moving during these real-life crises.

1993 Japanese Rice Crisis
Here’s how Bloomberg described the crisis, and the resulting price chart showing prices nearly doubling:

The coldest-ever summer in many parts of Japan had damaged rice crops. Production was down 26 percent from a year earlier. Japanese consumers needed 2.7 million more tons than was on the market and rice stockpiled in government warehouses was less than 10 percent of that.

To make matters worse, in August there were media reports that harvests were still deteriorating across the nation. Some wholesalers began withholding their stockpiles. Rice prices in supermarkets started climbing. Eventually they would double. Because of hoarding, rice virtually disappeared from store shelves.

macrotrends.net/futures/rice

2010 Russian Wheat Export Ban
Bloomberg explains the dynamic inside Russia which caused the resulting price action:

…the government banned export sales of wheat…
A drought in 2010 had slashed the country’s wheat crop to a level barely above consumption. The ban was to ensure the country’s consumers didn’t have to compete with international buyers for the scarce supply. [But] As wheat futures soared on the Chicago Board of Trade, domestic prices in Russia, a top shipper of the grain, slumped.

macrotrends.net/2534/wheat-prices-historical-chart-data

All of this is to say – commodity markets don’t care how many subscribers were added last quarter, how many cars produced, or what the Fed is up to. Commodity prices move to their own beat – based on things as variable as the weather, a drought, or a poor policy decision. Check out our infographic on what moves commodity prices.

Category: Agriculture

Ag Markets Update: May 1-7

The return of the AG

Disclaimer