Market Updates Archives - Page 24 of 24

Corn planting has accelerated in the last week with planted acres now at 27% complete. This is 7% ahead of the normal pace and well ahead of where we were at this time in 2019. Still ahead of last year’s pace, the acres planted in the Eastern Corn Belt is lagging behind the rest of the country as they are stuck in a wet and cool weather pattern slowing their efforts to get in the field. As you can see from RJO’Brien’s U.S. Corn Planting Progress, the leading corn planted states are:

- - MN at 40%
  - IA at 39%
  - IL at 37%
  - NE at 20%

With parts of the country set to reopen this week, it will be important to keep your eye on what happens in the oil markets. If consumers start buying more gas and getting back to normal travel, look for ethanol demand to crawl back. There is no quick fix to these markets, any positive COVID-19 news remains the biggest boosts for these markets.

The biggest news in beans is that there is little to no news. Outside of some sales to China and Mexico, beans have been at the mercy of COVID-19 and Brazil. Soybean planting progress came in at 8% this week (average is 4%) as weather in a lot of areas was good over the weekend. U.S. bean prices continue to be competitive with South America, however SA beans are higher quality, leading them to be the preferred option:

U.S. soybean sales last week of 1.078 MMT (39.6 million bushels) fell in line with market expectations of 700k-1.2 MMT, but were the highest in 19 weeks. This comes with the return of Chinese buying with purchases of 618k tonnes for the week giving beans a much welcome price boost.

Crude Oil is still feeling the effects of last week’s historic day. While it has rebounded from the lows and is now trading in the $15 range, the outlook is still grim. As U.S. and World stocks are getting close to capacity, there are oil tankers anchored in place around the world’s oceans as they await instructions on where to deliver. The best case for oil prices comes with the world economy opening and consumers reverting back to normal means of consumption and any positive COVID-19 treatment news would be bullish for crude moving forward.

The COVID-19 pandemic has wreaked havoc on a number of critical U.S. industries, but none more strategically important than food production. In the livestock industry, the biggest concern is keeping processing plants staffed. Line speeds have slowed considerably, and in some cases, plants shuttered completely. U.S. beef production fell from 565 million pounds the week of March 23^rd to 414 million pounds last week, down -27% from a month ago. Pork production is also dropping sharply with hog slaughter down nearly 650,000 head on a weekly basis. The backlog is forcing producers to destroy millions of market ready animals, break eggs, abort sows, and euthanize piglets. Meat supplies are contracting, pushing wholesale beef prices to record highs. Pork bellies that were being rendered a few weeks ago have tripled in price. Shortages in meat cases are imminent unless something changes quickly.

On April 28^th, President Trump attempted to address this situation by invoking the Defense Production Act, which will require meat packing plants to remain open. A key component of the ACT releases packing plant owners (Tyson, Cargill, Smithfield, JBS et al) from liability if workers fall ill from COVID-19. The announcement got immediate pushback from workers and labor unions representing 80% of the packing industry workforce.

Relief Package
The $19 Billion farm relief package that was announced a couple of weeks ago will touch most sectors of agriculture. Of the $19 Billion, $3.9 Billion will be direct payments for grain and soy growers, while the largest chunk of the money will be $9.6 Billion ($5.1 Billion for beef, $2.9 Billion for dairy and $1.6 Billion for hogs) to livestock producers that have been undercut by processing plant closures and logistic problems. Distribution of these funds will be made quickly according to various Senate sources.

“This aid will help keep food on Americans’ tables by providing a lifeline to farm families already hit by trade wars and severe weather.” – Zippy Duvall, President of the American Farm Bureau (USA Today)

Dow Jones
The Dow is up again this week on news from the Fed promising support for the economy, while also pledging to keep interest rates near zero and possible treatments for COVID-19. After a miserable February and March, April has been a good month for the market as continued hope of a light at the end of the tunnel along with strong responses by the Fed have pushed markets higher.

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: Market Updates

Ag Markets Update: April 22-30

The return of the AG

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