Maybe the sky is not falling.
Grain prices seem to have bottomed out for the moment, and we have seen sizable gains in the corn and soybean markets.
As more is known about the coronavirus, less hysteria seems to be the norm. Chicken Little has been cackling in newsrooms across America, with volume to almost drown out the drone of election news.
Now we are being reassured that the virus will increase, but panic should not.
Contagious, not deadly
What do we know? Some early studies are showing that the virus is very contagious, but not very deadly. It is caught easily, but it is survived, often with mild cases. One expert is estimating, on poorly reported data, that the mortality may be as little as 0.4 percent, just twice the rate of ordinary flu.
On this news, and on assurances by governments that they are doing a good job of isolating the disease (which we will believe when we see it), reason is returning to all the markets.
Market rebound
The Dow bounced over a thousand points in one day, a record gain after record losses. Grain futures markets have bounced and are holding gains March 3 as this is written. Only energy markets are lower, and they should be. Cut all air travel and a significant part of trade shipping, and you cut the demand for crude oil.
March corn futures have rebounded 13 cents from the Feb. 28 low of 3.653⁄4. We traded over 3.80 March 3, and are holding gains of more than four cents for the day so far. March soybean futures have bounced 35 cents from the Feb. 24 low of 8.703⁄4. We are trading 9.02-1⁄4 now, up two and a half after being almost to 9.06 earlier in the session. So, we have a little breathing room.
Good news ahead?
Now, maybe we can start back to trading the fundamentals instead of the short-term fears. There is good potential news in the grain markets, depending upon who you believe. Cash grain traders point to the cash basis and spreads and claim they indicate that either the crops are not going to town, or the crops are not really there.
Producers all over the Midwest remain dubious that we struggled through a record wet year and a record late-planting year and did not reduce yields more than USDA claims. They expect revisions to the so-called “final” January reports.
If there is more corn than the farmers think, they are not willing to sell it for current prices. Basis is a measure of demand. The more the cash trader or end user bids above the futures market, the hungrier he is.
Then, there remains the idea that the corn, especially, is low quality. Farmers that are currently moving corn are concentrating on the poorer quality corn that they are fearful of storing. The whole crop might not be as poor as buyers are now seeing, but it will be hard to export #2YC.
The test weight is not there, and the fm is high. The low quality is expected to yield less ethanol, requiring more demand in the distilleries. Ditto for an increase in usage for feed, which will require some adjustments to maintain the ration.
China
The biggest unknown is the amount of grain and products that will go to China. USDA, correctly, has not shown exports to China in their supply and demand report. The view is that it would not be proper to speculate, just to report exports that are reported. It is reported, but not necessarily believed, that Chinese businessmen are going back to work. That may mean we will finally see some grain contracts.
One view of the prospective Chinese business is that they need to perform more than ever. They are having problems with consumer unrest caused by liquidation of perhaps half the swine herd (there are not official reports), and by shortages of grains as shipments made to them have remained in harbor waiting for truckers who are locked in their apartment buildings.
If any of these ideas is correct, we will see higher prices. If they all are correct, we will see a significant rally. Keep the faith!
