Just when you thought you were familiar with everything that could affect grain market prices, whether for the good or bad, along comes a new one.
The new coronavirus has health officials and market followers of all commodities in disarray. Doctors and speculators alike are tearing out their hair over this potential health disaster that is trying to leave China and go worldwide.
In the process, the virus has disrupted price patterns for commodities as diverse as crude oil and corn. I understand the crude. The corn? Not so much.
Lunar New Year
Crude oil prices, and energy prices in general, have dropped as analysts predict a significant drop in demand due to travel restrictions in China and a corresponding fear of travel elsewhere. The timing of this disease spreading was unique, as it came just when the Chinese celebrate the Lunar New Year. Who knew this was such a big deal? Literally tens of millions of Chinese travel to grandma’s house for a week of vacation, traditionally. When they don’t, the result can actually be counted in tankers from the Gulf not needed!
Why corn?
Now, explain to me about the corn. I know that is my job, but I am struggling. All I know is that all other markets, including the U.S. equity markets, have plunged. The Dow was off almost 500 points at one time Jan. 27.
Fear of disease translates into fear of lost business. Add to the virus fear the fact that little real buying has yet resulted from the China trade deal. While the market waits for soybean business, prices plunge.
Brazilian crop
In fact, that same Lunar New Year has traders out of the office. Now we are told that we will not see business for another two weeks. That same two weeks gets us close to the Brazilian new crop harvest. With bean planting spread over a huge latitude of Brazil geographically, that harvest lasts for a while. With it comes lower prices, and Chinese buyers looking for the cheapest beans. That cheap price is aided by the fall of the Brazilian real, now down near-record low levels, with new lows predicted.
Before the coronavirus, beans were falling on lack of Chinese sales and the fact that the low real made Brazilian beans cheaper than ours. The big high in March soybean futures came on Oct. 22, at 9.70. We dropped to the low of 8.821⁄2 Dec. 2. From there, the market staged a long rally, even while corn futures were erratic. The recent high came at 9.61 on Jan. 2. Since then prices have staggered, and we are back to 8.93 Jan. 28, with a low of 8.881⁄2 overnight.
For a long time, the benchmark was to keep the price above $9. That has failed. Now the goal is to stay above the old low near 8.80. We are close, and the market is down four and a half cents right now.
Erratic market
Meanwhile, corn prices have stayed up. We have had a lot of days at or just above 3.90 on March futures. However, the corn market has looked like it has cat scratch fever. Look at the chart and you see significant claw marks that represent days of wide ranges.
We have previously discussed the drop after the Jan. 10 USDA reports and the also unexpected drop after the Jan. 15 China deal signing. We actually fought off the drops, and made a new recent high of 3.94 Jan. 23, up five for the day. The virus hit the market Jan. 24, and we lost six and a half cents. We added another six and three quarter’s loss Jan. 27. On Jan. 28, we were up three-quarters of a cent, at 3.811⁄2, but we are looking for that big sale to China that would get this market going.
Remember, China has not been buying corn from us, but they really have to if they are going to meet the contract goal of over $40 billion in imports of ag products. So, we wait.
We have not placed a travel ban from China, although there is talk we are evacuating American diplomats from the worst area. In the last big virus scare to come out of China, Canada did not impose travel bans even though they had an epidemic in Toronto, and some nations did not allow Canadians to enter.
And, we wait for the announcement of corn business to China. In the meantime, we are poised to believe that prices will be much higher.
