Closing Comments; Wednesday, January 29th, 2020
Agrivisor - SETZ - Wed Jan 29, 2:29PM CST

Trade continued to react to the spreading Coronavirus in China and what it means for the markets, with more attention on the global financial markets. It is quite likely this is where the real impact of the outbreak will be felt rather than the commodity market. News of flights being cancelled to China and travel bans being enacted heightened these worries. The grains were pressured by a lack of demand today, including the absence of any flash sales on corn for the first time is nearly a week. Soybeans found support from oversold technical indicators and a slower than expected harvest pace in South America.

The Coronavirus continues to spread across China, with 6,000 cases being reported as of this morning. In addition, there have been 132 deaths from the outbreak. Unconfirmed sources claim the actual cases are much higher though, with some in the 10s of thousands. While this may impact commodity demand, any reduction will likely be temporary. Equity markets may feel more of an impact as investors shy away from the country. The loss of tourism revenue is also going to impact the country’s economy. Data shows that the Coronavirus has spread faster than the SARS virus did and comes at a time when China’s economy is more influential on the world marketplace.

Ethanol manufacturing data for the week ending January 24th failed to offer much market support. For the week a total of 7.2 million barrels of ethanol were produced according to data from MID-CO Commodities, a 140,000-barrel decrease from the previous week. Even with this decline ethanol stocks increased 213,000 barrels. This put ethanol stocks at 24.24 million barrels compared to 23.98 million a year ago. This is the 4th highest weekly ethanol stocks volume on record.

While much of the interest in Brazil has been on soybean harvest, the country is also harvesting its first corn crop. A reported 11% of the initial corn crop in Brazil has been harvested which is well ahead of the 5% average for this date. Double cropping is being heavily questioned though, as only 3% of the country’s Safrinha crop has been seeded. This compares to the average pace of 8%. Less than perfect weather and the slow harvest on soybeans are primary reasons for the slow planting of the second crop.

Trade is becoming less optimistic on the benefits of the Phase 1 trade agreement between the US and China. The US has not seen a build in Chinese demand since the agreement was signed two weeks ago, including the lack of flash sales. Other sources are offering commodities at reduced values to the US, and verbiage in the agreement allows China to make purchases from other sellers when this happens. While China will likely resume US imports at some point, it is possible yearly demand could fall short of initial projections.

Renewable fuel waivers are again in the news following a recent court decision. Last week a court struck down 3 waivers that were issued in 2017 stating they were unfairly permitted. This will bring many other waivers into question, especially the ones that have been issued to larger refiners. These waivers were intended to ease financial burdens on small refiners, but in recent years several have been given to ones that the ethanol industry has questioned.

The US livestock industry has been hoping to see elevated demand from China, but actual Chinese buying may end up being less than hoped for. Meatpacker JBS has signed an agreement to provide China with $717 million of beef, pork, and poultry on an annual basis. This meat will all be sourced from Brazil, however, with shipments starting in the next two months. China is still likely to need meat imports from the US, but this news is concerning given the trade pact that was just signed.

This commentary is the sole opinion of Karl Setzer, Senior Commodity Risk Analyst for AgriVisor, LLC. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to send an e-mail to ksetzer@agrivisor.com.




 

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