Closing Comments; Thursday, January 30th, 2020
Agrivisor - SETZ - Thu Jan 30, 2:20PM CST

Sizable losses were posted to start today’s session as fears surrounding the Coronavirus continue to grow. There are now thoughts that according to contract verbiage, the Phase 1 agreement may be void because of the virus outbreak. This weighed on the market, with soybeans and pork seeing the most negativity. The only flash sale this morning was 30,000 tons of soy oil to Egypt which pressured corn as trade took it as a slow down in demand. Wheat was also under pressure as the complex continues to correct from overbought indicators.

Export sales for the week ending January 23rd were more favorable for the grains than soybeans. Corn sales for the week totaled 48.6 million bu on old crop, well above the 30 mbu needed per week to reach yearly estimates. There were also 5.65 mbu of new crop corn sales listed. Next week’s corn sales are expected to be even higher given the recent string of flash sales. Wheat sales were double the needed amount on a weekly basis with 23.75 mbu. Soybean bookings fell below the volume needed per week though with 17.26 mbu. This is a clear indication of demand shifting from the US to South America for soybean needs.

The spreading Coronavirus continues to dominate news headlines around the world. Reported cases have now topped 8,000 with over 170 deaths in China. Additional airlines announced they would be suspending service to China today, and Russia has closed its border with China to prevent the disease from spreading. China has now indicated it may keep its markets closed past next Monday when they were expected to reopen from the Lunar New Year holiday. The most concern is what this is doing to the Chinese economy as losses are expected to top the $54 billion from the SARS virus.

Not only is the Chinese economy suffering from the Coronavirus outbreak, but so is the nation’s livestock industry. Many regions of the country have quarantines in place, and these are starting to limit commodity movement, including feed grains. According to a report from Bloomberg News, upwards of 300 million chickens in China are in danger of running out of feed by the end of this week due to quarantines.

Economic data shows the ongoing poor economics are taking their toll on the US Ag industry. Final data for 2019 shows that 590 farmers across the US filed Chapter 12 bankruptcy. This is up 100 filings from 2018 and the most since 2011. There are hopes that recent trade deals will start to turn the US farm economy around, but these will depend heavily upon the fallout from the Coronavirus in China and what it does to global commodity demand.

Russian officials have upped the country’s grain production forecast. There are now projections for a 125.3 million metric ton grain crop in Russia this year. This compares to 120.7 mmt in 2019 and the 113.3 mmt that were produced in 2018. Much better planting and growing conditions are the leading factors for the elevated production outlook. Only 4% of the Russian grain crop was planted under unfavorable conditions this year compared to 8% a year ago.

Reports have surfaced that a vaccine for the African Swine Fever disease has been developed. This weighed heavily on hog futures today as it may further reduce China’s demand for US pork. While a considerable amount of testing needs to be done on the vaccine, China will undoubtedly fast-track this process. The US hog industry has been counting on Chinese demand to prevent pork from building to a burdensome level, and if this vaccine works, it may squelch those hopes.

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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Karl Setzer Grain Commentary