Closing Comments; Thursday, February 13th, 2020
Agrivisor - SETZ - Thu Feb 13, 2:06PM CST

Coronavirus was again the main topic of trade today as after being thought the outbreak was under control yesterday, cases skyrocketed overnight. This gives credit to beliefs that the worst of the virus outbreak may still be ahead of us. Not only did the commodities react to this, but so did the equity markets, causing a lack of buying across the board. We remain at the low end of recent price ranges though which limited selling and helped support futures.

Data out of China indicated the Coronavirus was finally starting to be controlled, but overnight this changed. Coronavirus cases are now reported to be over 60,000 and deaths above 1,200. Chinese officials claim these higher numbers are not from a spread of the disease, but rather from a change in testing methods that has generated more positive test results. The initial shock of these higher numbers was negative, but that wore off as the day session progressed.

Thoughts are the worst impact of the Coronavirus may actually be on the energy market. OPEC is projecting a decline in crude oil consumption this year from the outbreak, the first decline in several years. In turn this would likely impact the ethanol industry where demand has already been an issue in recent weeks. Ethanol stocks are approaching all time highs and this news offers little support for the industry.

Export sales data for the week ending February 6th were supportive for the main commodities. Corn sales for the week totaled 38.14 million bu, in the middle of trade estimates, but well above the volume needed to reach yearly USDA projections. Wheat sales were also at the top end of trade estimates with 23.63 mbu and 10 mbu more than needed on a weekly basis. Soybean bookings were at the low end of guesses with 23.7 mbu, but right at the volume needed per week.

There is more interest being given to the Brazilian corn production estimate of 100 million metric tons. In order to achieve this Brazil will need near perfect growing conditions for the Safrinha crop and these are being questioned. The year this one is most similar to is 2016 when Brazil produced a 98.5 mmt corn crop. While not a huge reduction, given the fact Brazil has depleted its corn reserve this year and is currently making imports, it is likely we will see less export competition in the global market from Brazil this year.

We are seeing a sizable build in soybean competition from Brazil though which is not uncommon once their harvest begins. Brazilian soybean sales are higher than normal though as currency exchange rates are prompting heavy selling, both from farmers and exporters. The Brazilian Real is trading at historically low levels while the US dollar is at its highest level since October 2015. Since the global commodity market is Dollar based, this will generate considerable revenue for Brazil. This is why many buyers have gone to Brazil for needs, including China.

Corn harvest continues to progress across North Dakota. This has been very slow as winter storms and muddy fields have prevented fieldwork in many regions of the state. As of January 1st North Dakota had a reported 51% of its corn still in the fields which will need to be collected before any planting can begin next fall. This has some analysts questioning corn acreage predictions for this coming season. The big question with this corn is on quality, and surprisingly field scouts claim the condition of the crop has held steady over the past few months.

An underlying story in the market remains how the Coronavirus may impact the Phase 1 agreement between the US and China. China has stated they will adhere to the agreed upon guidelines regardless of the virus. That said, the US has not seen much for Chinese business since the agreement was signed, even before the outbreak took place. While the new trade policy goes into effect this weekend, it may be months before we do see Chinese business given the spread between the US and other suppliers in the world market, especially on soybeans.

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