Closing Comments; Tuesday, February 25th, 2020
Agrivisor - SETZ - Tue Feb 25, 2:12PM CST

Commodities tried to stabilize following yesterday’s sell-off, which was easier done in soybeans and corn that wheat. We did not see additional selling in the commodities today, but a lack of active buying ahead of month end was a source of pressure. The equity market was again under pressure today which limited interest in all markets. Yesterday’s selling dropped corn, soybeans, and wheat into oversold territory which should start to provide a footing for the contracts. Any move upwards will likely not come until next week when we start the new month.

The primary story in the market remains the spread of the Coronavirus. China reported another 509 new cases of the virus today pushing the total worldwide to over 80,000. The major concern is that the virus is spreading past China, causing more countries to place travel bans on infected countries. While the immediate reaction to this is negative for the equity markets, commodity demand is being affected by the lack of movement as well.

The United States is seeing more pressure from Brazil in the global soybean market. This is not uncommon as the Brazilian harvest picks up, but the 20 cent per bushel price spread between the US and Brazil is pushing even more buyers that direction. China has already been passing on US soybeans due to tariffs, but this price differential is deterring additional buyers. The US will likely see weekly sales and loadings start to decline as a result.

This shift in demand has brought record soybean sales to Brazil. Brazil has already sold 15.4 million metric tons of soybeans and we are just three weeks into the country’s new crop marketing year. A year ago at this time Brazil had sold 12.85 mmt of soybeans by this time. Brazilian farmers are selling larger volumes of soybeans than in the past due to their weak currency and record value on the US dollar, which is generating an elevated amount of income.

South American weather remains mixed, but for the most part, is beneficial at this time. Widespread rains continue to move through Northern Brazil, with forecasts of 4 to 6 inches to fall in the next few days. While this will continue to slow harvest, field scouts claim the moisture will make near perfect conditions for the planting of the Safrinha crop. This may be true, but the soybeans need to be harvested first. Argentine weather remains dry, but with cool temperatures, little crop stress is being seen. This has led to higher crop estimates for the country.

Planting of the spring grain crops is getting underway in Ukraine. While weather is mostly favorable, officials in Ukraine have backed off on production from the record grain crops seen a year ago. Ukraine grain production is still forecast to be larger than normal and range from 65 to 70 mmt this year compared to 75 mmt a year ago. Even with this slight reduction to grain output, Ukraine continues to see elevated demand.

Not only is trade expecting a large grain crop in Ukraine, but in Russia as well. This will likely keep those two countries as leading export competitors of the US for months to come. This is even more likely given the price spread between the Us dollar and other commodities which makes our grains even more expensive for a buyer. Not only is this currency spread an issue for grains, but for all commodities in the global market.

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.




 

Market Commentary provided by:

Karl Setzer Grain Commentary