Closing Comments; Monday, March 16th, 2020
Agrivisor - SETZ - Mon Mar 16, 2:24PM CDT

Commodities started out the week with sharp losses as funds were sellers across the board. This is the ongoing result of massive losses in the equity markets which are originating from the Coronavirus uncertainty. Many businesses across the US are going to scale back on hours or close altogether which is starting to impact commodity demand. Losses were focused on the spot markets as there is where the most demand loss is expected. We did see light support from South American production estimates as some forecasters have started to reduce their projections.

The US government has taken several steps to try and prevent economic losses from the Coronavirus, but one that is gaining more support is the removal of all US tariffs. Economists claim this would immediately just start US imports and exports and bring economic relief to many industries, including agriculture. Tariffs have cost the US economy a reported $48.1 billion, and the removal of the levies would be a great benefit. The White House is unlikely to take this step though as it will remove what is considered to be a critical bargaining tool.

One of the industries that has suffered the most from Coronavirus fallout is ethanol manufacturing. While sizable losses have been posted on corn futures which would normally be favorable, we have seen even greater losses in crude oil and gasoline. These have dropped ethanol margins deep into the red, with many plants running at 20 cent per gallon losses. These are the worst margins for ethanol manufacturers for this time of year in the past eight years. An overall decrease in fuel demand from alack of travel is hurting the energy market on a whole.

We continue to see revised forecasts for South American soybean production. Last week firms cut their Argentine crop estimates, and now we are seeing the same for Brazil. The consulting firm Ag Rural has lowered its Brazil soybean crop forecast to 124.3 million metric tons, down 1.3 mmt from its previous estimate. This would still be a record soybean crop though, and not a big factor when it comes to global balance sheets. Field scouts believe crop estimates will continue to fall though, which will start to gain market attention.

The biggest factor in the yield changes has been weather. Brazil has suffered from drought conditions in the South, and at the same time, excessive rainfall in the North. This difference continues and is now likely impacting the Safrinha crop as well. Argentine has had drought issues of its own, but these are now moderating. The question is Argentina is if the improvements are too little, too late to significantly improve crop developments.

Export inspections for the week ending March 12th were on the light side. In the weekly report, totals of 38.5 million bu of corn, 16 mbu of soybeans, and 16.5 mbu of wheat were readied for export during the week. These were all short of what needs to be exported to meet yearly expectations. For the marketing year US corn loadings trail last year by 42%, while soybeans and wheat are 10% higher.

The National Oilseed Processors Association (NOPA) crush report for February was released today with a better than expected total. A reported 166.29 million bu of soybeans were crushed by NOPA members in February which was a monthly record. While a record, the volume was down from the 176.94 million bu that were processed in January. Soy oil stocks were less than expected at the end of February at just 1.92 billion pounds.

Livestock futures were volatile today, especially on cattle. After hitting limit down early in today’s session, cattle futures uncovered buy stops which caused a sharp reversal in the market. This strength was short lived though as no follow through buying surfaced on the recovery. The entire livestock complex is being hampered by economic concerns and news of restaurants closing across the United States.

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