Closing Comments; Tuesday, March 24th, 2020
Agrivisor - SETZ - Tue Mar 24, 2:35PM CDT

Commodities were on both sides of unchanged today, with corn ending up as the leader late in the session. A recovery in the outside markets took much of the interest today as all eyes were on the economic stimulus package that was being put together in Congress. Thoughts that not just the US but the world economic markets may be stabilizing were seen as beneficial for commodity demand. This comes at the same time China is increasing its commodity appetite. The energy market was finally able to post a recovery which was very beneficial for the corn complex.

The highlight of today’s news was the stimulus package that was being put together in Congress. This is expected to total close to $2 trillion in relief and hopefully offset some of the economic losses that US consumers are facing. The comes after the Fed already announced it would be willing to buy debt if it would help prop up the economy. China has also announced an economic relief pack is being put together in that country and will total close to $7 trillion.

The global market is seeing signs of the Coronavirus stabilizing in some countries. Most of the attention is on Italy, South Korea, and China where new cases have started to level out or decline. This is starting to remove some of the shock that comes with new cases being reported and allowed financial markets to steady themselves. These is also a certain amount of risk acceptance that comes with an outbreak such as the Coronavirus which is when new cases are no longer surprising. Experts are still quick to warn that the virus is not done spreading and many more cases are likely, especially in the United States.

More attention is starting to be placed on possible balance sheet adjustments in the next supply and demand report, especially on soybeans. In recent weeks we have seen reductions to production in both Brazil and Argentina. It is not out of the question we could see a drop in soybean production from these two countries of 8 million metric tons. This comes at the same time China is starting to ramp up its soybean buying as domestic reserves in the country are at historically low levels. It is not out of the question we could see global soybean demand rise at the same time production drops to shift ending stocks a considerable amount.

More ethanol plants across the US are suspending operations due to poor margins. It is believed that most ethanol plants in the US are currently suffering a negative margin or roughly 30 cents on each gallon of ethanol produced. Rather than run at these losses, plants are opting to simply halt manufacturing altogether. It is believed that by the end of this week the US will have 2 billion gallons of ethanol capacity idled. This could lower domestic US corn demand by 300 million bu.

The lack of demand we are seeing for corn could easily end up being a factor in this year’s acreage. The USDA is currently estimating corn plantings of 95 million acres this year, but the recent loss of demand and pressure it has brought corn futures has some farmers rethinking their options. The ratio between new crop corn and soybeans has also started to widen which favors soybean production over corn. Trade is also monitoring weather outlooks as a wet spring is less friendly for corn planting.

One factor trade is starting to consider as we approach the spring planting season is the number of acres in the Conservation Reserve Program. There were 22.32 million acres in CRP in 2019, but that is expected to decline to 21.85 million in 2020. Officials also claim they only expect to see 2.67 million acres of prevent plant in the US this year, compared to a large 17.5 million in 2019. This decrease in prevent plant acres is based on a return to favorable planting conditions in the US which are slow to develop.

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