- Chicago ag futures are lower at midday amid the ongoing bruising that world financial markets are enduring. The DOW is trading with losses of nearly 2,000 points at its lowest levels since early 2019. CME livestock futures are limit down amid the concern of slowing consumer demand. Argentina is becoming more aggressive with its fob summer corn offers while Russia is seeking fresh demand for old crop wheat stocks. The point is that ahead of a new Northern Hemisphere growing season, there is concern for demand as end users/importers curtail interest amid the world’s health uncertainty.
- We expects a sharply lower Chicago close on additional liquidation as the market moves through resting purchase orders. Prior weekly price patterns show declines during the end and the beginning of the week with rallies in the middle. Amid the worsening spread of Covid-19 in the US, investors will likely wait until there are “signals” that the virus is being controlled before returning on the buy side of equity/commodity markets.
- Before the Chicago markets bottom, margin must return to feeding livestock, producing biofuel and importing grain. Such margin does not exist today amid $32 crude oil and the uncertainty on future demand via Covid-19.
- Chicago brokers estimate that funds have sold 3,200 contracts of wheat, 6,000 contracts of soybeans and 8,400 contracts of corn. In soybean products, funds have been sellers of 5,400 contracts of soyoil and 4,300 contracts of soymeal. Any buying has been short covering or resting consumer purchase orders.
- FAS reported that for the week ending March 5, the US sold 16.6 million bu of wheat, 57.9 million bu of corn, and 11.1 million bu of soybeans. US corn sales were better than expected due to Japanese/South Korean purchases. China cancelled 3.2 million bu of US soybeans with known old crop sales declining to just 2 million bu. There are 44 million bu of soybean sales in the unknown category which are likely to be China importers. Undelivered old crop soybean sales stand at just 153 million bu with China shipping pace in fast retreat.
- For their respective crop years to date, the US has sold 868 million bu of wheat (29 million above last year or 3.4%), 1,106 million bu of corn (down 503 million or 31%), and 1,263 million bu of soybeans (down 247 million or 16%). Research statistically argues that 2019/20 corn export estimates could fall another 100-125 million bu with US 2019/20 soybean exports to be off 200 million bu or more. The outlook for US corn/soy and wheat exports is darkening amid the slowing demand trends via Covid-19 on domestic and trade demand.
- WE have been asked where the Chicago bottom is? Our response is that when margin returns to biofuel and livestock industries. US corn/soybean and wheat exports are seasonally slowing under competition from abroad. US ethanol prices are at record low but are still priced above unleaded gasoline. US ethanol producer margins are negative. Biodiesel margins are negative and livestock feeders are not placing animals amid the unknown of future demand with CME livestock futures under acute pressure. The domestic demand outlook for US grain/soybeans must brighten for a bottom to form.
- The US Central Bank injected $1.5 trillion of liquidity in the repo market (repurchase agreement, a form of short-term borrowing, mainly in Government securities) for Friday to shore up the US financial outlook. The injection was massive and looks to supply huge amounts of cash to the US Covid-19 strapped economy. The injection has rallied the DOW 1,000 points.
- There is a bounce in the US financial markets following the Central Bank’s $1.5 trillion injection of liquidity. The injection is in response to the worsening US economic outlook. It does not change the health woes of Covid-19! Unfortunately, a new round of FED QE will not alter the demand prospects for US farm goods. The FED is acting via a disfunction in some US financial markets. This cash helps treat the symptom but does not cure the patient. The market has to wait until more results are in on Covid-19. It is still risk off for now.