Grain futures closed mixed on Friday:
Corn + ¼ cent/bu (May @ 3.68 ¼ )
Soybeans – 2 ¼ cents/bu (May @ 8.92 ¾ )
Chi Wheat – 2 ½ cents/bu (May @ 5.25)
Cdn $-0.00200 (74.615 cents)
WTI Crude Oil -2.33/barrel (44.76)
Grain markets today had another wild ride, initially plunging lower in sympathy with outside commodities and equities. At one point today, Chicago wheat futures were lower by 15 cents/bu, soybean futures were down 15 ¼ cents/bu, and corn was lower by 2 ¼ cents/bu. Increased incidences of Coronavirus around the globe continue to make investors extremely nervous, making the path of least resistance lower. Despite the fact that cases of new infections in China are falling off dramatically, the market’s concern is clearly over the new incidences being reported in countries around the world, and the fear that the disease will mushroom in these new areas of infection With the Dow Jones Industrial Average approaching losses of 13 ½ % for the week at midday today, it is not hard to understand why grain prices have drifted lower during that timeframe. As grain producers and exporters, the drop in grain futures has been offset slightly by the weakness in our Canadian dollar, or frankly, the losses in terms of price per bushel could be even worse.
World agricultural prices took it on the chin today, as Chinese Dalian soybean futures fell the equivalent of 34 US cents/bu, and world wheat prices fell anywhere from $3 to $6/tonne, depending on the class of wheat. However, North American commodity markets did pare a lot of their losses by the end of their respective trading sessions. In fact, Dow futures made a very nice comeback in the last couple hours of trading to actually close down 188 points on the day (25,364). Some of the late day rallies were no doubt profit taking, buying back previously sold positions, but it still puts traders in a better frame of mind going into the weekend.
Today, in Beijing, the former deputy minister responsible for foreign trade at the Ministry of Commerce told a press conference organized by the government that China will “definitely”; honour it’s agricultural purchase commitments as part of the Phase One trade deal. He went on to say that the Chinese will buy the agreed to dollar values in ag products despite the current Coronavirus epidemic. He went on to say that COVI-19 might cause the Chinese to have to delay parts of the also promised purchases of manufactured goods and energy, but that the agricultural component of the deal will be met. It was the first on-the-record confirmation from a Beijing insider that China has no plans to abandon the trade deal, despite the economic hardship from the virus. The manufactured goods component of the deal includes aircraft, which will likely not be needed until such time as transportation patterns return to normal.
China bought big volumes of USA milo last week, and is rumored to have purchased at least that much milo again this week. The milo purchases might be being made due to the fact that the milo being bought is nonGMO. That fact might make the purchase easier for private companies operating in China than it would be if they were buying GMO corn. Should the Chinese government end up importing corn, the GMO designation becomes a moot point. The potential for bigger new crop USA corn acres will continue to weigh somewhat on any corn rallies that we see down the road.
Rumors of Chinese interest in PNW supplied soybeans out of the USA came to the fore again late today. Economically, Brazilian soybeans remain cheaper landed into China than USA beans, but there could be other factors in play (ie Phase One trade deal). The tariff waivers that the Chinese government put into place on February 14th for USA soybeans actually go into effect on March 2nd, so next week should be a telling one in terms of whether or not we see imminent Chinese bean demand for American beans.
No major news stories for USA wheat today, although the fact that there were no deliveries of wheat against Chicago futures was encouraging. There were also no deliveries of corn or soybeans against their respective March futures contracts, which is also telling for the market. Cash markets are definitely more attractive than using the futures market to liquidate grains.
There is much speculation in financial markets as to what the USA Federal Reserve will do with interest rates, in light of the meltdown in the stock market, and concerns over economic slowdowns as a result of the Coronavirus. Today, Goldman Sachs postulated that the Fed will definitely enact a 25 point decrease in USA interest rates at it’s March 2020 meeting, and they further predicted that the Fed will cut interest rates by a total of ¾ of 1% through June 2020. Goldman sees USA full year growth at 2% for 2020, indicating that there will be a short lived global contraction due to COVID-19, but nothing that approaches outright recession.
This afternoon, after the close of trading, the CFTC released it’s weekly report outlining fund positions in grain futures as of the close of business on Tuesday, February 25th. Those numbers showed funds to be less short corn than expected by 15,000 contracts, less short soybeans than expected by 29,000 contracts, and longer Chicago wheat than expected by 7,000 contracts. On the day today, funds were thought to have bought 4,000 corn contracts (now short 120,000), sold 7,000 soybean contracts (now short 68,000), and sold 3,000 Chicago wheat contracts (now long 31,000). Overall fund positions are not onerous for any of the grains, leaving them room to expand their positions if market conditions allow. However, if we do see Chinese buying materialize next week, then having the funds short corn and beans could accentuate the market move higher. Let’s hope!!