Market analyst: Virus (panic)demic

Ray Grabanski
Special to the Farm Forum

03/03/20 — As we move into March, there are currently three fundamentals important to the markets — coronavirus, coronavirus, and coronavirus. Or at least, this week that is the only fundamental important to the market — not just stocks but also commodities. What has been interesting is that while the stock market dropped 15% in seven days of trading, the commodity markets dropped 1-3%. Mmmmmm. And of the commodities, soybean prices have dropped the least. Also interestingly, USDA projected a 25% decline in soybean ending stocks for 2020-21 in the Feb. Ag Outlook, but only a 5c increase in price from last year. Very interesting.

The coronavirus now has 91,313 infected worldwide (+2,116 Tuesday 3/3), 3,117 have died (+79), and 48,124 have recovered (+2,944). New infections are still less than those recovering, but while China is doing a great job containing the virus using more drastic measures, the rest of the world (especially South Korea, Italy, and Iran) are doing a poor job. Also infections are spreading into other countries in small numbers due to free travel — an option that perhaps the world population shouldn’t be exercising now.

The U.S. stock market, after its biggest one-week drop in history, yesterday had its biggest one-day gain in history, rallying 1,294 points by the close. Actually, the day was much wilder than that as we had a 1,860-point trading range, trading at one point nearly 600 points lower and rallying from that level. It was an impressive rally to say the least, and a rapidly declining dollar will make it easier for commodities to rally as well.

The media is giving credit to a stimulus plan by world central bankers, but in reality we probably dropped too far out of fear of coronavirus affecting people. The U.S. particularly looks foolish when we allowed the virus into an elderly care facility in Washington, where it has now already killed 5 people. This after we strongly criticized China for their difficulties resulting in drastic measures used in dealing with this bad cold virus.

In reality, credit for the market rally shouldn’t go to governments/central bankers, but to the smart investors who are piling money into the stock market due to the 15% discount applied over the past week. Savvy investors recognize a bargain when they see one, and you can bet that when a 15% discount for stock is offered, players like Warren Buffett don’t care what CNN or CNBC says as the media is almost always wrong! Giving credit to government central bankers for the rebound is definitely a stretch.

Argentina weather remains hot/dry as they end the growing season for corn and soybeans, with very warm temps and no rain forecast the next week that will stress crops and result in premature ripening. The adverse weather is also hitting western and southern Brazil, with below normal precip as well. Temps remain cool in Brazil, but hot in Argentina. There will be reductions in SAM production estimates yet this year.

As we said yesterday, Pro Ag is turning more bullish at support areas of soybeans as we are unlikely to continue to push soybeans lower with China opening up to tariff free imports this month (to last for a year). However, with improving U.S. weather for spring planting it’s possible the friendly situation for soybeans might not translate into a friendly corn outlook. With drier and warmer than normal weather most of February and extending into March, snowmelt and planting may occur earlier than normal if it continues much longer.

This has been a slow developing trend in the U.S. Corn Belt the past month, going from an extremely wet pattern to a pattern of very little precip and well above normal temperatures. The 2- to 8-degree above normal temps have melted down a lot of snow in February (Iowa is completely snow free), and the continued warm forecast into March will likely mean early snowmelt across the U.S. Will that translate into an early spring? It certainly appears that the prevent plant risk is diminishing as we head into March.

While the world watches with interest the stock market response to the coronavirus this week, agriculture is bracing for another year. Crop insurance prices were determined last month, with corn at $3.88, soybeans $9.17, and HRS wheat at $5.56 — the lowest in years. So right now, the outlook for 2020 looks bleak. But perhaps it’s “always darkest at dawn?”