Market analyst: Economic re-opening

Ray Grabanski
Special to the Farm Forum

05/05/20 — The world is now focused on reopening the economy after a few months of an essential shutdown in most areas that was costly to many industries. Some industries won’t fully recover for years, and that leaves mortgages, payments and loans counting on “normal” in jeopardy. That pain usually gets spread out to others, and so far that is exactly what is happening.

The coronavirus now has at least 3.6 million infections worldwide, and 251,832 died. The impacts of the past three months are enormous as the U.S. has the largest unemployment rate in almost a century. Many industries are failing due to the virus — airlines, travel, cruises, restaurants, bars — all in disarray and many in default on their loans.

Accusations against China are mounting from the U.S. It’s unlikely China will like these accusations, so that makes for an uncomfortable relationship with our biggest trading partner. Of course, it seems like we have been trying to get rid of China as our biggest trading partner for some time.

The U.S. is also opening up for business in May — and should in most areas. However, heavily populated areas with high infection rates (essentially many large cities) like New York, New Orleans, Los Angeles, San Francisco, Chicago, Detroit, and like cities may not be able to do so completely for years. Rural areas, on the other hand, have little problem and may need to become hubs for businesses previously centered in these susceptible cities. Changes and adaptations are taking place — and need to — to fight this virus and its impacts on business. Actually, the societal impacts on businesses and life in general are probably much more important than the health impacts of the virus itself. And that’s saying a lot because a quarter of a million people worldwide have already died from it.

U.S. planting is advancing nicely in corn (51% planted, 12% ahead of normal) and soybeans (23% planted, 12% ahead), but not HRS wheat (29% planted, 14% behind). Other crops are less impressive, with sorghum 22% planted (4% behind), rice 49% planted (15% behind), sugarbeets 49% planted (14% behind), and barley 41% planted (11% behind). Essentially, the Corn Belt has early planting, while the rest of the U.S. is behind in most other crops. Soil moisture supplies are dwindling fast (which is why we have rapid Corn Belt planting), with 5% less topsoil rated adequate/surplus (80% total this week) and 3% less subsoil (86% surplus). But still, the soils are still quite moist compared to most years so the dry weather pattern has time to change.

Overall, the crop outlook (supply) still looks good, but the demand is in question — more from the virus than from other issues. Perhaps the greatest uncertainty is the U.S./world economy as the pandemic has left large portions of it in shambles (including energy/ethanol), with a future that is uncertain. That leaves grain and livestock outlooks — regardless of our traditional supply/demand indicators — extremely uncertain. If the U.S. slides into a depression (which all indications are pointing to), it could bring ridiculous market implications such as the negative oil prices we recently experienced. Chaos like that in markets is usually a catastrophe — one that most everyone would like to avoid.

Pro Ag notes that commodity prices are now essentially the lowest in about 20 years collectively, with crude oil making new lows in negative territory. Live cattle are the lowest in 11 years, feeder cattle lowest in 10 years, hogs at 18 year lows, corn 12 year lows, and soybeans were lower only once in the past 12 years (during initial tariff time May19). If there is a bright spot, it’s wheat which is in the bottom 1/3 of historic prices but actually higher than most of the past 3 years. So only the bread of “bread and butter” is doing relatively well.

In contrast, the entire economy is crying about the stock market — but stocks are actually doing much better than commodities as the low in March was equal to the Nov16 price — essentially a 3.5 year low. And we’ve already recovered to the level where we’ve only been higher for about 2 years in all of history. The question is, are we on the road to recovery and back to the highs with the reopening of the economy this month? Or is the stock market headed for another tumble lower? The U.S. economy might drive almost every industry in the U.S. right now, as the problems caused by the virus treatment are enormous. Just ask the energy market or ethanol plants — both are experiencing real pain.