BIG AG ISSUES BOW TO WEATHER MARKETS FOR NOW
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t is difficult to look back and try to understand the full impact of recently felt outside forces on agri culture markets in the short time since we entered 2020. It is true that the wide-ranging trade dispute between the US and China has been ongoing for some time. However, China’s overall progress on ag purchases agreed to under a ‘Phase One’ portion of a broader trade deal has become hotly debated since the start of this year. And it was about that same time that we began to hear about a previously unknown and highly contagious virus that become knows as Covid19. There is no question that these two issues, and the broader implications, greatly overshadowed the supply, demand and macroeconomic factors that largely affect agricultural markets on a day-to-day basis. As you can see from the December corn futures chart, by late April, the price had dropped to multi-year lows for this time of year. The December cotton futures chart shows a similar path, trading down to a lowly 55 cents per pound at about that same time. The US-China trade dispute, and our ability to overcome Covid19 remain the key issues of 2020. But has these two charts show, the months of June and July are the most volatile time for commodity futures. A lowered acreage adjustment for corn (down 5 million to 92 million acres) and cotton (down 1 million to 12 million acres) coupled with a hot and dry US weather forecast reminds us that the traditional worries over weather and ultimate production can still rule commodity markets during the summer.
There is no question that Covid19 carries with it the greatest point of uncertainty for agricultural markets, and commerce in general, for 2020 and perhaps well into 2021. Until a vaccine is found, it seems almost impossible to understand the nature and duration of policies being implemented to try and reduce exposures. The CDC daily caseload chart shows that we are seeing up to 50,000 new cases
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Ag Mag THEAGMAG.ORG
BY JOHN MILLER
across the US each day. Barely measurable until early March, this disease has been begun to accelerate after what seemed to be a ‘bending’ of the curve in early June. The CDC suggest that this data shows a continued acceleration of the first wave of the pandemic, and not a second wave, although increased testing probably plays a role. This information is critical to agriculture since government policies limiting travel and commerce has a swift and direct impact on agricultural businesses with employees, transportation of agricultural products and services, and over demand from consumers that themselves are limited in their ability to maintain travel and other purchases. Apart from our opinion of the need for broad restrictions, it is the political uncertainty of future government action that will keep agricultural markets on edge. For Valley farmers, corn and grain sorghum are vital crops. The Valley has a long history of using corn and grain sorghum as a key annual rotation with cotton. In addition, a lot of commerce has developed around the handling and export of these commodities to feeding operations throughout Mexico. It would be hard to calculate the size and scope of cross-border business created by this trade. There are a lot of jobs associated with production support services, handling, transportation and brokering Valley farm products into Mexico. To sell at profitable prices, Valley farmers need help from the futures market which builds in information from around the world to determine daily values. To better understand the impact of Covid19 on agriculture, one only needs to look at the US Fuel Ethanal Production chart. This shows where the annualized production of ethanal across the US dropped by half from almost 17 billion gallons to 8.5 billion gallons over this past spring as Covid19 related travel and work restrictions took effect. This was the direct result from a decline in gasoline demand over that same period. Fortunately, you see where ethanal demand has clawed its way back to 13.5 billion gallons annualized as some restrictions on work and travel have been lifted. We now have to wonder if the acceleration in Covid19 cases will see a return to more restriction and again foster reduced ethanol demand which would likely be bearish corn prices. The corn export chart shows a similar affect. You can see from the US Corn Export Sales Progress chart that a combination of Covid19 affects worldwide coupled with a challenging agricultural trade environment has kept US corn exports far behind year-ago levels, and below the seasonal
