Fear driving markets and consumer behavior

By Jon Scheve, Superior Feed Ingredients, LLC

It seems the U.S. toilet paper retail supply may be indirectly related to current corn prices. Fear is driving many people to do things they normally wouldn’t do, like hoard face masks and years of toilet paper. In Minneapolis where I live, Costco’s canned goods and cleaning supplies were nearly empty and Target/Walmart’s pharmacy and health sections were extensively picked over.

While exercising caution regarding the coronavirus is important, panic and excessive fear isn’t helpful. Most people who get the virus will ultimately be fine, so it’s important to keep perspective. Experts expect only 5% of coronavirus cases will require ICU visits; however, there are only 100,000 ICU beds available and many are already filled. If just 1% of the U.S. (3 million people) get the virus and 5% of those people need hospitalization (150,000), there won’t be enough beds and medical staff to help the very sick. That’s why slowing the spread of the disease by cancelling events and encouraging people to stay home is so important. It allows medical services to keep up and help the very sick get the services they need.

Since the world hasn’t seen events like this before, the fear is triggering a recession as people stay home and reduce consumption. This has led to livestock prices dropping to low levels and is prompting questions about corn and soybean demand. However, in the last few days the amount of meat on the grocery shelves across the country has disappeared. There is going to be a surge in demand to restock shelves very soon.

Oil prices are getting a double whammy hit. The first is from reduced travel due to lockdowns and lack of travel and the second is the crude oil production war between Saudi Arabia and Russia. Oil prices have fallen over 40% in a month or two. The fear for corn is that ethanol demand will come under pressure as gasoline usage drops. But should ethanol production slow then the DDGs supply will be reduced and end users will likely turn back to corn and soybean meal to meet their feed needs.


What are farmers and end users actually doing?

After discussions with grain traders and buyers around the U.S., it seems farmers right now are generally doing nothing and end users are using up reserves before chasing cash prices higher. With so many market unknowns, these are prudent risk management decisions by both sides.


Basis summary

Soybean basis levels across the U.S. have been steady the past two weeks. Corn basis in the east had minor increases the past few days, while western corn basis has been more wide-ranging. Some pulled back 5 cents, while others increased a few cents. As farmers get busier during planting season, basis values may move higher as farmers focus on planting and less on marketing.


Prices would be better if farmers hadn’t use free DP

Unfortunately, farmers would be in a better price position had some farmers not used free DP this spring. By unloading their bins, they’ve given end users more time and flexibility in sourcing product and it has reduced all farmers’ chances for a big basis rally to offset disappointing futures level. That price difference is likely as high as 20 cents per bushel right now. It’s disappointing that there still are farmers who don’t see how using deferred pricing hurts everyone else.


Some positive news for U.S. farmers

With the coronavirus dominating the news right now, other news is getting less coverage. It’s worth mentioning that Argentina is experiencing dry weather and their corn crop production is expected to be reduced. Also, interest rates are decreasing and expected to go even lower in April.


Final thoughts

It’s important to remember that unexpected events like this happen from time to time and the market eventually recovers. Even this week, the stock market bounced off the lows on Friday by nearly 10%, despite so many event cancellations, school closings and businesses transitioning to work from home. Once the virus infection rate slows, fear decreases, and people stop hoarding toilet paper, everyone will start buying things again and the economy will improve, and so will commodity prices. Keeping perspective, staying patient, avoiding panic and washing your hands for 20 seconds are the best actions everyone can do right now.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

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