Grain prices weakened further, following most other markets to lower ground. The drop in May futures in corn, wheat and soybeans from the early March highs are 42, 90 and 42 cents, respectively. Ouch!

 

Coronavirus, aka as Covid-19, has caused steep losses in stock markets around the world. There have been numerous days where that market changed 10% from the previous day. Volatility is extreme.

 

From the highs hit on Feb. 20, the TSX stock index in Toronto has lost one third of its value. The S&P in the US has lost nearly 31%. These are some of the largest drops in history over that short a period.

 

The world economy will take a severe hit, as governments enact more drastic measures, in an attempt to slow the spread of the pandemic. The million dollar question is how long will it be before things get back to normal.

 

Most now think it will be months, not weeks. However, in China, where the outbreak started, things are slowly getting back to normal, as their cases have supposedly peaked. That does give us some ray of hope.

 

The stock markets drop will also be a negative for the economy, as everyone with investments will feel poorer. Partially offsetting that, however, is the huge drop in energy prices and the lower interest rates that we are now experiencing.

 

The US Federal Reserve dropped their bank rate from one percent to zero, an unprecedented move considering how low rates already were. They are also supplying lots of liquidity to the system by buying $700 billion worth of bonds.

 

While most of the blame for the lower grain prices can be attributed to the above, their fundamentals are more negative than positive also. Corn exports are down 42 percent from a year ago. China has a miniscule 2 mln bu of US soybeans on the books.

 

The crude oil collapse is hurting the ethanol industry, and there are fears that many plants will shut down. Prices are record low at under $1.00/US gallon. Meanwhile, most expect US farmers will plant 5 million more acres to their major crops this spring.

 

The only saving grace for local crop prices is the weak Canadian dollar, which fell another 2.19 cents over the past 7 days. That brings the drop since the beginning of the year to 6.9 cents. Unfortunately, lately, the Chicago drops are larger than the basis gains.

 

Livestock markets have also collapsed, as no market is immune from the panic selling. Live and feeder cattle futures have lost 28 percent of their value since the beginning of the year. Hog futures have shed 25 percent. Ouch!

 

Unprecedented times, but it’s always the darkest before the dawn.

 

Frank Backx

 

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