Grain prices were mostly lower over the past two weeks. This had more to do with the outside markets than any change in grain fundamentals.

 

USDA did update their monthly demand/supply report on March 10. US carry outs were left unchanged, which was expected. They did add 1 mln mt to Brazil and Argentina’s soybean crops, so the world ending stocks did increase more than expected.

 

The volatility in stocks, bonds and many commodities has become extreme. Much of that is blamed on the coronavirus, which is having a much larger impact on the world economies than many expected it would have.

 

Quarantines and travel restrictions are growing daily. Some businesses are asking employees to work from home. Supply chains in some industries are being restricted, and shortages are becoming more common.

 

Stock markets around the world are reacting bigtime. A 5 percent daily change is happening with regularity. The biggest moves lately are to the downside. Since Feb 20, the TSX index in Toronto has shed over 3000 points or 18 percent.

 

Then on Monday, March 9, crude oil dropped to as low as 27.34 per barrel from its close the previous Friday of 41.28, for one of its largest 1-day drops ever. In early Jan., crude traded at 64.99, so the drop so far this year has been spectacular.

 

Russia and Saudi Arabia are having a price war, trying to capture a larger portion of the declining energy demand base caused by coronavirus. The deflationary spinoff from the crude oil drop contributed to the weaker grain prices.

 

Bonds were the main beneficiary of all the turmoil. US 10-year bonds traded to a low of .35 percent. Yes, that’s .35 percent. Central banks panicked and dropped short term rates a full 50 basis points also. Not all is well with the world when rates are this low.

 

While grains declined, they are holding their own better than many other markets. Perhaps that’s because prices were already near the bottom of their ranges of the past decade. But that similar situation sure didn’t help crude on March 9.

 

The Canadian dollar fell hard on the crude oil collapse to a 4-year low. Corn basis gained a dime, while soybean basis shot up 25 cents since my last report. Once again, basis is offsetting some of what Chicago does, as our dollar, being a commodity currency, tends to go in the same direction as grain prices.

 

Flat prices for Ontario growers remain in their sideways trends and actually improved due to the stronger basis Selling rallies using flat prices still makes sense to reduce market risk. A seasonal rally in March or April, just ahead of US planting, happens about 7 years out of 10. 

 

Frank Backx

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