Last week I said that maybe the sky wasn’t falling. Yesterday the Dow fell over 2000 points, the largest loss in history.
The sky is still not falling, but investors are in a temporary panic about the spread of the coronavirus. Add to that a crude oil supply war between two of the world’s largest oil producers, and you have an unprecedented market reaction.
As usual, these events are in the “outside” markets and don’t directly affect grain prices. As usual, recently, the grains acted as though the events directly affected them. The result was a grain market not in a panic, but in serious reaction.
After good gains the week before, March corn futures started the week out down three cents. The March soybeans were down almost 20 cents.
March 10 is another day. The Dow has recovered over 900 points, March corn futures have gained back three and a half cents, beans are up almost 11, and crude oil is recovering. What’s going on?
Manipulating crude prices.
tart with the crude oil. Recently prices have been managed by what is now called OPEC + 1. That is, the OPEC nations have joined with Russia to try to manipulate supply, and thus, prices.
Over the weekend, the Saudis failed to jawbone the Russians into cutting supply by cutting production. Russia was seeing prices down to the low 40s a barrel and was being squeezed.
By some counts, the Russians need oil at $40 a barrel to keep their country going, as hard commodity exports are their lifeblood. The supply of oil in the world had been increasing, with the U.S. being the big reason. As we have drilled for shale oil and natural gas, we have become self-sufficient. This is a national security issue and a huge economic issue. Sadly, many politicians think the shale drilling is a green issue and pledge to end fracking the shale if elected.
U.S. shale hurt
When the Russians refused to go along, or so goes the story, the Saudis decided to go the other way and increase production, driving prices lower, to near $30. This was their opportunity to bankrupt the U.S. shale interests, as they need $50 to $60 oil to break even and are heavily leveraged.
Several hundred drilling rigs are already “stacked out” and out of production because of low prices. I am enjoying the $2 gasoline, but some segments of our economy are not.
What are the realities of the coronavirus effects upon our economy? So far our country is not affected as much as others. Italy is the worst in the West, having gone from a partial quarantine in the northern part of the country to a full quarantine as of late March 9.
In our country, we have limited access from affected countries and have quarantined some cruise ship passengers that had active cases on these floating Petri dishes.
As of March 10, we have nearly 700 cases, and 26 have died. Half of the deaths came in one nursing home in the state of Washington, and the elderly and infirm are especially at risk. No one of young age has even gotten the disease, or else has it with mild symptoms that have not been recorded.
Low death rate
It remains to be seen how this disease progresses in our country. What we know is that it is not SARS or Ebola. The death rate is low, and has focused on the fact that our regular influenza has affected 34 million so far and killed 20,000 in the United States. However, there is an unknown factor, and that feeds market frenzy.
So, our grain markets stagger on, at the whim of every wind of change. Some day we will return to trading fundamentals of grain. What was our crop size really? What will our exports be, if China finally comes to the table as they have pledged to?
The end of the month we will see ideas of planting plans in the Prospective Plantings Report, and we will see a new estimate of Grain Stocks. The Grain Stocks may show us an inkling of reduced supplies. It may reflect farmer surveys of winter harvest in the northern states where eight% of the crop remained after normal harvest.
Better days are ahead, both in the line at the local drug store, and the line at the local elevator.
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