Economic crash still defines market

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sweet corn

Another week and there is more talk about how the historic crash of our economy is killing ag prices.

The U.S. equity markets, inexactly measured by the Dow Jones Industrial Average (DOW), have now lost a third of their value in the current coronavirus crash. On the one hand, if you don’t have a big 401K, it may not seem like a big deal. On the other hand, we are talking about the immediate future of our country.

Virus dominates

Thinking about the virus dominates how we live now. I don’t mind the carryout of food, although I admit I am starting to go “all Monk” about even letting the girl at the window handle my credit card. I know where that gloved hand has been — handling everybody else’s card!

I was a little surprised at the fish and chips place last night when the first thing the girl said was, “Card only.” I supposed the reason was nobody wants to handle filthy cash! We know where that has been, too.

I am surprised that the drive-through lines are so thin. I thought everybody would be in line, but they are staying home. There is a lesson in this.

There are people with bigger problems than the farmers. The local restaurateurs lead that list. This will end someday, but they will never catch up. Neither will their employees.

Catch up

The farmers still can catch up, as long as cash flow needs don’t make them sell grain right now. Most of the same demand for our products is out there, but the prices are depressed by lack of movement right now.

When I say “most,” I am thinking of ethanol. The ethanol industry changed how we farm. All of a sudden we had the huge demand for corn that we had not seen before. Of course, we increased acres, dropping the prices again, but we changed agriculture, we thought forever, in the process.

Gasoline demand down

The dirty truth about ethanol demand and its effect on grain prices is that the demand for ethanol itself is strictly a measure of how much gasoline is being used. Now we come to a time when the gasoline demand tanks. People are staying home, whether to stay away from spreading the virus or because travel is restricted.

The result, for the time being, is a huge reduction in gasoline usage. Some experts say we are reducing demand by 30%. Some say it will be 50% until we go back to work. Prices have dropped to interesting lows. I saw $1.519 at the Sam’s Club in Niles recently. There were reports of places selling out at $0.999.

Crude has gone from $65 a barrel to $22. This comes from a bad combination of the virus cutting demand and the current pricing war between the Saudis and the Russians. The Russians need $40 crude, the Saudis break even at maybe $4! Meanwhile, the American Shale oil producers are being bankrupted, with $50 to $60 being their break-even — and that is the point.

The other producers do not like the current change to the United States being an energy surplus. The current result of all this is corn prices at new lows and soybeans struggling against the cheap beans of South America, helped by their faltering currencies.

May corn futures are now, on March 24, at 3.41, down two and a half cents on the day. They made a new low March 18, at 3.32. That is almost 81 cents lower than the recent high, made Jan. 23.

Meanwhile, May soybean futures are trading 8.80, which is down four cents on the day. The low was 8.21 on March 16, more than a dollar and a half below the recent high of 9.731⁄2 posted Jan. 2.

Commodities are being controlled strongly by the continued economic struggle. Congress is currently divided on an aid package, and the markets will go down until an agreement is reached. Originally the talk was of a $1 trillion package, but talk currently is that an agreement is close, but with a $2 trillion price tag and one party trying to include all manner of partisan ideas while the door is open.

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