Keeping an eye on the grain market - March 20 update

At present it is hard to predict when the coronavirus situation will ease and stability will return, not only to the grain markets, but all markets.

Commodity volatility has been plain to see as the increasing threat of a global slowdown is putting traders into sell-mode.

The dispute between Russia and Saudi Arabia, which has sent oil and energy markets drastically lower, is not helping. This has pushed US corn to fresh contract lows on the likelihood of lower ethanol demand, with crude now under $30/barrel.

Currency markets are adding to the volatility as governments slash interest rates in an attempt to add stimulus to their economies. Sterling has come under particular pressure, which has supported UK farm gate prices.

If the above factors are taken out of the equation, and it’s a big if, the fundamental outlook for the grain complex still remains bearish. Talk of higher 2020 global wheat production, and considerably higher US spring corn and soybean acreages, were already providing the major resistance to any significant move higher in prices.

Weather has also been benign, with abnormally warm conditions reducing winter losses in Europe and Black Sea regions to almost zero. Although western Europe has received too much rain, reducing winter sowings, it will probably increase spring plantings.

Excess moisture in the US Midwest may delay sowings in some of the early-sown states, although the main sowing period is still a few weeks away, which may allow fields to dry.

David Woodland, ADM Agriculture

These are uncertain and unprecedented times - International actions surrounding Covid-19 significantly impacting currencies with sterling showing a fall of 12% over the last month.

As we look into the future wheat could benefit from the crisis as individuals and countries take action to increase their food security (stock building can be expected during the coming months as the virus crisis may return over the winter).

On the domestic front, our markets have, thus far, been hit less hard than other assets and commodities. We wish all parties well as the country follows guidance to stay at home.

Gary Phillips, ODA

Oil markets globally are facing hurricane force headwinds as a combination of fundamental and external factors are creating a turbulent time for traders.

Crude and Brent oil are down over 60% year-to-date to their lowest level in nearly two decades as fears over a slowdown in global growth intensify due to the COVID-19 outbreak. On top of this, the Saudis are jumping on the opportunity to win back market share from Russia and at the same time put pressure on shale gas producers in the US, pumping oil aggressively and adding to the tide of global oil.

As it stands oilseed rape prices are down 17% from their peak in January, although domestically slightly cushioned by a tumbling sterling, which crashed to its lowest level against the US dollar since 1985. Within vegetable oil markets the situation remains tight and this will likely still be the case when eventually equity/energy markets recover - whenever that may be.

A lot of questions remain unanswered about the impact of the coronavirus crisis on short term supply chains and longer term global economic stability. For now, palm oil output continues to decline and rapeseed stocks and next year’s production both remain under pressure. In such economic/political turbulent times, volatility is here to stay.

Benjamin Bodart, CRM AgriCommodities