Commodity markets feel the effects of coronavirus

Dan Basse, left, president of AgResource Company, discusses commodity and farmland markets with Brian Waibel, center, and Jan Meyer, right, at the Illinois Society of Professional Farm Managers and Rural Appraisers’ annual conference in East Peoria. (Photo by Daniel Grant)

The latest viral outbreak in China appears to have sapped positive momentum from the commodity markets as it raises human health concerns.

A wave of coronavirus detections, centered in the Chinese city of Wuhan, with a population of about 11 million people, put the Chinese province of Hubei on lockdown and slowed the movement of people and goods in recent weeks.

Coronavirus cases reached 28,060 as of last week, with all but 225 cases in China, with a death toll of 564 people. Eleven cases were reported in the U.S. last week, including two in Chicago.

This follows the ongoing outbreak of African swine fever (AFS) in China, which decimated the swine herd and subsequent feed demand there. AFS does not represent a human health threat.

Soybean prices posted nine straight days of declines in the wake of the coronavirus outbreak, the longest run of losses since 2014. It was among the factors that muted positive market reaction to the recent signing of a phase one trade deal between the U.S. and China.

“China said it would commit to $40 billion worth of U.S. goods,” Dan Basse, president of AgResources, Inc., said at the Illinois Society of Professional Farm Managers and Rural Appraisers’ annual meeting in East Peoria. “But they’re already backing off that due to coronavirus.”

Cash crop prices continue to struggle in the mid-$8 range for soybeans and $3.40 to $3.70 per bushel for corn. The markets also exhibit wild basis fluctuations due to poor demand for river exports, a wide variance of crop quality and strong demand at some interior locations that shifted grain flows in some areas.

“I don’t think the phase one deal (with China) will change the fabric of agriculture. This is just one step forward,” Basse said. “It will be good to have China back as a big importer of U.S. soybeans, but I can’t see us above $10 per bushel any time soon, unless there’s a major weather issue in the U.S. or somewhere else around the world.”

A key reason why recent trade deals weren’t a silver bullet to boost the markets revolves around the fact that crop production continues to expand around the world, particularly in South America and Ukraine.

Argentina, Brazil and Ukraine captured about 57% of world corn exports in 2019-20, Basse noted.

“That could grow this year because their currencies are cheap, and they’re able to do it,” he said. “In the grain world, there’s no concern of supply.”

Burdensome supplies could become more of an issue this year if U.S. farmers are able to put a large portion of the record 19.4 million prevented plant acres in 2019 back in production this season.

“U.S. soybean production could rise by 700 million bushels,” Basse said. “And, if we have normal growing weather, we could do 180-plus bushels of corn per acre (compared to 168 bushels last year).”

If realized, larger supplies could further pressure crop prices later this year. And farmers may not have the safety net of Market Facilitation Program payments after the latest round.

“We’ve got to do a better job marketing (with little room for error),” Basse added. “If I’m a farmer and I see December corn futures at $4 to $4.10, I’m looking at opportunities there. We can make money with a $4 in front of it.”