The coronavirus seems to be dominating the news, as well as almost every aspect of our daily lives. The world pandemic is also impacting the markets, although to a somewhat lesser extent for the commodity markets.
“Not surprisingly, one thing is dominating the markets and the news and that’s the coronavirus. All markets, whether it’s financial or commodities, have been affected,” said Erica Olson, marketing specialist for the North Dakota Wheat Commission.
“The commodity markets are somewhat insulated, though not completely,” he continued. “So far, demand for commodities has not been affected. The supply chain for food has not been disrupted yet. Of course, when we’re starting to see the closure of restaurants, schools, tourism type things, that could eventually affect demand, but so far commodities aren’t seeing as big of an impact. This is what we’re going to be looking at for the next few weeks or months – outside factors and specifically the effect of the coronavirus.”
Olson noted that Minneapolis nearby futures did go down recently. Over the last two weeks the market has seen it go down by about 25 cents. The May futures on March 17 were trading at $5.10. That puts cash prices between $4.60 and $4.80.
In addition to the “black swan” event that is the coronavirus, another black swan event is the fight between Russian and Saudi Arabia over oil prices, which is depressing prices. There is no end in sight to the battle, which is expected to continue, especially as we see decreased travel around the world.
“The commodities are a bit isolated, but the fear factor is affecting all markets and we’re seeing people pulling out of markets, whether it’s commodities, or financials or whatever,” Olson said.
Outside of the two black swan events, USDA released its March WASDE (World Agricultural Supply and Demand Estimate) report. The report included no changes to the U.S. wheat numbers, which wasn’t too surprising because in the last few months USDA had made previous changes, especially in U.S. export and stocks numbers. USDA did leave all of those stable for this month.
USDA did make some small adjustments though in the world numbers, making some additional changes to the production estimate with increases in India and Argentina, but a decrease in Turkey and Australia. However, that didn’t have a big effect because USDA actually raised use as well, Olson noted, adding that stocks are about 36 million bushels (MB) lower in the March report, but still historically large at 10.5 billion bushels.
Elsewhere, in its latest report the International Grains Council did give its first estimate for 2020 acreage and production. The IGC is expecting higher acreage and production with the biggest recoveries expected to be in India, Australia, North America, Russia and North Africa.
“We take those numbers with a grain of salt, but it gives an indication that right now production prospects look fairly good for the coming year,” Olson said.
In the U.S., the winter wheat crop condition ratings are higher than they were a month ago, so there’s not a lot of concern for that crop at this time. She pointed out that in Russia they’ve had favorable conditions so they’re expecting increased production and increased exports. In Europe however, there have been some weather challenges so they’re likely going to see a decline in production there. Ukraine is also reporting that they’ve had low moisture and so their winter wheat crop production could potentially fall by 13 percent.
“But overall we’re expecting higher production, and expecting stocks to continue to increase,” she said. “The northern hemisphere crops will come out of dormancy soon and that will help give us a better idea of where we stand.”
On the demand side, Olson noted that U.S. exports have not slowed down yet, adding that there were large spring wheat sales the previous week to Korea, the Philippines and Japan. Total weekly sales were just over 6 MB. Accumulated spring wheat sales to date are at 256 MB. That compares to 234 MB a year ago.
“USDA’s estimate for spring wheat exports is 275 MB, so we are getting fairly close to that,” she said. “Total wheat export sales are now 868 MB, which compares to 840 million a year ago, so we’re still seeing fairly strong sales at this point.”
The next anticipated big news for the market will come on March 31 when USDA will release its Planting Intentions report.
“That report is always very closely watched as it provides the first indication of what planted acreage might be, but especially this year, because there’s a lot of uncertainty, so I think those numbers will be challenged quite a bit,” Olson said. “I think it really depends on when we get into the fields and how this moisture situation works out.
“So there’s a lot of uncertainty now in terms of planting and which crops producers might plant.
Of course in the bigger picture for things, there’s just a lot of uncertainty with fears and concerns over the coronavirus and the economic impact of that,” she concluded.