Trade suddenly joined the coronavirus as a major concern for the grain markets in recent days.
On Friday, President Donald Trump began blaming China for the virus and for withholding information about it. Secretary of State Mike Pompeo went on Sunday news programs and said the virus began in a Chinese lab. And Monday the grain markets dropped as traders became concerned about a restart of the trade war between China and the United States.
“It’s political, obviously,” said Karl Setzer, a market analyst with AgriVisor. “But now President Trump is blaming China for the economy … it raises the specter of protectionism again.”
Several other factors aren’t helping the situation. One of those items was a report last week that it might take two years to be fully through the virus situation. Traders are also questioning how packing plant issues might impact the grain markets.
“It’s not a demand issue,” Setzer said of the meat situation. Instead, he said, it is a matter of supply chain issues and an oversupply of meat.
There will be some obvious impacts for grain producers. Some livestock farmers will be changing animal diets to maintenance diets, which might lead to lower soy meal demands. And the livestock issues combined with the China trade issues could lead farmers in South America or other regions of the world to want to expand acreage.
But Setzer said the more immediate concern for grain producers is the apparent desire of the Trump administration to possibly ramp up the trade war again so it can use China as a scapegoat for the state of the economy or for the virus-related issues.
For farmers, Setzer said there is little incentive to market new crop grain because prices are below the insurance levels. Marketing right now is likely to be primarily of old crop grain, and that is going to be a matter of reducing risk and meeting cash-flow needs at the moment.