Uncertainty with global issues tends to make traders nervous. That would explain some of the recent drops in the grain markets as coronavirus, a human respiratory illness, continues to spread around China and into other countries.
When new diseases enter global headlines, the impacts could be wide ranging.
“Nobody really knows what’s going to happen to our demand,” Jack Scoville of the Price Futures Group said. “We were betting on China taking a slew of beans and other stuff, and that’s been put on hold right now. We are seeing a knee-jerk reaction because nobody really understands what’s going on, and that’s keeping things under pressure.”
Soybean prices have been falling ever since the signing of a phase one deal with China, as the hopes for exports has yet to be realized. And the virus has caused major drops in the corn market recently, with futures dropping nearly 6 cents per contract at the close on Friday, Jan. 24, and opening down nearly 7 cents on Monday, Jan. 27.
In that same time frame, soybeans have seen combined losses of up to 18¾ cents, and wheat has dropped 18¼ cents.
Another item pressuring the soybean market is a potential record crop in South America. Brazil has been receiving favorable weather in recent weeks, which would add more global supply to the marketplace.
While the U.S. does have its trade deal in place with China, Scoville said it likely won’t ease potential price drops.
“I don’t think it really mitigates things, because China has made it clear that they’re going to buy from the cheapest provider,” he said. “And so the Brazilians got a bunch of beans going down, they’re going to have to drive their prices down. And that’ll take ours now with it, even with the China deal in place.”
Domestically, Scoville said farmers have been “reluctant sellers” in the current climate, which may help firm up prices in the short term. However, global worries could cause the U.S. dollar to see some major gains, which would put more pressure back on the commodity markets.