“The commodity market has already "digested" the epidemic as a threat and is starting to react less and less sharply. Oil is getting cheaper, demand for ethanol is declining, and as a result, demand for raw materials is also falling. As global trade recovers, the market is waiting for a reversal…The Brazilian currency is one of the most undervalued currencies in emerging markets, making its products the most attractive in foreign markets. A weak euro also supports European grain. So spring is coming – will it be 'green' on screen? Will bears wake up or bulls fed?”
Elena Faige Neroba
Business Development Manager
The potential recession of the global economy due to the spread of coronavirus increases pressure on stock and commodity markets. At the same time, the market has already "digested" the epidemic as a threat and is starting to react less and less sharply. Oil is getting cheaper, demand for ethanol is declining, and as a result, demand for raw materials is also falling. As global trade recovers, the market is waiting for a reversal. China declares that most companies will recruit employees on March 10th. Vietnamese companies have signed 18 agreements with US producers to purchase about $ 3 billion of agricultural products over the next 2-3 years. Transactions include the purchase of 100 thousand cows, 3 MMT of wheat and barley, fruit, corn and soybean feed for animals. Bullish signals begin to appear on the market.
Corn export rates are below expectations, there is support from ethanol. Since the beginning of the season, Ukraine has sold almost 18 MMT of corn from 30.5 MMT of export potential. The main focus remains on the EU. Spain bought 3MMT, Egypt - 2.4MMT, China - 2.35MMT, Netherlands - 2.1MMT, South Korea - 1.7MM.
In total, the EU imported almost 14.4MMT, which is 2MMT less than the same date last year. Ukraine's presence declines due to more active purchases in Brazil, where a weak local currency has made corn more competitive.
Brazil's exports in February amounted to 347 kMT, which is the smallest volume in February since 2012 and the smallest monthly volume since 2018. The reduction compared to February 2019 was 78%. 59% of corn sold to Iran, despite the threats of the local government to refuse to buy Brazilian grain for political reasons. The first boat with Argentinean corn (~ 30kmT) is unloaded in the eastern part of Brazil. Local analysts expect an increase in imports to Brazil, while domestic consumers are awaiting the supply of safrinha crops later in the spring. Some regions of production suffer from drought. Local prices, depending on the region, are 20-60% higher than last year, which is associated with a drop in currency and demand from the ethanol complex.
In the US, corn consumption for ethanol grew by 3% over the week, and by 9% compared to the same week last year, which supports the exchange. At the same time, there were no sales to China (except for the lot of sorghum), and Latin American corn is still cheaper. Ethanol production this week in the US has increased. At the same time, its reserves are also high. At the same time, due to low sales, production will grow, which means the US needs expensive oil and OPEC + meeting to limit oil production at their fingertips. NTL FCStone predicts 1.1% growth in US corn use for ethanol production in the United States Given potentially high carry-over stocks, even declining production globally does not make wheat more bullish.Tunisia is looking for 117 kmT of soft wheat in March-May. On February 25, Tunisia bought ~ 125 kMT of wheat at a price of $ 232.92 + CnF. Prices are in line with the $ 216- $ 217 FOB Novorossiysk indicator. Japanese MAFF purchased 117kMT of wheat. Ethiopia has announced a tender for 400kMT of wheat flour on April 7 to the previously announced 200kMT on April 1. Both tenders are shifted from late January. Jordan was unable to buy 120kMT of wheat at a tender on Tuesday. Turkey is looking for 305kMT of milling wheat, sellers must place a security deposit under the terms of the tender.
At MATIF, funds stopped building a net long position. Position decreased to 66 thousand contracts (minus 12.3 thousand contracts per week). The air temperature in the Black Sea region still exceeds the average annual norm, and moisture reserves are below average. Crops of winter wheat in most regions of Ukraine and Russia are in satisfactory condition, but due to a small reduction in areas in Ukraine and Russia, next year's crop may be lower, although it is actually too early to predict anything.
Due to political sanctions, Iraq cannot enter into new grain contracts. Wheat stocks in the country correspond to a 2-month consumption rate. ABARES predicts an increase in Australia's production for 2020/21 to 21.3 MMT against the 12-year low of the current dry season at 15.17 MMT. Optimism is based on an increase in sown area from 10.1 million hectares in 2019 to 12 million hectares. Let's see how soil moisture develops.
Tunisia bought 50 kmT for July from GTCS for $ 200,12+ CnF Akkaba. Previous 75kMT was bought at $ 204.29 + CnF. On 12 of March, Morocco will hold a tender as well, so barley-hunting is started. Ukraine is already planting first spring barley.
Malaysian palm oil futures were up 2.4% due to an expected increase in demand from India (Malaysia's new prime minister promises to change its key buyer policy) and China. The oil and fat complex is also supported by the next possible decision to reduce OPEC+ oil production. They want to reduce production on 1.5bbpd, but Russia could restrict just for 1bbpd. Anyway, higher oil prices will support grains and vegoils market.
Argentinean attache of USDA adjusted the forecast for soybean production in 19/20 from 53MMT to 54.1MMT, while some of the crops suffer from excess moisture, and in some regions, there is drought, so that the crop may ultimately be at the forecast level. The Argentine Ministry of Agriculture has confirmed that it intends to increase export duties on soybeans and processed products up to 33%, but only for farmers selling more than 1,000 tons of soybeans. Recall that at the end of last week, export licenses were suspended, which gave support to the market. Farmers can reduce crops by 5%, some regions suffer from drought.
Soybean exports from Brazil in February amounted to 5.12 MMT, which is 3% lower than February 2019. 72% was sent to China. At the same time, soybean harvest is behind the pace of last year and today makes up 40% of the area.
Results of the Egyptian tender on SBO: LDC 40kMT at $ 720.00 Hakan 30kMT at $ 720.00. SFO latest Egyptian purchase results: Aston 16kMT $ 734.00. Nowadays after price reduction, demand increases so with oil expectation and palm oil support prices get more on sellers site
Another statement about the invention of a vaccine for ASF caused a sharp increase in quotes for soybean meal, but since this is not the first such statement, and outbreaks are recorded further, the market calmed down. According to the forecast of the USDA Secretary of State, China will begin purchasing American soybeans in late spring and early summer, which is traditional.
Canada's exports to China could spur a major domestic catastrophe in 2019/20, and stocks should also increase at the end of the season. Canada is trying to find new markets, for example - India. Consulting company Strategie Grains lowered its forecast for rapeseed in the EU this year to 17.85 MMT from 18.05 MMT earlier, the monthly report said; the revised forecast was 5.7% higher than last year's crop of 16.89 MMT, which became a 13-year low
The US market beat off the fall of on 3rd March. The movement in plus/minus 4% for two days continues to keep volatility at a high level. Investors hope for coordinated economic support by G7 central banks. The Bank of Canada on 2nd March lowered its discount rate by 0.5%. The US announced financial support to the health sector for $ 8.3 billion. The IMF will also provide $ 50 billion to the countries most affected by coronavirus ($ 10 billion to poor countries under the quick financing program and $ 40 billion to everyone else as part of another quick fundraising tool) In the US, Democratic presidential candidate former Vice President Joe Biden strengthened his leadership - now bookmakers give him 84% probability, and for Sanders only 18%. The top of the Democratic Party for Biden (and brightly against Sanders). Trump will suit either of these two candidates (Giuliani made a film about corruption in the Biden family and throw him at the finish of the presidential race if Biden is his opponent in the finals). What is still important to understand is the US elite versus Sanders. And his descent from the race will weaken their resistance to the crisis. That is, tactically, Biden's nomination is good for the market, but in the medium term, it threatens to deepen the correction. However, strategically this is also good for the markets.
It is expected that the Chinese will massively begin to go to work on March 10. Accordingly, Chinese products will begin to return to shelves by the end of March. Therefore, expectations for the second quarter are much more positive than for the first quarter
WHO compared mortality rates from conventional influenza and from COVID-19 to 1% and 3.4%, respectively. That is, the current coronavirus is 3.4 times more dangerous. This isolates the coronavirus from normal flu.
But in general, the panic over the coronavirus is now coming to naught. People and investors are used to.
The Brazilian currency is one of the most undervalued currencies in emerging markets, making its products the most attractive in foreign markets.
A weak euro also supports European grain. So spring is coming – will it be 'green' on screen? Will bears wake up or bulls fed?