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How COVID-19 impacted grain, energy markets this week

Gripped by fear, markets try to find some footing.

When out making presentations this winter, I’ve talked about how glad farmers would be to see 2019 get the heck out of Dodge. If we only knew what 2020 would look like, I’m not so sure we would have felt the same way.

With the onset of Coronavirus in the U.S., panic and fear have gripped our markets as our state and federal governments try to stop the spread of this menace. In the last couple weeks we’ve seen crazy volatility, mostly of a deflationary nature.

Suffice to say this past week was less than inspiring for the bulk of agricultural producers.

Let’s start with energy

It’s interesting to look back at some of the price levels we’ve had. On Wednesday the 18th of March, crude oil had dropped in ten trading sessions by right at $27/barrel. This drop had an obvious impact on ethanol margins with ethanol prices dropping from Friday the 13th to the 20th by 22 cents, closing under $1.00.

Given the conversion rate from bushels of corn to gallons of ethanol, many in the industry feel corn prices could drop 50 to 60 cents due to this type of move for ethanol alone.

Obviously, corn has taken it on the chin, but we’ll get to that later.

On a positive note cheaper energy helps input costs. While fertilizer costs likely won’t come down initially, oil deflating will certainly provide relief. Diesel fuel can currently be booked as cheap as we’ve seen it since the 2016 oil price war. While heating oil (basis for diesel prices) looks to close the week above $1, we saw prices dip to .95 mid-week.

Corn in sell-off mode

With the drop in energy prices and ethanol margins called into question, the corn market was in full-on sell-off mode. With May corn dropping 30 cents in the first three sessions of the week, corn bears were feasting on the news.

Unfortunately, a consequence of the ethanol news was of course local cash bids. With ethanol plants taking a bath on the spot market, some plants went idle or made plans to do so this past week. Basis had widened a dime up to 30 cents in many locations this past week, making cash prices up to 60 cents below a week ago.

This the last thing cash-strapped producers needed to see, especially given estimates the producer still has up to half of their corn to price across the corn-belt.

Positive news for soybeans

On a positive note, the bean market shrugged off the poor showing from corn and energy and rallied 14 cents on the week. With crush operations disrupted in Argentina, soybean meal business is presumed to come to the U.S., which drove meal prices on the week.

Given ethanol plants going idle, demand for soybean meal in feed rations could spike significantly due to reduced availability of DDGs moving forward. With an $11 inversion from May to July and May meal settling at $325, this soybean meal market has been nothing short of impressive and highlights how strong demand for meal is right now.

IF we could see lead month futures settle above $330, we could see serious technical and speculative buying drive this market even higher.

The news isn’t great, but don’t get discouraged. While we have a ton of unknowns as we approach spring planting, I hope we can remember how important we as farmers are. We have a growing world population that needs to eat, and prefers a protein rich diet more every day. We will prevail through these challenges as we always have. I wish you well.

Reach Matt Bennett at 815-665-0462 or mbennett@agmarket.net
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