Coronavirus continues to spread across the world wreaking havoc on global economies, the stock market, and commodities.
Prices have plunged lower for many sectors and will likely continue to trade sideways to lower for the very short term as the world comes to grips with the virus.
As we are still only in the preliminary stages of dealing with Coronavirus in this country, the fear selling will likely continue for a few weeks until cooler heads prevail, and the virus is curtailed. There will be economic stimulus packages announced by the government to help in economic recovery efforts, but my hunch is that the selling continues into month end and quarter end.
As commodity prices find their lows, there will be golden opportunities that arise which will help your farm.
1) Lower interest rates
Interest rates have dropped in recent weeks; use this to your advantage to refinance. Many of you already take advantage of this as you have been working with your lenders to lock in lower interest rates on various aspects of your farm, from machinery, equipment, real estate land loans, tiling, and irrigation equipment refinancing. All of these have been very popular according to agricultural lenders. Continue to focus on fixed interest rate possibilities. It is absolutely worth the time and paperwork now to save you thousands of dollars annually.
2) Energy needs
I thought they were a great bargain a month ago, but with crude oil now falling below $50/barrel to the next price target below of $30/barrel, we’ve been given a “blue light special.” Lock in any diesel fuel needs for the remainder of 2020, and even LP needs as natural gas is also down to a very historic low price as well.
3) If you are an end user that needs to buy grain
Your lower pricing opportunity is nigh. Grain prices will likely continue to drift lower into month end. Funds are selling futures contracts. Technical chart action is bearish. Seasonally, grain prices work lower until month end as well. If you need to buy grain, get your open orders working now to buy lower on this break. May corn futures look to target the $3.55 price area. May soybean futures appear poised to test $8.50, and if $8.50 fails, the bigger downside target is $8.25. Have your orders in place now to buy the dip, and to take advantage of the selloff.
On March 31 USDA rolls out its Quarterly Grain Stocks report and Planting Intentions report. In last week’s blog, I stated the importance of watching the Quarterly Stocks numbers, as that will be a great indicator of recent grain demand. If there is friendly information on these reports, it will help to put a seasonal “low” in place for grain prices.
I also can’t help but wonder if some of the money coming out of the stock market this month and this quarter will then start to come into commodity markets in April and the beginning of the second quarter? Looking back at 2008, there was BIG money that flooded commodities as the economic recession took a toll on the stock market. Commodities were the beneficiary then, as investors looked for new opportunities.
4) Potential demand upswing
Lastly, in the back of my mind I remember the recent words of Secretary Purdue, that he expects China to start buying U.S. grain in late spring to early summer (likely right before a potential summer rally). China has been waiting for an opportunity to buy our commodities at a discount. That opportunity is starting.
Remember, if they buy the amount of U.S. agricultural products that they said they would in the Phase 1 agreement, that is not yet priced into the marketplace.
Yes, things might be a bit doom and gloom for a while, but in the midst of despair opportunity can arise.