Coronavirus’ impact on local markets and futures exchanges for corn and wheat
March 31, 2020, 9:00:00 PM
Commoditrader, the digital platform for agricultural products and commodities trading, analysed the evolution of local markets and international futures exchanges of agricultural goods from the previous and current week, the factors of influence, as well as the impact on the prices of corn and wheat. In the last week, the prices of corn registered fluctuations on international exchanges, ending with a moderate decrease, and those of the wheat remained on a slight increase. This week, the global risk sentiment continues to recover, improving the export outlook.
The virus can impact the market dramatically if we end up seeing export bans from some of the major exporting countries such as Russia, the US, Canada or Ukraine. Argentina is right now closing ports throughout the coming two weeks. Russia has implemented quotas, but additional actions around the world could become influential to the prices and volatility in the coming weeks or even months.
Corn - No sign of a market low yet
Since the contract low on March 18, the market has consolidated above these lows. The market is attempting to find a price level which might improve demand as an offset to the huge demand-hit from ethanol. Stronger than expected exports and even talk of more buying from China for feed grains was offset by continued concerns for a burdensome supply ahead. Corn prices continued to see coiling price action and fell back from early highs to finish Friday’s outside-day trading session with modest loss.
For the week, however, corn was able to grind out a modest gain that broke a 2-week losing streak. A selloff in crude oil prices was an early source of pressure in corn as it may weaken near-term ethanol demand prospects. Despite the coronavirus impact on global trade, expectations for a steep increase in US corn planted acreage continued to weigh on the corn market going into the weekend. If looking at the more technical part of the market forecast, indicators are price positive and should support higher prices. In Romania, on Monday we see slightly lower prices that what we saw throughout last week.
Global risk sentiment continues to mend which has improved the prospects for global corn exports and provide some measure of support to the price. The selloff in the US dollar is also seen as a sign that the “panic” in the global economic outlook may have peaked as well, which is a positive factor for all commodities. The dollar peaked and the US stock market bottomed on Monday. As a result, corn was able to overcome a pullback in energy prices that will weaken near-term ethanol demand.
While ethanol demand continues to drop off, producers intend to plant a huge crop, weather looks favourable in April for good plantings in the US, and energy prices were down again.
Wheat – Expanding pipeline provides boost
The market remains in a short-term uptrend and the buying supported a rally on Friday to the highest level since January 22nd. Despite the close on Friday, wheat prices ended up with a sizable weekly gain. The dollar continued to slide to the downside going into the weekend, and that provided wheat with underlying support as it benefitted the export prospects for US wheat versus European wheat. Australian wheat benefitted from increased rainfall over the past months and is expected to have its highest production in several years, and that was a source of pressure to the market. Russia’s Agricultural Ministry propose setting up a quota of Russia grain export at 7 million tons for April-June timeframe to protect domestic supply due to corona virus speed, in line with present expectations.
Ukraine’s Agricultural Ministry said that they do not plan to limit their nation’s key food exports, however Ukraine bakers are asking the government to limit exports of grain products too. Combined, the directions of the two states can lead to dramatic increases in prices.
Additionally, Turkey bought near 175.000 tonnes of wheat in a series of tenders that closed on Friday. Traders remain nervous over availability of some wheat exported as Russia has plans for grain export quotas for the rest of the season, and this provided support to the market.
“While it is important to follow traditional supply/demand fundamentals when analysing commodity markets, the current virus situation does not appear to have the characteristics of other recessionary periods, which makes defining the “new normal” difficult. In the months ahead, we will have a better idea of the longer-term effects on food and grain usage, but there are several factors that could boost purchasing over the near term that may have little or no correlation with actual usage or supply”, said Ida Boesen, co-founder of Commoditrader.
“Several commodity markets have fallen under heavy pressure on the idea that demand would collapse if Covid—19 sparked recession. But instead, we have seen a short-term jump in demand in several markets. Global end-users and even some nations as a whole have seen the need to hold more commodities inventory, including food and livestock feed. For example, well-publicized shortages of bread at grocery stores sparked aggressive buying of wheat and flour, which turned the trend up for the wheat market. Global consumption and ending stocks may not have actually changed, but the surge in buying by end-users is a very bullish (upward trending) short-term force”, Ida Boesen continued.
Another factor could simply be food security during a period of uncertainty. There are still no production concerns for wheat, but there are already examples of exporters holding back product to keep domestic supplies high. A Russian trade group said that the recent rise in wheat prices could lead to a shortage in flour in Russia.