Josh's View--

Coronavirus, Wreaking havoc, BUT the Fundamentals Are Still “There”.

By Josh Roe, Vice-President of Market Development and Public Policy

The Situation

For those that have spent most time around me, you would consider me a very positive person, sometimes to a fault. Being positive has generally treated me well in life, but there are times when I must face reality. Specifically, while I’m typing this ethanol futures are hovering around 95 cents, the lowest in history, which has pulled corn prices down further relative to beans, wheat, cattle and hogs. We have seen some recent rebounds due to rumors of China making some purchases. However, rumors of announced ethanol plant shutdowns are looming. I also have a report on my desk from Rabobank predicting reduced 2020 GDP growth for all major countries, negative growth for the Eurozone and Japan compared to 2019 and a mind numbing predicted GDP growth of 0.7% for the US, compared to 2.9% in 2019. To compound this, all planned travel or planned in-person meetings we had on the books to policy makers, environmental groups and oil companies have been postponed from next week through early May. Seemingly, this virus has brought progress to a halt and will further delay any bright spots we might have been looking forward to.

The Fundamentals

I would argue that none of the recent selloff in the agricultural commodity markets, save for downward pressure as a reaction to other commodities, is based on fundamentals as they exist for the next 60-120 days. This systematic risk, or risk that is associated with all commodity and equity markets, can be the toughest to bear, because it’s the toughest risk to manage. However, if we look at the near term, the fundamentals are there:

  • 2019 corn harvest continues in the Dakotas, and we are seeing a clearer picture of how much 2019 corn was put in the bins, which has major impact on the carry-in for the 2020 crop.
  • China continues to import pork at record levels; it’s hard to wrap my head around this. In 2019, the US exported nearly 600,000 tons of pork to China, whereas previous annual records were under 400,000 tons. However, the monthly trends indicate a more optimistic story than annual numbers. China imported 91,650 tons in the month of January despite Cornonavirus concerns. At these levels, we’re set to beat 2019 exports within the first 6 months of 2020.
  • Despite restaurant demand reductions that will be in correlation with the length of shutdowns, retail food demand is strong. Even with reductions in consumer spending, consumers will be awarded with cheap oil and food, which has strong demand implications for beef and pork domestically.
  • Lost in all the shuffle this past week is the Canadian ratification of the USMCA, the President’s assurance that China will still uphold its $38.5 billion in agricultural purchases and continued progress with EU and UK on future trade deals.

What we’re doing about this

On a policy front, Kansas Corn is continuing our outreach to elected officials, despite not being able to meet in person. At the top of our list is conveying that the best thing they can do for farmers now is what we’ve been asking them to do all along:

  • Increase ethanol demand through ensuring the integrity of the RFS, expanding RFS volumes, considering high octane fuel standards and regulatory issues that impact credits the automakers receive for producing flex fuel vehicles.
  • Protect and expand export markets. While we strongly prefer markets and sound prices based on fundamentals, the fact is, in the short-term, another MFP type payment may be required.
  • Ensuring farm bill programs such as crop insurance and commodity programs are funded and offer more assistance in times of need. Reduced/delayed FSA loan rates and payment, pushing back insurance payment deadlines and adjustments in commodity payment timelines among others have all been mentioned.

While our in-person meetings and most travel has ground to a halt, we will attack each day with the same vigor to make sure your voices are heard. On a side note, with a lighter travel schedule and Kansas Corn adopting a work from home policy like many other organizations, I look forward to more personal conversations with you as we prepare for #plant2020. Hopefully, as the social distancing recommendations are lowered I can even visit some of you in person!