Covid-19, the Oil Price War and Our NWS Spring Outlook
Update for March 20th, 2020
This week has been rough! Seems like all we hear about is the latest information on the coronavirus and all of the aspects of life it’s affecting.
The latest numbers today from John Hopkins University indicate the number of cases of Covid-10 around the globe has reached 244,602 with 10,031 deaths to date. The World Health Organization noted that it took nearly 3 months for the numbers of those infected to reach 100,000 world-wide but only an additional 12 days to log the next 100,000. Americans are being asked to remain at home and to delay or cancel all travel, especially internationally. The State Department has now raised the U.S. travel alert system to its highest level a Level 4, and have restricted almost all travel abroad.
The FDA has not approved any specific treatments for the treatment of the coronavirus yet but researchers in the U.S., China and Europe are combining efforts in hopes of stopping the spread of this virus. President Trump announced yesterday that two anti-malaria drugs have shown “tremendous promise” in treating the virus but so far they have not yet been shown to work in large scale situations.
The U.S. government has also been working feverishly to develop a virus relief plan. A third round of talks between both Republican and Democratic leaders and Treasury Secretary Steven Mnuchin were held today. In addition to the changes to the income tax code and delays to income tax deadlines, proposed loans for businesses including passenger and cargo airlines, cruise lines and members of the hotel industry, some ag-related provisions are also being pushed. A provision being considered would increase the USDA’s CCC borrowing authority from $30 billion to $50 billion to allow the agency to make another round of MFP payments to farmers and cattle producers hopefully by sometime this summer if not sooner.
Several of the ag markets have fallen to multi year lows over fears associated with the Covid 19 outbreak. Corn posted weekly losses but soybeans, wheat, cattle and hog futures all regained earlier losses to post weekly gains. A rise this week in Chinese demand is credited for much of the recovery for those markets. Today the USDA announced sales of 756,000 MT of U.S. corn and 340,000 MT of U.S. hard red wheat to China (the first since late 2017) and 110,000 MT of soybeans to unknown destinations. There are some that speculate the soybean sales were also to China as reports indicate that China has purchased two cargoes of U.S. soybeans for April delivery.
The corn market is facing some major headwinds. CEO of the (RFA) Renewable Fuels Association, Geoff Cooper has described the current pandemic, oil price war, storage shortage for surplus ethanol supplies and SRE waivers as “potentially catastrophic” for the ethanol industry. All of these factors are creating a tidal wave of problems for corn producers…The RFS has determined that each time an ethanol plant closes the local corn basis takes about a - $0.20 per bushel hit. The ethanol industry is in critical need of emergency assistance but Cooper says he believes that the industry in truly unaware of just how much assistance they are in need of.
The Saudi/Russian price war has sent crude oil prices to 18 year lows and has pressured corn futures and turned ethanol crush margins into the red. With profit margins evaporating across the Midwest, basis levels have suffered, some ethanol plants have stopped accepting corn deliveries to their facilities and others are idling production. Gasoline futures prices fell below the price of ethanol futures for the time since 2017. To add to the problem, fuel consumption is expected to fall due to the implementation of travel restrictions and quarantines in efforts to stop the spread of Covid-19. Todd Hubbs with the Department of Agricultural and Consumer Economics at the University of Illinois says estimates show gasoline usage could fall by 15% to 20% over the next couple of months which will likely lead to drop in corn used for ethanol production by 120 to 170 million bushels.
As we move closer to the spring planting season the latest outlooks from the Nation Weather Service show a warm and wet pattern is expected to set up across the eastern 2/3rds of the country. Soil moisture levels of 70% or more above normal are common across the central U.S. This sets up the chances for an extended planting season again this year if these areas, especially throughout the Mid-South and northern Corn Belt where soils are saturated, actually receive the precipitation predicted.