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What Are Ramifications Of The Coronavirus Outbreak On Agriculture?
DR. AARON SMITH
KNOXVILLE, TENN.
Volatility in agricultural and non-agricultural markets continues to remain prevalent as traders, politicians, and businesses continue to understand and react to news regarding the coronavirus outbreak. The short and long term ramifications of the virus are largely unknown, however from an agricultural stand point there are a couple of areas that producers should keep an eye on. First, the disruption to global markets and consequently exports of agricultural products may be substantial and could get worse. For agricultural commodities and products, both logistical issues and economic activity are at the forefront of trade issues. Getting vessels loaded or unloaded at ports can be problematic (both domestically and internationally). For example, there can be challenges with refrigeration units as a limited number of places to “plug in” large containers are available at importing ports. This could create issues with unloading ships and may result in perishable cargos being rendered unusable. From an economic activity standpoint, the restrictions to travel and the quarantining of some cities/regions reduces consumer spending (affecting economic growth / GDP) as dollars are not circulated in economies and thus impacts demand for agricultural products. This is an oversimplification of very complexed economic systems, but it is worthwhile to consider the short and long-term implications on US agricultural exports.
Another problem that could affect agriculture, as we enter spring field work and planting, is the ability to secure certain nu-trients or chemicals (or product components) that are primarily produced in China. The longer logistical disruptions continue the greater the strain could be on domestic supplies of certain agricultural (and non-agricultural) inputs. This also may have longer term consequences as large multi-national companies evaluate supply chains and risks.
So what can be done? First, it is important to make sure that emotions do not get the best of your decision making process. Make sure any marketing or input purchasing decision are well thought out and risks and rewards properly measured. Particularly in the case of marketing row crops, the best strategy may be to do nothing. Current futures prices (corn - $3.85, soy-beans - $9.05, wheat - $5.15, and cotton - $0.64) are not at prices that are overly attractive to producers, so picking a better spot may be the best strategy. If producers are looking for pricing opportunities for the 2020 crop they may want to check if basis opportunities are available in their area, if not, there is still plenty of time to market the 2020 crop.
Corn
Ethanol production for the week ending February 28 was 1.079 million barrels per day, up 25,000 barrels from the previous week. Ethanol stocks were 24.964 million barrels, up 0.246 million barrels compare to last week. Corn net sales reported by exporters for February 21-27 were down compared to last week with net sales of 30.3 million bushels for the 2019/20 marketing year and 3.9 million bushels for the 2020/21 marketing year. Exports for the same time period were up 5 percent from last week at 34.8 million bushels. Corn export sales and commitments were 61 percent of the USDA estimated total exports for the 2019/20 marketing year (September 1 to August 31) compared to the previous 5-year average of 74 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Overall, basis for the week ranged from 9 under to 30 over, with an average of 19 over the May futures at elevators and barge points. May 2020 corn futures closed at $3.76, up 10 cents since last Friday. For the week, May 2020 corn futures traded between $3.67 and $3.86. May/Jul and May/Dec future spreads were 3 and 5 cents. July 2020 corn futures closed at $3.79, up 7 cents since last Friday.
In Tennessee, new crop cash corn contracts ranged from $3.52 to $3.90. December 2020 corn futures closed at $3.81, up 4 cents since last Friday. Downside price protection could be obtained by purchasing a $3.90 December 2020 Put Option costing 30 cents establishing a $3.60 futures floor.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 12.7 million bushels for the 2019/20 marketing year and 0.05 million bushels for the 2020/21 marketing year. Exports for the same period were up 16 percent compared to last week at 25.6 million bushels. Soybean export sales and commitments were 69 percent of the USDA estimated total annual exports for the 2019/20 marketing year (September 1 to August 31), compared to the previous 5-year average of 88 percent. Average soybean basis strengthened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Basis ranged from 26 under to 24 over the May futures contract at elevators and barge points. Average basis at the end of the week was 5 over the May futures contract. May 2020 soybean futures closed at $8.91, down 1 cent since last Friday. For the week, May 2020 soybean futures traded between $8.88 and $9.12. May/Jul and May/Nov future spreads were 9 and 14 cents. July 2020 soybean futures closed at $9.00, down 1 cent since last Friday. May soybean-to-corn price ratio was 2.37 at the end of the week.
In Tennessee, new crop soybean cash contracts ranged from $8.67 to $9.29. Nov/Dec 2020 soybean-to-corn price ratio was 2.38 at the end of the week. November 2020 soybean futures closed at $9.05, down 3 cents since last Friday. Downside price protection could be achieved by purchasing a $9.20 November 2020 Put Option which would cost 50 cents and set an $8.70 futures floor.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 448,700 bales for the 2019/20 marketing year and 53,200 bales for the 2020/21 marketing year. Exports for the same time period were up 48 percent compared to last week at 478,200 bales. Upland cotton export sales were 92 percent of the USDA estimated total annual exports for the 2019/20 marketing year (August 1 to July 31), compared to the previous 5-year average of 87 percent. Delta upland cotton spot price quotes for March 5 were 59.60 cents/lb (41-4-34) and 61.85 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 4.57 cents to 53.36 cents. May 2020 cotton futures closed at 62.79 cents, up 1.3 cents since last Friday. For the week, May 2020 cotton futures traded between 61.7 and 65.07 cents. May/Jul and May/Dec cotton futures spreads were 0.72 cents and 1.02 cents. July 2020 cotton futures closed at 63.51 cents, up 1.24 cents since last Friday.
December 2020 cotton futures closed at 63.81, up 1.37 cents since last Friday. Downside price protection could be obtained by purchasing a 64 cent December 2020 Put Option costing 4.43 cents establishing a 59.57 cent futures floor.
Wheat
Wheat net sales reported by exporters were up compared to last week with net sales of 19.9 million bushels for the 2019/20 marketing year and 1.0 million bushels for the 2020/21 marketing year. Exports for the same time period were up 59 percent from last week at 23.8 million bushels. Wheat export sales were 85 percent of the USDA estimated total annual exports for the 2019/20 marketing year (June 1 to May 31), compared to the previous 5-year average of 95 percent. May 2020 wheat futures closed at $5.15, down 10 cents since last Friday. May 2020 wheat futures traded between $5.10 and $5.34 this week. May wheat-to-corn price ratio was 1.37. May/Jul and May/Sep future spreads were 1 and 9 cents.
In Tennessee, June/July 2020 cash contracts ranged from $5.29 to $5.68. July 2020 wheat futures closed at $5.16, down 10 cents since last Friday. Downside price protection could be obtained by purchasing a $5.20 July 2020 Put Option costing 29 cents establishing a $4.91 futures floor. July wheat-to-corn price ratio was 1.36. September 2020 wheat futures closed at $5.24, down 9 cents since last Friday. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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