Lousy way to start the week

Published on: 06:32AM Jan 27, 2020

Two weeks ago, everyone was bullish on China.  A trade deal was finally signed with commitments to purchase record amounts of ag products from the U.S. and there were numerous encouraging reports that great strides were being made at rebuilding the hog herd that had been decimated by African Swine Fever.  Well, that was then and today no one appears to be bullish China.  Not only has there been no noticeable pickup in demand from that nation, there have been disconcerting reports of biosecurity issues at slaughter facilities and now we have an outbreak of the coronavirus, with over 2,700 confirmed cases and at least 80 deaths and counting. Certainly not the way they wanted to usher on the New Year. While the impact of all of this on markets is primarily psychological, the resulting damages to prices are very real as this morning we have all the grain and soy markets under solid pressure and pushing down toward areas of major support.

There is a different price story over in Russia right now as barley and wheat prices have pushed higher again to begin this week.  Solid demand has barley up another $1 per tonne and wheat another $5 a tonne and up to the highest levels trade since February last year.

We did learn last Friday that large speculators were again buyers of Chicago wheat and corn during the week ending January 21st.  They purchased almost 11,000 contracts of wheat, bringing their long holdings up to 17,208 contracts and purchased 7,000 corn, reducing their short position to 114,000.  They were not feeling so generous over in the soy complex though as they sold 22,000 contracts of beans, 21,000 oil, and 1,600 meal.  They are net short 42,500 beans and 37,000 meal but remain long 69,000 oil.

As you might suspect, the pressure in the grain and soybean markets is not doing anything favorable for the overall commodity indexes and this morning already, the CRB Index has pushed down to the lowest point in the past six weeks.  Granted, we have been trending higher since establishing a multi-year low back in August last year, so a corrective retreat was in order.  None of this changes the longer-term outlook but as I have pointed out ad-nauseum, until we see the dollar abdicate the throne of King of the Currencies, commodities will most likely continue with this extended period of wandering through the wilderness.