The coronavirus continued to catch the attention of the markets this week. As the virus continues to spread, and with the World Health Organization declaring coronavirus a global health emergency, the fears about the impact it could have on the global economy are growing. Not everyone, however, thinks the outcome will be as severe. Dan Basse called the attention on the virus “hype.”
“It’s a media frenzy right now,” he said at Top Producer Summit in Chicago, Ill. this week. “If you look at social media, there’s lots of misinformation about the virus, but if you think about it, it’s a really, really bad cold that may turn into a respiratory problem.”
Basse said if you boil down the numbers, the spread of the flu this year has been more severe. Basse acknowledged the number confirmed cases of the flu is increasing, but said the mortality rate has been decreasing.
“A week ago, that mortality rate was about 3%,” he said. “Now we’re getting down to 2%. We think in another couple of weeks will be at 1.8 or 1.9%.”
Yet, the ripple effects of the virus are continuing. More travel restrictions to China are taking place, and some manufacturing facilities will stay shut down, even after the Lunar New Year. Basse thinks those impacts could be felt short-term.
“My biggest concern is we open the Chinese stock markets again on Monday, and some of the markets - like Hong Kong - opened up last night, and they were sharply lower,” said Basse. “This feeds into our markets from a macro perspective. But I believe in the next two to four weeks, this will pass. I think it’s like SARS, like we had in 2003, and we’ll get to that point where we focus on other things.”
While Basse thinks the coronavirus could impact ag buys from China in the near-term, major grain markets continue to wait for China to step up and buy from the U.S. again. Erin FitzPatrick of Rabo AgriFinance thinks the grains and oilseed markets could continue to be disappointed with the lack of export news from China.
“There’s more optimism from the livestock side of what we’ve seen in phase one trade deal,” she explained. “If you look at soybeans, there’s still an import tariff for soybeans going to China, and soybeans from a market perspective, are not pricing into China. So, I think we still have a lot of questions regarding what does this mean for U.S. corn and soybean exports.”
“I think the thing is, a lot of people were expecting some grandiose reaction once we got this sign, but the thing that I kept telling people is that whenever you’re actually going to get a reaction is going to be whenever we’re loading a ship that is actually going to be loaded with something that we don’t normally export to China,” added Matt Bennett of AgMarket.Net. “Whether we’re talking corn, DDGs, wheat, commodities like that, it’s going to at least provide you some support. But if you’re going to wait all year, and if your marketing plans are going to be based upon Chinese purchases all year in 2020, I think that that could be a devastating decision to make.”
Basse and Ag Resource Company have been digesting the news, and providing analysis on what Chian could buy.
“I believe this agreement will allow us to sell to China,” said Basse. “I’m not as pessimistic, I believe there’s this 30-day window, which China has to ramp up buys. Now coronavirus, could maybe nick that around the edges, but I believe ultimately the Chinese will buy soybeans, maybe 35 million tons. Corn, we’re thinking about 5 MMT, maybe 2 to 5 million tons of wheat. So I’m optimistic on that.”
However, Basse said he has an important message for farmers looking to price grain. Purchases from China aren’t the magic bullet to help the markets recover.
“It doesn’t change the overall profile of the market,” Basse said while addressing the crowd at Top Producer Summit. “That’s what you all need to understand. When that big demand or the demand comes, there’s going to be a rally. And it’s a question of what you do with it.”
