Fear is the price killer in commodity markets

COVID-19 | Cuts in key interest rates helped slow the declines in futures

There’s no doubt that the COVID-19 coronavirus is having a tremendous effect on commodity markets. Although Canada and the United States have a mere fraction of the reported cases and deaths, fears toward COVID-19 have generated sharp losses in North American markets.

There was something of a reprieve this week as the U.S. Federal Reserve and the Bank of Canada slashed each of their key interest rates by a half of a percentage point. That generated some much-needed positivity in commodities, but unfortunately it was short lived. Unreasonable and irrational attitudes towards the coronavirus again proved stronger and drove prices back down.

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It’s this volatility that will highlight trading over the coming months. One day things will look good, and the next day will drop because too many think the spread of COVID-19 will eradicate demand.

Lost in this turmoil have been thoughts towards spring planting. While Canadian farmers are somewhat limited in what they can grow in their fields, the spring weather can push prices up or down. Spring road bans can lead to fewer deliveries, as can good planting weather that keeps farmers generating dust in their fields. Also, expectations of seeding more of one crop over another can help shift prices.

With China having the vast majority of reported COVID-19 cases and deaths, there hasn’t been a great deal of time spent pondering when that US$40 billion in U.S. agricultural imports, as outlined in the Phase 1 trade agreement, was finally going to get underway. It was pretty much a given that China was going to stall on buying U.S. soybeans because of the massive crop coming off of fields in Brazil. As a good chunk of the projected 125 million tonnes of beans from Brazil ride the high seas to China, purchases from the U.S. remain scant.

However, China’s purchase this week of 110,000 tonnes of U.S. sorghum put a bit of excitement into the Chicago Board of Trade, as did speculation of China reportedly on the verge of a sizable purchase of U.S. wheat. In the end, the reality of the U.S. Department of Agriculture’s weekly export sales report shook the markets out of that daydream, as there isn’t much of anything from the U.S. presently going to China.

The growing spread of COVID-19 will continue to dominate the markets and regardless of the overreactions to the illness, the best one can do is to ride out the gathering storm.

About the author

Columnist

Glen Hallick - MarketsFarm

Glen Hallick writes for MarketsFarm specializing in grain and commodity market reporting. He previously reported for Postmedia newspapers in southern Manitoba and the province’s Interlake region.

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