Market Update 4/17/2020
Apr 17, 2020
Equity markets continued their exceptional pace with the Standard & Poor’s 500 index up 350 points in the last two weeks on general optimism about a plan of attack on normalization of the economy, record government spending on a stimulus, and the Federal Reserve pushing their total position of support above 6 Trillion dollars. If there ever was an example where the power of positive thinking means something in the equity market it has been the last two weeks, where seemingly any piece of negative news was pushed away for what I would call irrational exuberance.
It was another wild week in energy where we saw an OPEC+ (The Organization of the Petroleum Exporting Countries) meeting where we had US Senators and the President negotiating with all the other energy producing countries on cuts and the final result is nearby West Texas Intermediate crude oil futures are trading as low as $17.31 a barrel, the lowest since 1999.
Cash crude prices in the US have largely stabilized, but Bakken continues to trade at a big discount, currently at 7 dollars a barrel under the board for Bakken delivered into the pipe in Minnesota, so we are looking at $11.44 a barrel for Bakken crude. Bottom line there just is not enough cutting for the demand situation right now and price is going to do the work to find a home for crude oil as wells are hard to shut in.
We all know about the demand destruction situation in both the US and the rest of the world, but there were a few bright spots at least for the US in the EIA (Energy Information Administration) numbers released on Wednesday. The gasoline demand was a little better than last week and perhaps this is giving a little bit of optimism that the worst is over at least for gasoline demand. Refining margins have moved up nicely from a refinery losing 80 cents a barrel to make gasoline and diesel two weeks ago to be about 6 dollars a barrel today.
Ethanol production continues to move lower and lower as we need to shut down production to avoid filling up all storage in the US. Production moved to 570K barrels per day, which is down about 45% from where we would be on average. That is losing 7 million bushels of corn demand per day, or about 3 fully loaded Panamax bulk boats that we load grain to global customers with.
Corn down about 7 cents on the week as the ethanol demand destruction continued to weigh on the market. Currently I would put the full year ethanol grind at just over 4.8 billion which is down about 550 million bushels from 18/19 and down 800 million bushels since the 17/18 campaign.
Wheat gave back some gains this week with Chicago, Kansas City, and Minneapolis all lower as Romania decided not to ban exports and some of the flour demand that US millers saw when customers were stocking up for shelter-in-place have subsided. Egypt was in the market yesterday to buy some nearby needs; they continue to stay hand-to-mouth but are eager to buy whenever the market moves lower. Hard Red Wheat (KC) does not price to Egypt until probably New Crop but always good to see that Egyptian demand for global wheat.
Soybeans lower as well as exports seem slow for the time being and the front end of Soybean crush is slowing a bit due to demand. Obviously there are lot of moving parts with the current COVID-19 situation but it does not appear to be a particularly friendly period for US-China relations especially with regards to fulfilling any of their “Phase 1” buying pledges, much less getting into “Phase 2”.
Weather forecasts for US growing regions remain dry and calm for the next week after snow and rain move out of parts of the Iowa and into the Eastern corn belt. Overall temperatures will be below average for the next week to ten days, but we will see a general warm up in our region. Dry weather in Argentine growing regions have allowed harvest to roll with progress slightly ahead of last year on soybeans and behind on corn. No major threats are seen in their forecast.
Grain Team – Aaron, Connor, Dallas, Hank, Jenna, Joel, and Kevin