COVID-19 Could Provide Input Price Relief for Farmers
by Tyne Morgan, AgWeb
Mar 17, 2020
The markets were off to another messy start on Monday. Everything from the stock market to commodity markets felt the concerns of warning signs the U.S. will fall into a recession the first half of the year.
The Monday freefall marked the second consecutive rocky start to the week. Last week, the tipping point was a double whammy: COVID-19 and an oil war.
“This all comes from an oil production war, which Saudi Arabia had wanted Russia to join in,” explained Davis Michaelsen, with Pro Farmer’s Inputs Monitor. “The said, ‘look, we've been on curtail production for three years. Now, we're done with that.”
“The Saudis said, ‘you know what, we're going to go the other way, and we're going to increase production, we're going to lower our price targets,’” added Joe Vaclavik of Standard Grain. “That was something that was totally unexpected.”
The oil war could result in the marketing being flooded with oil in the short-term. As a result, it’s taking a direct cut out of commodity prices. Vaclavik says the reason is how powerful oil prices can be. He says crude oil is the king of the commodity markets, and so the price drop started to drag other commodity markets with it.
“When oil makes these big moves, and it loses 25 to 30% in a day, you're going see these other markets be impacted,” he says. “Is that something that you're going to have to see play out? If crude stays cheap for three or four months? No, I think ultimately you'd see the corn market, soybean market and the wheat market separate itself from that, but I just think the knee jerk reaction was ‘we've got to sell everything.’ That's what we saw last Monday.”
It wasn’t just crude oil that initially gashed the markets. COVID-19 continues to infect the markets across the board, with fear and panic selling grasping prices.
“This is very dynamic its fairly unprecedented,” says Samuel Taylor, vice president, farm input analyst for Rabo AgriFinance, when explaining COVID-19.
The unprecedented times sparked a historic selloff last week, with the free fall continuing into this week.
“I think the corona virus was a catalyst for the big correction in the stock market, which a lot of people would argue was overdue to begin with,” says Vaclavik. “There's always a catalyst for a sell off or for a correction.”
The catalyst for a major correction in the stock markets, in the midst of not just growing uncertainty around how much the virus will spread, but also how fast.
“What I know for sure is that the coronavirus has been without a doubt the catalyst, at least for this correction in in the stock market, which has been in a 10-plus-year bull market,” adds Vaclavik. “We were due for something substantial here, and now we have got it.”
The cut to commodity markets was bad news or for farmers hoping for higher prices, but good news for buyers looking for cheaper inputs...