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Higher food demand should equal higher farm markets, analyst says

Since Feb. 21, soybean prices are down 5%, corn 4%.

The recent pandemic from COVID-19 has resulted in an economic disaster for Western countries, where they are having difficulty controlling the virus – just like China did at its early stages. 

The problem is Western countries cannot infringe upon citizens legally the way Communist China can.  China used electronic surveillance, private phone records, and other invasive techniques to control the virus; these techniques are not legal in the U.S. or Western world. 

So Italy, Europe, and the U.S. are trying to get people to voluntarily give up their rights to travel, fraternize with others, and generally be a pain in the butt to government officials trying to control the virus. So far, the EU seems to be losing that battle as infections rise every day, making it the new hotbed of the virus.  

READ MORE: How the coronavirus could impact dairy producers

The U.S. Federal Reserve has taken the unusual step of dropping interest rates another full point, basically to 0.25% (almost zero) in an attempt to slow the rapid decline of markets. This also was unusual as it’s now the second time between meetings it did so – a first historically for the Fed. It also announced it would significantly expand the money supply through quantitative easing and other measures similar to 2008 when it tripled the money supply to fight the financial disaster that emerged in the housing market. With the DOW down 1,041 points by 5:25 pm (in 25 minutes Sunday night), apparently it wasn't working, so trade was stopped for the night under the stock limit rules.    

The coronavirus as of March 17, 2020, now has 182,424 infections worldwide, (up 13,037 from yesterday), 7,155 died (+642), and 79,433 recovered (+2,176).  The number of infections over the three-day weekend (40,995) was over 3x what it was last weekend (11,611) and essentially was up 33% worldwide in just three days, which indicates the virus is still picking up steam.  Only 78 of the new infections were in China, who has pretty much defeated the virus but hasn’t completely eliminated it yet from its borders.   

Essentially, the EU is quickly losing its battle against the virus. Because of that, most countries are locking down travel with Europe and EU countries are restricting travel with each other. The UK health official indicated perhaps the best defense from the virus is immunity that comes from an infection itself. Now many EU countries are taking duel steps of trying to restrict infections, and only allowing infections from those not vulnerable (essentially confining the sick/elderly away from the rest of the population).  

If you are a stock investor, it is painfully obvious that the impact to your stock portfolio value is no joke, indeed. The DOW seems destined now to test next support at 18,331, at which time it might be a buy. But the stocks to buy are those producing necessities first, then durables, and lastly luxury items.  

Crude oil targets are still around $28 – near the 20-year lows.  

Demand for food and essential items worldwide has spiked, as consumers stock up on available food items and other necessities. We have repeatedly talked about the need for consumers to buy necessities during a crisis and essentially sharply lower demand for luxury items such as airline travel, Disney/luxury vacations, movie/sports/restaurant/night club attendance, or fancy cruises.  Also, durable items such as cars, trucks, heavy machinery, and two- to 10-year-life items such as appliances can be delayed for long periods of time during a crisis. Demand for luxury or durable items can always be delayed or reduced, but necessities cannot.

READ MORE: Six possible impacts of COVID-19 on farming 

Fortunately for farmers, food is absolutely a necessity, as most of us like to eat 3x/day. So, demand for food is actually going up much faster and more than even the most optimistic food producer expected. In fact,
so fast for meat and grain items that grocery stores cannot keep up with demand as home food pantries are being stocked to capacity by most consumers. While they’ve expected that demand to wane, so far it is
not the case as many grocery stores are having difficulty keeping shelves stocked. The Wall Street Journal on Monday had an article about this, especially in severely affected areas.  

We note that since 2/21 when the virus impact started to accelerate, crude oil prices are down 40% to Friday, 3/13 (less travel), U.S. stock markets down 22% to 23%, but soybeans down only 5%, corn down 4%, and wheat down 8%. Gold, normally considered a store of value, is down 8% as well. So, actually, without the panic in markets that took even gold down 8%, perhaps grains would be trading higher? In fact, food values based on demand in grocery stores perhaps should be higher. So, maybe good things will be coming to farmers yet in the coming six months?


Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country. 

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