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Little expected from today's USDA Report, analyst says

South America's production will be eyed.

USDA’s March report comes today at 11:00 am CT, and it’s likely to be another sleeper (like most March reports). 

However, it will likely update South America’s (SAM) production estimates – and these will be the most important numbers in March (as usual).    

SAM weather forecasts are improving rain chances for Argentina and southern Brazil after a period of a few weeks of dry weather. The next seven days show more rain although below average in most of the continent, and even better rain chances in the eight- to 14-day forecast. Perhaps that will be in time to salvage yield potential in remaining crops? 

U.S. weather is turning wetter, too, but that is not good at the onset of planting. Increasingly wet weather in the next 14 days accompanied by cooler temps (especially in northern Corn Belt areas) will slow snowmelt and drying of fields, and delay the start of planting and field activity. Today, some rain is falling in the eastern half of the Corn Belt, which will delay planting. 

READ MORE: USDA data is a nonevent Tuesday

Coronavirus

Grain markets have been taken captive by the coronavirus issue, with world governments in a panic over the virus which kills 2.5% of all it infects - usually the elderly, sick, or those with otherwise compromised immune system. 

The death rate is highest for those over 60 years old who have complicating health factors; once you get over 80, that’s a very high percentage of those patients. The problem started in China, and it spread rapidly there in January and February until it affected 80,000 Chinese. With international travel, it spread to the rest of the world. While China has isolated the issue and occurrence of infections is shrinking fast, in the rest of the world it is spreading. Problems with the most rapid spreading are in South Korea, Italy, and Iran – but the U.S. has had problems controlling it as well. Over the weekend, the number of U.S. infections doubled with Seattle, Washington, reporting about half the infections.  

Markets are deathly afraid of the virus impacts, with the Dow down 2,014 points yesterday, -7.79%, which was the largest point decline ever and largest percentage decline in nine years. All other markets collapsed, with crude oil showing the largest collapse: Russia and Saudi Arabia disagreed on consumption cuts, so Saudi Arabia decided to teach Russia a lesson. 

For now, that lesson is quite severe as crude oil prices dropped 25% at one time, and finished 20% lower in a huge one-day drop due to travel demand reductions from coronavirus and the Saudi-Russian dispute.  

With Russia being the No. 2 military power in the world, perhaps that wasn’t a wise thing for Saudi Arabia to do? 

The coronavirus now has 114,544 infected worldwide (+4,229 today), 4,026 died (+185), and 64,032 have recovered (+1,923). The U.S. now has 755 cases (+191) and Italy has 9,172 infected, up 1,794 today. So, that is where the spread is the fastest. Italy now has placed restrictions on its whole country, with the rest of the world watching to see if that draconian measure is helpful or not. If not, why even bother to disrupt the whole economy that way? 

China, with its authoritarian government, did use these measures successfully as its new infections have slowed to a crawl. But can the West, with more permissive societies and “we have rights” attitudes, control it with the same measures? 

We are learning a bit more about the impact of coronavirus by watching China’s economy (the first to be impacted). So far, productivity is down in factories and producer prices are down as well, but food prices are rising rapidly in China. 

In January, the first month impacted significantly by coronavirus, food price inflation was a huge 20.6% from the year before, with February up even more at 21.9%.

READ MORE: An ASF outbreak will now be extraordinary emergency with USDA in charge

Pork prices were up 135.2% in February from a year ago, so food inflation has soared as consumers hoard food. 

The huge food inflation is pushing the consumer price index (CPI) up 5.4% in January, and up 5.2% in February. So in this crisis, food prices are rising much faster than anything else in the Chinese economy, and producer prices for factory goods are going down. China would be well off importing all the food it can from the U.S. to stop the food inflation, and that is probably exactly what they need to do to honor the trade agreement on the ag side.  

We have been saying for months that this coronavirus impact will not be equal among sectors – agriculture will see a net gain in prices and value, while durable goods will decline. (Yesterday the DOW was down 2,000 points, yet wheat closed higher). 

The initial reaction is down when the U.S. stock market fades, but the long-term reaction is bullish for agriculture, and food prices overall will go higher. After all, most of us like to eat three times a day regardless of travel restrictions, trade worries, stock value worries, etc.  With travel and movement restrictions, we might even stock up on food!

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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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