The Ag markets will have to contend with another risk off day as worries over the coronavirus grow along with concerns over a potential global recession. This had yields on 10-year and 30-year US bonds dropping to record lows as the expanding health crisis risks disrupting global supply chains. The latest leg of the sell-off kicked off in Asia where stock markets slumped more than 2% and then was followed by losses of up to 4% in Europe despite concerted efforts from central banks and governments to soften the blow from the virus.
With all the carnage we are seeing on Wall Street it is easy to forget that we need to be on the lookout for new demand from China. We have heard talk for a couple days and now we have confirmation over the wire that the Chinese are issuing their duty-free import licenses. The licenses are valid for 1 year and apply to all 696 goods that were subjected to Beijing’s retaliatory tariffs. This includes corn, beans, wheat, DDGs, ethanol and meat.
The Chinese purchases will be based on how competitive US Ag products are versus those originating out of other world exporters. We will likely have to contend with Brazilian soybeans, Argentine corn and wheat from several nations that are currently cheaper. This is where the slide in the US Dollar comes into play and could help to change the landscape back into the favor of the American farmer. My concern is that the money that the Chinese have spent to fight the virus and the time that has been lost is going to result in them coming up very short of the Phase One deal.
Have a Safe Day!