Big Outside Concerns – Shades of 2008? – DTN

Watching the week’s news unfold, it was frustrating to helplessly stand by and see corn, soybean and wheat prices fall lower, along with cattle and hogs. Nearly all commodity prices and the U.S. stock market have fallen victim to coronavirus-related selling.

Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, told Congress the coronavirus is 10 times more lethal than the regular flu. The problem will get worse and any possible vaccines are at least a year away, if not more.

As I mentioned in a column on Jan. 31, the one thing that keeps this analyst up at night is the thought that another year like 2008 will come along with some big outside concern and overwhelm the usual market factors like a tidal wave. We may not have quite seen a tidal wave of selling in ag markets yet, but the bearishness of 2020 has already been unpleasant enough.

As of Thursday’s closes, DTN’s National Corn Index is down 18 cents on the year and DTN’s Soybean Index is down 83 cents. Dressed cash cattle prices in the North are down over $20 and live prices in the South are down roughly $11.

Effects…Now And Later?

Part of the frustration of watching prices drip lower, day after day, is knowing there are still 7.77 billion people on this planet that are not dying of the coronavirus, who continue to eat, multiply and do normal human things, just not in large groups the way we are accustomed to.

In the case of cattle, 98% of U.S. beef production is consumed in the U.S. so vulnerability to international problems should be minimal. We also witness boxed beef prices staying high.

DTN’s Livestock Analyst ShayLe Stewart noted on a recent trip to her local Walmart that there were no significant discounts of meat in the store — a sign that consumer demand is alive and well. Fellow analyst Rick Kment found a virtually empty meat section at his local store, picked over by customers stocking up on supplies. Even so, coronavirus fears have shown up as noncommercial selling in the futures market.

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In the case of wheat, demand has largely been a function of population growth for the past 30 years. Wheat demand does not typically show much influence from the ups and downs of the global economy, but like all commodities, it is vulnerable to emotional influence.

In terms of economics, the new restrictions on large social gatherings are clearly disruptive to economic growth and GDP estimates have been dropping for several countries, including the U.S. Strangely enough, China’s stock market, the Shanghai Composite Index, is peacefully trading in the middle of its one-year range, as if nothing bad has happened at all.

China remains ground zero in the coronavirus story, home to nearly 80,942 confirmed infections and 3,062 deaths, reports John Hopkins. (here).

Besides having a stock market that seems remarkably undisturbed, the other interesting thing about China is that the death tally of 3,062 is quite low in relation to the population of 1.4 billion people and appears to be stabilizing. If you recall, China initially took criticism about being slow to inform the public. Infections climbed in January, as people headed to New Year celebrations.

It looks like China’s state-enforced quarantines were effective in slowing the spread of the disease and the death toll. Or just maybe, China’s experience is a clue that the coronavirus is not as deadly as currently feared. I’m not a health expert, and we need to all act responsibly, but it is also okay to ask questions about a situation that is affecting people’s livelihoods, especially when there is so much we still don’t know.

How Much More?

Uncertainty is the eternal challenge of markets and comes in many forms. This latest version, although unusual, carries a lot of emotion, as the latest drop in the U.S. stock market shows. Unlike China’s steady Shanghai Composite, Thursday’s closing price for Dow Jones Industrials was down 28% from February’s highs.

To put that into perspective, consider that the financial meltdown of 2008-09, the most serious challenge to U.S. financial institutions seen since the Great Depression, caused the Dow to drop 54% from top to bottom.

The spread of the coronavirus is a new and unusual challenge for markets and does not compare easily to previous situations. Yes, it is a public health threat that needs to be taken seriously, but in terms of economic impact, it doesn’t compare to the pervasive fraud in 2008 that threatened to wipe out U.S. and international banks.

I believe Dr. Fauci when he says the situation is going to get worse in the U.S. I am not confident, however, that ag prices deserve to be beat down this harshly. Largely because most of us will keep eating dinner, I suspect the market’s fundamentals will find a way to be respected at some point again this year. Unfortunately, nobody, including me, can say when that might be.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow him on Twitter @ToddHultman

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