Mid Week Comments

Virus Slows Growth, USDA Report Almost Invisible - 03/31/20

The coronavirus now has at least 788,522 infections worldwide (up 63577
today), 37,878 died (+3837), and at least 166,768 recovered (+14,454).
For a few days now, we are seeing a slowing in growth of the virus, with
the typical increase of 2x over every 2 or 3 days in western countries
slowing considerably - a very positive sign. However, there is some
difficulty in determining whether or not the slowing is just because
overwhelmed officials are just not able to count those cases that are not
ill - especially the non-symptomatic patients. China today reported that
1541 asymptomatic carriers were previously unreported as being infected,
but of course that is just active carriers now as many more were likely
untested earlier. They previously did not report them, either, so the
80,000+ number is certainly much higher than that (the 3000 dead is of
course accurate) which means the 3%+ death rate is certainly high. But
how high is still not known. Certainly, the same inaccurate information
is coming out of Italy as they are currently reporting a nearly 11% death
rate from the virus (Spain and France are 7-8%). All of these are high
because actual infections of asymptomatic people are not counted in most
cases. In the NBA basketball league where all players were tested, about
75% of infected people (players are mostly ages 20-35) were asymptomatic.

Today we got the March acreage intentions report, usually one of the
biggest USDA reports of the year. In it corn acreage was 2.7 million
acres larger than expected at 97 million, with 209 mb smaller stocks than
expected. The report was bearish corn, then, but it was bullish soybeans
as 1.2 million smaller acres than expected are to be planted at 83.5
million acres. Wheat was also bullish at 200,000 less acres than
expected (44.7 mln) and 25 mb smaller stocks than expected.

But it likely will get barely a mention in Ag sectors (and none in the
general press) as it has very little importance right now with such a
dramatic change in the US economy currently taking place. About 25% of
the US GDP is virtually shut down as we try to prevent infections of the
Hunan Chinese virus. How long that will remain will determine whether we
have a depression the next few years in the US, or just a recession. If
25% of the US economy is shut down for 1 year or more, it will be a
depression similar to the extent of the Great Depression of the 30's and
40's. If it is only for 6 months, that is a 12.5% GDP drop that will be
only the second worst of US history. If only 3 months, then a 4% GDP
decline is a bad recession. China (which as a communist country was able
to use draconian measures to stop the virus) is recovering in about 3
months from the initial infection in late December; that might be the
best case scenario for the US. So this is still the most important story
for the US economy.

Impacts on commodities will vary: corn is used about 1/3 for energy via
ethanol - meaning corn has lost probably 1/3 of its demand right now as
people can't travel/drive much (leading to the lowest energy prices in 18
years). So corn is the most negative of all grain commodities. Wheat,
durum, rice, and dry beans might be the most bullish - as groceries can't
keep any of these items on the shelf right now and demand is
skyrocketing. Potatoes is an interesting product - fresh potatoes are
flying off the shelves and there likely is not enough product as
consumers are isolated at home. Restaurants (including McDonalds),
however, are not buying French fries so Russet Burbank potato demand is
dropping - leading to cuts in volume in contracts offered to Russet
growers. Ag products restaurants buy - not homebound consumers - will
suffer while products consumed at home will prosper. But again, for how
long? Will this 'social distancing' last 3 months like China??? 6
months??? One year or more??? That is the million dollar question.
Transportation is also a major issue, so importing countries are buying
rapidly to stock supplies (Russia, Urkaine, and others might curtail
exports as well). Essentially, many countries are accelerating imports
to protect from prolonged delays in shipments due to the virus, so
shipping lanes are being impacted. The most basic of food needs remain
eggs, milk, potatoes, bread, pasta, and beans of all kinds. Regardless
of the epidemic situation, food products are at a premium to supply
internationally as they are the most basic necessity of all.

The Defense Production Act has received some discussion as the government
invoked it 2 weeks ago whereby they can compel companies to produce
products in need (as determined by the government). Trump has been
reluctant to use it, but finally did against General Motors to force them
to make ventilators when GM stalled the negotiations. Essentially, this
gives the government huge powers to control companies - exactly what
Germany had in WWII as well. This can become a dangerous precedent
because it gives government extreme power - dangerous in the wrong hands.

But even in America, "profit" has become a dirty word as the media and
socialists/communists have made it that way. "Profit" is what is earned
in a society when an individual VOLUNTARILY recognizes a need, produces
to meet that need at great financial risk, and has consumers willing to
part with their hard earned money to buy it because they benefit much
more than the cost. That's a voluntary exchange of value - and it must
produce a profit in order for the producer to continue to produce. If
not, there wouldn't be ANY economic production of anything in this
capitalist country. That voluntary exchange is a beautiful thing as each
person exercises power to determine the allocation of resources, and it
is the engine that drives the whole world to greater prosperity. Without
it, we all become Venezuela and Cuba. Movie stars (all millionaires
living in the US in mansions) might like Venezuela and Cuba, but I
guarantee that most everyone living in Venezuela/Cuba prefers the
capitalist US!!!

Ray can be reached at raygrabanski@progressiveag.com.
Ray is President of Progressive Ag Marketing, Inc., a top Ranked
marketing firm in the country. See http://www.progressiveag.com for
rankings and link to data from Top Producer Magazine and Agweb.com.

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