The Van Trump Report

Coronavirus Fallout is a Heavy Burden for Commodity Bulls

Corn bulls are really feeling the pressure from the fallout in the outside macro space particularly the negative headlines associated with crude oil and now massive demand uncertainties. I continue to hear talk that there will be serious bloodshed and carnage in the ethanol sector. I suspect several plants simply don’t make it out of this alive. Understand, this is a very slippery and dangerous slope with margins massively negative and surplus near record levels. Keep in mind, several large funds and investment banks playing the extreme fallout in crude oil are cross-hedging in some capacity via short corn positions.

Soybean bulls are pointing to crop estimates in both Argentina and Brazil pulling back a bit. Some are thinking the USDA might be +2 MMTs too high in Argentina and +1 to +2 MMTs too high with the Brazilian estimate. Bulls are also pointing to good crush demand here in the U.S. and the fact there could be more meal demand as the ethanol industry tries to work through serious headwinds. There’s also the Chinese “wild-card” that is thought to still be somewhere in the deck. Unfortunately, the spillover and contagion associated with coronavirus headlines and the massive setback in global growth could prove to be too heavy a burden and continue to keep a lid on most nearby rallies.

Wheat prices haven’t moved much the past couple of days. Bulls are hoping this means the market is finally starting to find a bottom. Unfortunately, I’m not sure that happens until we get more stability and certainty associated with the coronavirus headlines. Meaning the market seems to care less about traditional weather-related worries, fewer U.S. acres, and the possibility of much stronger Chinese demand. Instead, the trade is focused on contagion and spillover problems associated with a massively slowing global economy and a strong U.S. dollar.

I’m constantly reminding myself at my age it’s the “return of my money” and not necessarily the “return on my money” that is most important. Perhaps I’m proceeding too cautiously but I worry big errors of judgment in waters that are moving this fast and this rough could be extremely difficult to recover.

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