The global problem of spreading of coronavirus in the world, dynamic price changes on the key trading platforms, as well as the unstable economic situation, made all market participants to adapt themselves to new realities. The Vice President of INTL FCStone, Matt Ammermann told to APK-Inform Agency about the current work conditions, the influencing factors on functioning of the market, as well as pricing policy in the segment of key agricultural crops.
— What can You say about the price formation on the key trade markets and what difficulties the traders have to face in terms of COVID-19 pandemic? What main factors which influence the market development would You specify?
COVID-19 has created some unique situations from the market perspective. The short term impact remained the panicked consumer buying of food products- this caused some immediate price support in wheat for example as millers were pushed to produce more product to fill the grocery stores shelves, but then over time this consumer panic has now been depressed and we are left asking questions and implications of demand down the curve, looking forward for the coming months. We have seen numerous MENA tenders get cancelled, first off I assume because of the short term price spike but also because of long term demand thoughts- consumers habits have been altered in a big way and we still have many implications to trade yet from an economical perspective. As stay at home orders have been implemented and continue to be in force, consumers demand of fuel and meats have weakened and thus price levels have been decreased. Also to complicate the situation, Russia and Saudi have decided to enter a crude oil price war, further deepening the price of crude oil of which has countless impacts on the FX markets as well. Because of cheap crude oil, this has significantly hurt the U.S. ethanol industry- of which continues to decline production as a result and ultimately creates more U.S. corn supplies available for the market. The meat markets had similar responses like wheat, the initial consumer panic buying provide immediate price support, but now we are dealing with packing plants that need to consider slowdowns/shutdowns amid COVID-19 lockdowns- all this reducing demand for the livestock feeder. Getting back to wheat- in the midst of the expectation of normal weather- which is all you can assume at this point- we will have adequate wheat supplies and in the midst of demand that is forecasted to be weaker, this shall make for bearish trends in the wheat market. This thought remains highly sensitive to weather though over the coming weeks/months for the Northern Hemisphere, so yes its that normal weather risk that poses the bullish risk right now.
— Considering the high volatility of the global futures on the key grain markets because of COVID-19 pandemic, how the market participants can hedge the risks?
This a great question, if anything the increased volatility continues to prove the need to manage the price risk. Volatility can provide great opportunity for some, but also massive amounts of unacceptable risk to others. The hedging concepts can remain the same, its just that you should now be that much more disciplined in your approach. Some trade firms have seen volumes decrease significantly as the world trade flows have slowed, and therefore hedging ideas have slowed as well. I continue to see the use of options be a preferred idea right now- provides good flexibility with the higher volatility.
— How in Your opinion the Black Sea market will develop considering the national currency drop and coronavirus spread? What can be the changes by the end of 2019/20 MY?
Well by now everyone knows we have the export ‘restrictions’ in place for the balance of old crop- 7 mmt quota for grains per Russia and Ukraine max 20.2 mmt of wheat export- both ideas keep trade flows in the expected range even before these restrictions were announced- if anything you might see the current inverse hold as we get closer to new crop. The EU exports continue to reap the benefits of this though as March French wheat exports hit fresh highs- so would expect high numbers to remain per EU exports. The current FX rates should push farmers to likely plant more vs less of spring crops, and based on spring time, this can equate to more corn being planted vs prior thoughts. As mentioned above- weather is a very important topic to watch. Current actions are noted about food security in the Black Sea, and if weather turns adverse, further actions for new crop would likely be speculated in efforts to maintain that food security thought as we still are not fully clear of this current COVID-19 story.
— If we speak about the main grain market players, what can You say about the situation in North Africa and Middle East (for example in Egypt and Turkey)? How does the coronavirus pandemic influence the market operations?
As of right now there has been no drastic measures taken, some tenders in MENA have been issues but then cancelled. As the lack of tourism likely remains, this can cause a bit of decreased demand but more importantly can be an economic factor to consider for the FX factors. We all know as MENA currencies go weaker, purchasing power is reduced and the cost of staple food items are in jeopardy and can cause some civil unrest.
— In the main states producers of wheat in the USA (Texas and Kansas), the condition of winter wheat improved as of the first ten-day period of April 2020. What are Your estimations of wheat areas condition?
Yes, as of right now the U.S. wheat conditions remain pretty good. The conditions report was just released this past week, it was stated 62% g/ex vs 60% LY and vs 48% per the 5 year average.
— The prices on soy market are rather “confident/bullish” on CBOT, despite the difficult global situation because of COVID-19 pandemic. What factors actually support the prices for soybeans, soybean oil and meal?
Price levels of the soy complex have indeed been volatile, but they largely have been caught in some recent ranges. As we have been dealing with COVID-19, soybean traders continue to wait for China demand to show in the U.S. per Phase 1, but for now China remains focused on Brazil origin. China also has been struggling to get back to normality post their peak COIVD-19, and their meal demand has been increasing while crushing facilities lag the capability to meet demand. China meal pushed 1+year highs as a result, and this pushed support to Chicago soybean meal as well. As COVID-19 pushed fears across Argentina- you saw logistical constraints at ports which pushed the lack of crushing, and therefore this found immediate support in soybean meal via Chicago as well as demand from U.S. crushers- hence support on soybeans. You also found a bit of that short term panic hoarding from processors/feeders with feed supplies are questions remained around U.S. logistics as well- but now as it turns out this panic has been reduced and prices have decreased. Oil prices have largely been following the global ‘oils’ market, and typically you find an inverse relationship between oil and meal. Beyond COVID-19, U.S. soybeans have a slight chore to pull some planted acres away from corn, and this continues to add a bit of current support to soybeans. Also, as possible fears of COVID-19 having an impact on Brazil logistics (this has not been rumored or thought of yet, but remains a risk of course) this could push China demand to U.S. a bit quicker than thought.
Interviewed by Polina Kalaida, APK-Inform Agency
