The Long and Short of It

If you’re a farmer or rancher, you might be in for a bad day when you open your Monday morning email and five of the six headlines sent by an ag news service read:

      –“USDA declares Brazilian beef safe, lifts [U.S. import] ban;”

      –“GAO launches investigation into Trump aid to farmers;”

      –“China could purchase much less U.S. farm product than thought, new USDA estimate suggests;”

      –“As Trump heads to India, a trade deal appears elusive;” and

      –“In all-caps tweet, Trump vows new farm bailouts as China purchases appear weaker than promised.”

      Those Monday, Feb. 24 headlines were, in fact, an iceberg that global markets might have steered around if the really big event of the previous weekend, the spread of China’s coronavirus, had not ballooned.

      By mid-morning that day, market bears had taken 16.5-cent per bushel out of May soybean futures and five cents out of May corn futures. May wheat was clipped for 17 cents and both cattle and hog futures dropped nearly $3 per hundredweight.

      Those cuts, however, were skinned knees compared to the slashing the Dow Jones Industrial Average took that day; it dropped 1,036 points, or 3.6 percent, just its third 1,000-point drop in history. It took another hit the next day, down another 879 points.

      Interestingly, after the first day, farm commodities failed to follow the Dow down. Turnaround Tuesday, an event so common it has its own name with traders, brought some stability—no change in corn, hog, and wheat futures and a tiny nickel up in beans. Cattle, though, took another $2 whack.

      One explanation for the market diversion points out the difference between the two markets: the Dow was near a record high and was due a correction while most ag futures were stuck where they’ve been for more than a year—in the mud—and can’t fall much lower.

      A more apt but socially unacceptable explanation is that the quickly spreading coronavirus will, sooner or later, fade. In fact, on the same day the Dow was getting its second bloody nose, China announced a “plunge in new infections” of the disease there.

      If accurate, that likely means stocks and equities might regain much, if not all, of their losses because the underlying fundamentals that took the Dow to record highs earlier this year—a slow, but growing world economy, a U.S. government spending binge, an American election year—remain in place to prime the retracement pump.

      By contrast, the echoes of the ag-related headlines that Monday morning will be heard by farmers and ranchers for weeks and months to come.

      For example, resumption of Brazilian beef imports is more bad news for a market already weighed down by three millstones: falling prices, rising domestic cattle numbers, and record beef production in 2020.

      Also, any government inquiry into the legality of the Administration’s unallocated $28 billion in “Market Facilitation Payments” is not good news after the President, just last week, promised a third round of the subsidies in 2020 if markets continue to tread water.

      Moreover, who thinks it’s a good sign that the U.S. Department of Agriculture’s chief economist just forecast that Chinese purchases of U.S. ag goods would hit $14 billion this marketing year, not the “get-bigger-tractors,” $40 to $50 billion prediction of the White House in January?

      And, of course, the U.S. farm markets aren’t going to get any price boost at all from the Administration’s recent admission that it failed to get even a short-term trade deal with India.

      That’s the long and short of it, as my father often said. It wasn’t a comment on what side of the market he was on; it was an honest recognition of where he stood when facing tough choices.

© 2020 ag comm