COVID-19’s renewed onslaught stalls economic revival

Grain futures prices stalled near multi-year highs last week as increasing worry about the resurgent coronavirus cast a pall over what had been the steady stream of market supporting news this fall.

All markets, from stocks to energy to grain, staggered when soaring infection numbers caused governments in European countries to impose increased restrictions to try to limit the spread of COVID-19.

In grain and oilseeds, the price supporting news coming from strong export demand and dry weather in South America, Russia and the southern United States has been priced into the market.

And recent showers in Oklahoma and Kansas, as well as in parts of Brazil, provided modest relief even if the seasonal moisture deficit remains high.

U.S. wheat, corn and soybean futures all ended last week down from their highs, but it should not be a big surprise that traders took some profits from this fall’s rally and repositioned to wait for new news to establish market direction.

Wheat markets fell the most, again not a big surprise. The Chicago market had hit a six-year high even though current global supply is not particularly tight. Its rally was sparked by concerns over dry weather in a crop that won’t be harvested until next June. Lots can happen in the meantime.

The U.S. Department of Agriculture on Oct. 26 issued the first condition report on the newly seeded winter wheat crop. Only 41 percent was rated as good to excellent, the lowest since 2012 when the first report came in at 40 percent good to excellent. The recent five-year average for the date is 53 percent.

But early crop ratings have little impact on final yields. That poor rating in the fall of 2012 was for the crop harvested in 2013 and its average yield was good at 47.3 bushels per acre. The following two years the crop in the fall was in much better shape but ultimately the yield was lower, at 42.6 bu. per acre in 2014 and 42.5 in 2015.

Much depends on the weather next spring.

Wheat markets will also be watching Australia this month to see if forecasts for a bumper wheat crop come true as the combines roll. Forecasts for rain in the eastern grain belt during harvest have raised worries that quality might be harmed.

Meanwhile, in Brazil and Argentina recent rain and improved soil moisture conditions had farmers working overtime to seed soybeans and corn.

Seeding in Brazil is about a month late because of previous dry weather associated with the La Nina. The extended forecast for early November was for dry weather in southern Brazil, Paraguay, Uruguay and northern Argentina, but better moisture in Brazil’s central and northern growing regions.

Getting back to the pandemic, the latest restrictions in Europe so far are not as far reaching as they were in the spring — schools, factories and construction sites will remain open this time.

But they are expected to slow the economic recovery, which until now had been going better than expected.

In the third quarter the euro zone had posted 12.7 percent growth compared to the previous quarter. It had contracted 11.8 percent in the previous quarter.

The economy, however, remained about five percent behind compared to the pre-pandemic period.

The economies of the U.S. and Canada also bounced back better than expected from the devastation in the early spring. However, Canada remains about five percent behind the pre-pandemic level and the U.S. is about 3.5 percent behind.

But there is better economic news from China, which has the disease under control this autumn.

Although COVID-19 started there, it was able to contain the spread domestically and through stringent lockdowns and population tracking, it  knocked the disease inferno down and continues to stomp out new embers.

Its economy is now slightly larger than it was pre-pandemic and officials forecast two percent annual growth by the end of the year.

This growth is evident in the record-breaking pace of China’s food imports that helped lift grain markets this fall.

Overall, soaring infection rates in many countries are likely to trigger additional restrictions on business and travel, but I expect the economic disruption will be less severe than in the spring.

In no way do I dismiss the challenges and unavoidable costs and lost revenue that shutdowns entail, but many businesses have been able to adjust operations to the new realities. Supply chains now have experience in adapting to rapid shifts in demand.

Government restrictions will be more targeted than the broad shutdowns of the spring.

And if people rededicate themselves to following the recommended protocols, we can likely avoid a second crash.

But it will likely be a long, economically depressed winter.

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