Concerns over COVID-19 has resulted in uncertainty about its long-term impacts on the grain and livestock markets and energy prices.

Frayne Olson, North Dakota State University Extension crops economist and marketing specialist, was among experts from NDSU Extension to address these concerns recently during a webinar for agricultural producers, agribusinesses and those in the energy industry.

“This really becomes a psychological battle at this point. We’re unsure what the underlying demand conditions are,” said Olson.

He said they really have no reference points in history to look at to say what is similar to use as a reference point.

“We don’t have anything and as a result, what’s happening is the market traders, in particular in the grain markets but also in the equity markets in the stock markets, in the energy markets, are really trying to figure out what is the worst possible scenario?” he said.

He said these markets are preparing for the worst case scenario “because we don’t have any reference points so psychologically this gets to be the big challenge for us.”

“In my view and in my opinion, it will continue to be some downward pressure on prices, and I’m looking at prices broadly, until it looks like the number of new cases (of COVID-19) begin to drop off,” Olson said.

He said once the number of new cases of COVID-19 has dropped off, then people will say, “Well, now we know what the worst looks like. It looks like we’re over the hump, it looks like we’re in this rebuilding mode and can start planning for the future.” But when it gets into high levels of uncertainty, he said planning levels get very short.

“I’m looking at this downturn in the number of new cases in the U.S. as being kind of that tipping point, that trigger point where psychologically the market is going to start looking at things differently,” Olson said.

Global market

Olson explained in the March 23 presentation that as the dollar strenthens, it becomes more difficult to export products in the global market. “It makes it easier as a consumer to buy things but it makes it more difficult and more expensive to sell things,” he said.

He said China has bought some U.S. soybeans recently and on March 20, that country also bought some U.S. winter wheat.

“We’re starting to see this demand based on building which is a good thing because these are valued opportunities,” Olson said.

Olson noted that part of the rally seen in U.S. spring wheat is because of the purchase China has made in U.S. hard red winter wheat.

“China has not purchased U.S. wheat since about 2017 – at least not in significant amounts,” he said.

“So we can see some rebuilding – we’re starting to see a little bit of that with some value purchases,” he said.

Producers should not change their spring planting plans

Producers should not change their spring planting intentions because of the coronavirus outbreak, according to Frayne Olson, North Dakota State University Extension crops economist and marketing specialist, in NDSU Agriculture Communication information released March 20.

“Don’t change your plans based on what you see in the markets today because it’s not going to be a good reference point,” he said.

Livestock, grain and energy, mainly oil, prices and the stock market have dropped so dramatically because of the uncertainty surrounding the COVID-19 outbreak, and not because of a supply and demand issue, he noted. This situation is unprecedented, so people don’t know what to expect and tend to think of the worst-case scenario.

He said the market volatility likely will continue until the number of new cases of COVID-19 in the U.S. starts to decline then people will feel that the worst is over.

But, he said, producers shouldn’t expect conditions to improve quickly.

“It’s still going to be a slow process,” Olson cautioned.

Energy and grain prices probably will recover more quickly than livestock prices, he said. Livestock prices likely will rebound more slowly than the other two because of consumer behavior, such as how quickly they are willing to return to eating at restaurants. The stock market will be the last to recover.

In the meantime, despite the low prices, some producers may need to sell grain they have in storage because they need the money or the quality of the grain is deteriorating.

“For those who have to sell, go ahead and sell,” Olson advised.

The lowest risk strategy is to buy a call option if producers want to take advantage when prices start to rebound, he said. However, producers will need to select a broker to work with and set up an account if they don’t already have one. He also recommended producers do a bit of research so they understand call options.