March 19th, 2020
I hope you are doing well. The markets continues to be extremely volatile as the realization sets in that life will not go back to normal as quick as we’d hoped.
Today, ag markets rallied with the passing of the stimulus and the re-assurance our products provide millions of people today.
In the first promising news in a long while, word of a medicine that should help speed up treatment of the infected, combined with the stimulus rallied the market. But chloroquine is still untested so far.
With the border between Canada and the U.S. closed, we’re told trade will continue. Still, we don’t know what the effects of the border shutdown (or this whole prolonged crisis) will be on canola (or anything for that matter).
But the bigger picture for canola meal/pellets that we use are a co-product of bio-fuel and cooking oil. The fuel plants are getting hit hard. That could make meal/pellets more expensive.
That’s what we’re seeing with DDG. Ethanol demand is quickly diminishing and many plants aren’t expected to come back after they go through planned Spring maintenance. California plants shipping wet distillers may be gone too. The ethanol industry is fighting to get stimulus money but not sure what that entails.
That has made new offers dried distillers dry up from producers. Some middle-market traders have offers but they’re not cheap. And already scheduled rail shipments are slipping further back.
On the bright side, lagging ethanol demand smoked rolled corn to levels not seen in a year or so. Some of that recovered today, but we’re still cheaper than a week ago. Also, the loss of DDG will force people to increase usage of canola and cottonseed.
Taking a step back to look at things on a macro-level in regards to feed in California. We have to rail in tens of thousands of tons every month to sustain demand and most of that is just-in-time supply.
And because of that, we don’t have the luxury of clearing the shelves and stockpiling a bunch of feed today. Maybe a slight uptick, but not a run on the mills.
Because of the unknowns we face, any hit to rail traffic could lead to shortages. Being prepared in a moment is the risk-off thing to do. And your competing for feed that is get exported, and those guys aren’t taking any chances today.
Word of shorter hours at hullers has been floated, and if a mill gets hit with the virus, that may slow things down considerably.
While you can’t stockpile, having a contract will help in that situation. If we have the feed, you’ll get it. And if we have issues, you’re first in line when those issues get resolved.
With that said, here are some scenarios and strategies to keep in mind as we navigate this crisis.
- Feed local. If its produced in California find a way to get it in your ration. Almond hulls, citrus, beet pulp shreds etc. This strategy falls under “being overly prepared.” We don’t know what’s going to happen or what disruptions we’ll see, so take steps now to mitigate that.
- Have contracts. We are less concerned about receiving shipments nearby, but things could get hairy the longer Americans stay home. If you have a contract, you’re at least first in line if we experience disruptions.
- Think outside the box. As you can see in the chart below, corn prices are about 26 cents per bushel away from lows seen during The Great Recession in 2008. Adjusted for inflation and we’re near those lows. Since nothing has even been planted yet buying a flat-price today has a big premium because basis levels are high. You can always buy bushels from Penny-Newman and lock in basis at a later date. If you have questions about this, call your sales rep and he can fill you in on how that works.
If you have any questions, call of text your sales rep.