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THE CORONAVIRUS - IAN'S VIEW
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Hi all, I thought I would have a very quick look at the Coronavirus and what sort of affects we could expect in the coming months. One of the things I had a look at was a similar event in the past and what sort of effect it had on both commodity markets and financial markets. The closest event that would be similar to this viral outbreak is the SARS virus which affected China in early 2003. The first case was found in November 2002 in China and the spread of the disease was virtually stopped or was minimal by the end of July 2003. This infection was a little less contagious than Coronavirus but apparently more deadly with around 10% of cases infected dying. So, I had a look at a few markets around this period to see what happened and these are my observations between Nov-2002 to July-2003:
- The CBOT wheat, corn and soybeans were all lower during this period but recovered well after July rallying about the highs later in the year
- Cotton Futures actually moved higher through this period by around 34%, but the market was starting at a very low base of 45c/lb. This market continued to rally through to the end of the year
- Both the Dow Jones and the Hang Seng were down around 20% over this period but recovered quickly to surpass previous highs after July 2003
- The Gold market rallied quickly from November 2002 to February 2003 but then fell as quick as it rallied from February to July 2003
After looking at these markets the only pattern I could find (apart from Cotton) was that initially there was some covering in markets but once the dust settled many of the markets got back to higher levels.
A few things that you need to consider:
- China’s GDP has gone from US$2.64 Trillion in 2003 to US$14.14 Trillion in 2019 (5 x bigger) so I would expect that this contagion will have a wider effect on markets due to the bigger financial influence of China
- China was a smaller consumer of Commodities in 2003, in 2020 they are a big part of the market
- Trade flows are already being affected by restrictions of banking and transport
- The spread of the Coronavirus has been quicker and is now affecting many nations that may have trouble containing it
- SARS had 8,098 cases and 774 deaths. Coronavirus at last count 81,000 cases and 2,764 deaths (10 x more cases and 4 x more deaths)
- Many believe that there has been a severe under-reporting of cases in China which inflates the fatality rates published
- SARS was under control by July 2003 mainly because of summer weather. 3 things that will decrease the infection rate are: 1. Sunlight, 2. Warmer Temperatures, 3. Humidity. Currently the Northern Hemisphere is coming out of winter and conditions are warming up slowly so expect infection rates to go down
I do think that commodity markets will be under pressure for the near term due to a slowing of trade but people still need to eat so I expect that markets will recover quickly once we start getting warmer weather in the Northern Hemisphere.
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I think we are yet to see the wide reaching impacts of the Coronavirus in terms of supply chain disruption. With China a major part of the worlds textile industry I think we can expect some near to medium term chaos throughout the cotton supply chain including sales and shipping of raw cotton from Australia. Its possible that the impacts will be felt at grower level not only from a pricing perspective but potentially from a payment perspective given a large portion of the crop is destined for China. Perhaps it will be only very short term – read more in Ian’s report above.
Cotton futures have dropped to its lowest level since early December after the Coronavirus scare picked up momentum with more reported cases in countries outside of China. US65c/lb has been a support level since mid October as you can see from the graph so will be interesting to see if it goes below this level.
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There are still some grower shorts out there that need filling so those that need to buy bales to fulfill contract commitments, now may be a good time to see what offers are out there. If you do have bales to sell, make sure you don’t take the first price on offer as there will be premiums out there to fill shorts.
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COTTON ICE FUTURES
US 65.47c/lb (May 2020)
Range last 30 days
65.37 - 71.45
Current AUD/Bale price
2020 - $600
2021 - $580
2022 - $550
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AUSTRALIAN DOLLAR
AUD - Current 66.30
Range last 7 days
65.45 - 66.75
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AUD / US Dollar - Last 20 Years.
The graph above shows the AUD for the last 20 years. As you can see it is at its lowest point since 2009 when it reached just under US64 cents.
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Some of our customers have been able to negotiate with their merchant to change their contract from a delivered gin to a delivered warehouse contract to mitigate risks around the Coronavirus threat. Give us a call if you would like to discuss this option.
Remember when you deliver cotton into our warehouse system:
- Your cotton is insured
- Your cotton is secure
- Your cotton remains in our warehouse until you have been paid in full.
For more information on this option please see www.rawcotton.com.au
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CHICKPEAS - old crop dead as a "dodo"!
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Until the last few days it has been virtually impossible to get a price on current crop chickpeas let alone older crop peas. The market was dead for the last 3 weeks as the seller’s search for demand. There is some talk that the market stopped because India has started to sell some of its old crop stockpile into Bangladesh and some illegal shipments are also getting into Pakistan. This just adds to the 2 bulk shipments that are arriving from Central Queensland to Bangladesh to cover any demand they may have before Ramadan starts in April. It seems the shipping window we were talking about in the last few months has definitely closed with very little volume trading. Looking back at our export history to Pakistan and Bangladesh, it is very rare for there to be 2 months with little to no exports of peas. Most months are anywhere from 10,000mt to 20,000mt/month. This gives those with peas a little glimmer of hope even though we are staring down the barrel of a big crop in India.
It was interesting to hear from a few traders who went to the recent Gulf Foods conference in Dubai, where many of the worlds pulse traders go to network and talk about the market. It seems many of the Indian traders are talking up the potential production of their crop this year with early signs looking good for their farmers. This may put some real pressure on our market for the medium term in the current crop price and this pressure is showing in the reduced value of new crop peas. I personally think that new crop prices look ok value considering the potential for a very big winter crop plant in Australia.
Current Crop 19/20 Delivered Downs March-20 $790/mt Narrabri $750 Gunnedah/Wee Waa $750.
Old Crop March-20 Fixed Del-Wee Waa & Del-Goondiwindi, Del-Narrabri $POA, Del-Downs $POA/mt. Chickpea M $POA Del Downs.
New Crop 20/21 Delivered Down Oct/Nov-20 $615 Wee Waa & Goondiwindi $575/mt.
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WHEAT - is wheat just about to catch the flu?
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After my analysis at the top of the grain report, I am feeling a little bearish for the near term on wheat. I am assuming that the Coronavirus will be getting worst for the next few months as market participants take cover. This initial fear in the market should repair itself assuming warmer weather does help(?) the world get in control of this contagion. Those looking to take cover for new crop may need to use the futures market to hedge as most consumers are trying to feed at hand to mouth terms and there are very few physical buyers for new crop wheat and barley.
Current Crop: Ex-F Mar-20, Emerald SFW $390, Moree SFW $420, Goondiwindi SFW $430, Narromine SFW $390/mt
Delivered Downs SFW Mar-20 $445/mt, Del Condamine $450, Del Hanwood SFW $377, Del Melbourne ASW1 $370
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The Cottonseed market remains slow with a wide bid/offer spread. Most consumers are waiting till the last moment to buy as all those holding cottonseed have come out of the woodwork. We have also seen a few consumers selling back into the market because they have revised consumption down due to high re-stocking prices. Those needing to sell may have to be patient as we contemplate these wetter conditions.
Prices Ex-Gin 18/19: MIA $610/mt, Macquarie Valley $625, Gwydir/Namoi Valley $655, Downs +$685
Prices Ex-Gin 19/20: Downs $640, Gwydir $610, Macquarie $590, MIA $570.
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Cotton will firm by $20.00 for both crop years as the seriousness of the Coronavirus in China has now been fully realised and with fewer people being diagnosed with the disease.
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Brisbane 110.10
Melbourne 111.45
Sydney 110.75
Newcastle 109.80
Fuel Prices have come off about 2 cents since our last report.
Allow about 3c to 6c for delivery depending on your proximity to the port.
To make sure you are ready to go when you want to order, please fill in the attached credit application. CREDIT APPLICATION.
Forward pricing options
If you are interested in locking in a forward price for delivery at a later date, please get in touch with us. We have been working hard to be able to bring a user-friendly hedging option to the market.
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The first person to correctly identify where Ian Grellman is in the photo to the right (by return email) will receive a free carton of beer of their choice after their next business transaction with Rain Ag.
We are still working on the exciting new SPOT US! prize details, but while this is still moving along, winners will receive a free carton of beer of their choice (after your next business transaction of course!).
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CONTACT US:
Northern Region | Tim Whan | Grower Representative | 0448 444 015
National | Ian Grellman | Trade Commodities Specialist | 0448 333 959
Southern Region | Peter Horton | Grower Representative | 0448 777 358
Southern Region | Amy Billsborough | Grower Representative | 0406 872 323
Administration | Nat Coffey | 0447 545 714 | natasha@rainag.com.au
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