OPEC+ agrees to cut production by 9.7 million barrels per day beginning May 1
In Tonight’s Updates
* Experts signal shortage of some meat at retail ahead
* Smithfield Foods to shut a U.S. plant indefinitely re: coronavirus cases
* What one of the best ag industry analysts is saying now
* OPEC+ agrees to cut production by 9.7 million barrels per day, to start May 1
* Cotton price triggers loan deficiency payment (LDP)
* Covid-19 cases in U.S. total nearly 550,000, more than any other country
* Dr. Fauci cautiously optimistic Covid-19 outbreak is slowing down in U.S.
* Fauci: Parts of U.S. may start to reopen next month... does not mean entire country
Equities: Last week, the Dow posted its seventh-best weekly performance, rallying 12.7%. The S&P 500 had its biggest one-week gain since 1974, jumping 12.1%. The major averages are still more than 17% below the records set in February. The Dow and S&P 500 are down 16.9% and 13.7%, respectively, for the year while the Nasdaq has fallen over 9% in 2020. Today, U.S. equity futures are signaling a lower opening.
OPEC+ agreed to cut production by 9.7 million barrels per day, making it the single-largest output reduction on record. Mexico opposed the amount it was being asked to cut, holding up the final deal. Under OPEC+’s new agreement, Mexico will cut 100,000 barrels per day, instead of the 400,000 barrels per day it had initially been asked to cut. President Donald Trump tweeted the accord will “will save hundreds of thousands of energy jobs in the United States,” adding it will be “great for all.”
Details: The production cuts begin on May 1 and will extend through the end of June. The cuts will then taper to eight million barrels per day from July through the end of 2020, and six million barrels per day from Jan. 2021 through April 2022.
U.S. Energy Secretary Dan Brouillette welcomes historic global oil output deal and President Donald Trump’s role in helping to broker it. “While the demand disruption caused by Covid-19 and the price war have greatly harmed the industry, I am confident it will soon bounce back stronger than ever before,” Brouillette said in a statement on Sunday. “I commend the President for his strong leadership and all parties for coming to a consensus that will benefit nations around the globe who are feeling the impacts of this serious market instability.”
— What one of the best ag industry analysts is saying now. Richard Crow is a veteran trader and analyst who heads his firm, Crow Trading, Inc (901-766-4638). I have known Richard for decades. The best description I can give about Richard is that the most intelligent and kindest person I have ever known in the business of agriculture, Willard Sparks, always turned to Richard for his advice on a host of commodities. What questions Richard asked; what his instinct said about market outlook. So, what is Richard saying about the current situation? He passed along some of his comments to his clients that he sent out to them Sunday evening...
“Covid-19 continues to dominate the markets. Thursday’s USDA report showed several impacts of the virus: Ethanol usage was lowered 375 million bushels, feed and residual was raised 150 million bushels. Wheat exports were lowered, bean exports were lowered.
“The Covid-19 shutdowns, stay-at-home policy has decimated the ethanol industry. The crude oil price war does not help but the usage of gasoline is down over 45% in the U.S. With shutdowns of industries and businesses still ahead, the use of ethanol is expected to decline. Where the USDA is forecasting ethanol usage at 5.050 billion bushels, the risk lies ahead for the demand number to drop an additional 200 million bushels.
“Feed usage of corn has improved. Wheat is priced out of all rations, increasing corn demand. Corn usage should improve around the world. However, the virus is beginning to impact the livestock market. Cattle being placed on feed is declining. Chicks being placed are declining, sows are being killed off. While the decline will be slow, the decline is in place.
“The corn planting season is here. The South has been planting and as soon as it dries in the North, plantings will kick-off. Intentions of corn acres in the March report was for 97 million acres to be planted. Supplies of corn could become very burdensome with a normal U.S. crop. The corn market has a function of discouraging some acres from being planted. With the insurance price established, reducing acreage may be hard unless a planting season problem develops. The crop year ahead begins to look like one of survival. For insurance for the year, take a hard look at hedging some Dec 21 corn to buy time for market adjustments.
“Soy market has turned some adjustments to the loss of meal demand. Hog and poultry numbers are being reduced. Reduction of numbers takes time, nothing quick. S.A. crops are smaller than originally thought. The bean market question rests with China’s buying. China has bought a lot of Brazil beans. For the crop year, China’s import of beans could be 90 million tons plus. U.S. beans are competitive for late-summer to the Dec/Jan period. China’s buying could be a support for the bean market unless U.S. plantings increase by multiple millions of acres. How the planting season goes likely will determine the acreage. While beans may have a supportive verbiage, one has to watch if other markets derail it.
“Wheat news has two variables: Short term, the cold weather to the West needs to be watched. Freezing temps are forecasted well Southwest in Okla. to I-40 area. Damage is expected to be light but nevertheless, the next two days is a major watch. Russia has had some showers, but they appear to have been light and scattered. The weather forecast has a rain system Wednesday for Southern Russia. Friday, USDA announced a wheat sale to China of 165,000 tons.
“Cattle market fears are hitting. Slaughter facilities are unable to keep workers to kill animals. Last week, cattle kills look to be some 90,000 head under a week ago. The market has been over-slaughtering and the numbers pushed back are small for now. The market will focus on reduced slaughter. Retail shortage lies ahead if the kills remain reduced another two weeks!!!”
— Smithfield Foods, the world’s biggest pork processor, said on Sunday it will shut a U.S. plant indefinitely due to a rash of coronavirus cases among employees and warned the country was moving “perilously close to the edge” in supplies for grocers.
South Dakota Governor Kristi Noem said on Saturday that 238 Smithfield employees had active cases of the new coronavirus, accounting for 55% of the state’s total. Noem and the mayor of Sioux Falls had recommended the company shut the plant, which has about 3,700 workers, for at least two weeks.
Smithfield statement. “It is impossible to keep our grocery stores stocked if our plants are not running,” Smithfield Chief Executive Ken Sullivan said in a statement on Sunday. “These facility closures will also have severe, perhaps disastrous, repercussions for many in the supply chain, first and foremost our nation’s livestock farmers.” Smithfield said it will resume operations in Sioux Falls after further direction from local, state and federal officials. The company will pay employees for the next two weeks, according to the statement. “We have a stark choice as a nation: we are either going to produce food or not, even in the face of Covid-19,” he said.
Comments: As a Policy Updates special report on Saturday revealed (link), USDA Secretary Sonny Perdue can tap the U.S. Treasury for revenue if he determines there will be a shortage of food. One ag industry consultant told Policy Updates on Sunday: "Unemployment is going to skyrocket, consumers disposable income is going to fall sharply... people will eat but what they eat will change significantly: lower end-priced protein, fewer produce items, more canned and frozen items. Higher end retail stores and food items are going to take a big hit economically."
— Cotton price triggers loan deficiency payment (LDP). Cotton producers may be eligible for loan deficiency payments (LDPs) from USDA’s Farm Service Agency (FSA), which help producers under certain market conditions. Cotton LDP rates are based on the Adjusted World Price (AWP) that is updated weekly on Friday at 12:01 AM Eastern Time. Available Cotton LDP’s began March 20, 2020 at a rate of 2.05 cents/lb.; the week beginning March 27, the rate was 7.01 cents/lb.; the rate for the week beginning April 2 was 9.37/lb., and the rate available for the week beginning April 10 is 7.71 cents lb.
Background. Marketing assistance loans (MALs) and LDPs are marketing tools available to producers beginning upon harvest. Upland Cotton MAL’s and LDP’s for 2019 crop year are available through May 31, 2020.
Producers who are eligible for marketing loans, but choose to forgo the loan, are eligible for LDPs. Upland cotton LDP rates are based on the lesser of: 1) the loan value, or 2) the difference between the national loan rate and AWP. Producers also can purchase a commodity certificate that may be exchanged for the outstanding loan collateral. Producers can check the weekly cotton LDP rate online at this link. LDPs are no longer subject to payment limitations, actively engaged in farming and cash-rent tenant rules.
Eligibility requirements. For a commodity to be eligible for a loan, LDP, or certificate, the producer must have beneficial interest in the commodity, defined as having title, possession and control of the commodity, and responsible for loss of or damage to the commodity. Effective LDP rate is the date of request or the date beneficial interest was lost. Form CCC-633EZ page 1 must be on file when requesting an LDP or MAL. A producer will submit form CCC-633EZ page 3 for a cotton LDP request. Other eligibility requirements may apply; consult your local FSA office for more information.
— Coronavirus update:
- Summary: Confirmed Covid-19 cases in the U.S. now total nearly 550,000, more than any other country in the world, according to Johns Hopkins University. New York State accounts for more than 189,000 of those cases. The death count in the U.S. from the virus is more than 21,000.
- Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said on Sunday he was cautiously optimistic that the outbreak was slowing down in the U.S. He also said parts of the country may start to reopen next month. However, Fauci added this does not mean the entire country would flip a “light switch” and go back to normal.