The Dow closed off over 2,000 points, soybeans finished off over 20 cents on the May contract, and U.S. crude oil was down over $10 finishing at $31.13 a barrel, it’s worse day since 1991. The coronavirus continues to negatively impact the markets, and now a crude oil price war between Saudi Arabia and Russia has provided more uncertainty.
“It’s not so much about the fundamentals as it is about fear,” said Arlan Suderman, Chief Commodities Economist for INTL FCStone. “And so, buyers are rushing to the sideline and that’s allowing the computers that sell momentum to just have free will, so to speak, and push things lower.”
I asked Suderman if he thought we were anywhere near the bottom of this market downturn in the ag markets.
“I hear a lot of people say, ‘Well, fundamentally, we should be close to the bottom. This should be the opportunity for buyers to come in. This should be the point where we don’t have to worry about downside risk again.’ We certainly cannot say that in this type of fear environment. As long as fear is prevalent, prices can go to zero, so to speak.”
He added that he would be very reluctant to focus on anything except risk management right now.
“Manage your downside risk exposure where you have it depending on your ability to withstand that. These markets do tend to play to the bottom, even overdo it to the bottom side. There will be a day when we overplay it to the top side, but those who try to speculate and catch the bottom are usually those who pay a steep price.”
Suderman says with the precipitous fall of the oil market and falling gas prices, the ethanol industry is where the ag markets are most vulnerable.
“We could see some plants have to shut down and maybe some bankruptcies.”
Suderman is hopeful that the low prices will spur some Chinese buying.
“We are hearing rumors of China perhaps lifting the anti-dumping duties on DDGS and if that happens, we could see some significant purchases by Chinese buyers of U.S. distillers grains.”
Many analysts still predict that soybean buying is not likely anytime soon.
You can hear my full interview with Suderman where he details the oil price battle between Saudi Arabia and Russia that caused the sharp decline by pressing the play button below.