Slumping oil prices and careening financial markets in the wake of the global coronavirus pandemic have led new crop futures to contract lows and threaten to maintain near-term headwinds.
A glut of corn supply stemming from this year's anticipated bumper US crop and potential cutbacks in domestic ethanol production poses long-term price depreciation, while growing competition with Brazil and delayed purchases from China weigh on soybean values.
Corn futures for December shipment settled today at a new contract low of $3.67/bushel — nearly 9pc lower from this year's peak in mid-January — after closing last week at $3.73/bushel.
November soybean futures today simultaneously fell by 14pc since the new year to close at a contract low of $8.45/bushel.
While supply- and demand-side fundamentals were amassing downward pressure since the new year, the evolving coronavirus pandemic served as the catalyst that exacerbated bearish market conditions.
"Everybody is panicking," INTL FCStone risk management consultant Jake Moline said.
Moline said the initial price reaction in new crop futures were influenced by the "global financial market panic around coronavirus" — which dragged US equity markets into a bear market — but tumbling crude prices will have a direct squeeze on US corn values as ethanol producers contend with pinched margins.
Crude prices continue to sink faster than corn futures. and ethanol producers, which account for 38pc of corn consumption in the US, according to the US Department of Energy, could curb output for the next several months and add to US corn inventories.
A bumper US corn crop coupled with cutbacks in ethanol production would further weigh on new crop futures, too. Industry estimates peg this season's corn as high as 94mn acres, 5pc larger from last season.
"[It] is difficult to paint a bullish scenario with corn," Moline said.
Brazilian soybeans more competitive than US
Growing competition from Brazil poses the strongest headwind to US soybean values this year.
Brazil is forecast for record soybean production this season at 126mn t, according to the US Department of Agriculture (USDA), and a weaker real against the US dollar is favorable to global soybean buyers.
Ample availability from Brazil coupled with lower costs could make it difficult for the US to reclaim its market share in China.
The two countries have taken steps to de-escalate the two-year trade war that roiled the US agricultural sector through a "phase one" agreement, which China committed to increase purchases of agriculture products during the next two years by $32bn.
But the agreement being nominal-based instead of volume-based still allows China to purchase more Brazilian soybean instead of US, especially if Brazil soybeans remain cheaper than US volumes, Moline said.
Front month US soybeans today equate to about R91 per 60kg bag, nearly R8-15/bag higher than prompt Brazil prices, according to the Mato Grosso Institute of Agricultural Economics (Imea).
Easing tariffs from China, though, could make US soybeans more competitive in the near-term, especially as soybean values continue to slip. China's ministry of finance (MoF) has started processing applications for tariff exemptions on US agricultural products.
Agricultural products such as soybean, wheat, corn and sorghum are included in a list of 696 US products. The waiver eliminates a 25pc tariff on US agricultural products.
Purchases under the "phase one" agreement is expected to face delays, though, as China contends with the ongoing coronavirus outbreak, which has eroded the country's demand for imports.
