The 2020 Commodities Market Roller Coaster

The first half of 2020 has come and gone. To say that it’s been a difficult year in the commodity markets is quite an understatement. Joe Vaclavik, President of Standard Grains in Nashville, Tennessee, says this year has been more than “abnormal.”

“If you look at where the markets were back in January, you had front-month corn futures in the $3.80s or even $3.90s, you had some better soybean prices, certainly some better livestock prices, and then you have to say that the coronavirus breakout and economic shutdown that happened in the United States is the biggest story of the year so far in agriculture.”

Vaclavik says the virus outbreak hit the corn market especially hard.

“When this virus hit and state and local governments shut down the economy, people stopped driving, and the amount of gasoline used weekly just plummeted to levels that we haven’t seen in thirty or forty years. And, with that loss of demand went a loss in demand for ethanol. So, ethanol has typically made up 40 percent of the total corn usage in a given year, and we saw hundreds of millions of bushels in corn demand lost.”

He says that the downward spiral in corn likely bled over into other grain markets, including soybeans. The livestock markets also suffered because of a big loss in processing capacity during the shutdown.

The trade deal with China is another factor affecting markets, and not in a positive way.

“The fact of the matter is that in the time frame of January first through the end of April, China had only purchased less than five billion dollars in U.S. ag products. You have to remember that the full-year target for 2020 is 36.5 billion dollars, so the odds of China actually coming in and hitting this trade deal target between now and December 31st are very slim.”

Despite the gloom surrounding the first six months, he says there are some potentially good things ahead for the markets,

“We have now seen, I believe, nine consecutive weeks of improved ethanol production. Ethanol stocks are at their lowest level in two years. Ethanol prices are the best they’ve been since February, pre-virus. We’re back to about $1.35 a gallon in ethanol futures. We bottomed-out at 79 cents a gallon back in April, so we’ve seen a tremendous recovery there, but we’ve still got some work to do.”

Vaclavik has been around the markets for a long time and has never seen a year quite like this one.

“In my career, I don’t know about anyone else’s careers, they’ve ever seen things change so quickly with the way that they did for this virus. We went from a booming economy with people traveling, going on vacations, driving, and all that stuff, to a total halt within a two- or three-week time frame. It’s really kind of unprecedented, and it’s going to be something that we look back on for decades as an example of what can happen, or could happen, in the instance of a pandemic or some sort of outbreak, or some sort of catastrophic event.”