Macro Markets
The US House of Representatives is taking up the new stimulus bill today. This is a $2.2 trillion spending bill aimed at supporting individuals and businesses due to the economic impact of the coronavirus. Jobless claims yesterday were over 3 million. The previous record was under 1mm, meaning yesterday’s report was about 4 times higher than any other jobless claims report going back to 1967.
We think the US is now entering a wide ranging consolidation period. These periods tend to be bear markets. It is going to take a couple of months to get coronavirus under control and things will not go back exactly to how they were before the crisis. It takes time to rebuild the economy and recover. The second quarter will most likely have negative GDP growth and high unemployment. The hope is the 3rd quarter is zero growth and employment stabilizes and the 4th quarter is a return to economic growth and improvements in employment. It is still early but that is what a lot of economic analysts are thinking at the moment.
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Ethanol & Corn
Farm Policy (Univ of IL) is estimating ethanol production will be down about 750mm gallons for March, April, and May. That is about 250mm bushel of corn lost from decreases in ethanol demand. There will probably be more demand lost in June/July/Aug to round out the marketing year. Right now we could be looking at 350mm to 400mm bushels of lost demand for 2019-2020 corn. The big concern is those bushels go right back into the ending stocks on the balance sheet.
April Ethanol last traded $0.99/gallon. April RBOB gasoline is $0.54/gallon. For ethanol to make economic sense for blending with gasoline, RBOB needs to be trading higher than Ethanol. This can happen in only two ways. The first is crude oil and rbob gasoline recover. This means Crude in the $40s again and RBOB well over $1. The second is corn goes lower. I’ve seen estimates that ethanol can work at current energy prices if cash corn is around $2.70. If the national average corn basis gets to 30 under (currently about 20 under) that means $3 front month corn could translate to $2.70 cash.
So what is going to happen? Do energy prices go up? Do corn prices come down? Over time I think it is a mix of both. I hope the bigger driver will be higher energy prices and less corn acres for 2020-2021. Export demand increases will help and this could be a good opportunity for China to come in and buy US corn on the cheap.
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This Month
I will be working from home. You can call my office number 312-706-7610 and it will roll to my cell phone. My cell is 312-651-4621 and you can reach me there too. Anything I can do in Chicago I can do from my home office, so feel free to call, text, or email anytime. Stay safe and lets hope for better news and developments soon.
What I’m Doing at Home with the Family
We have now been at home for two weeks. It definitely seems longer. My wife had a “happy hour” (more like three hours) last night with her friends on Zoom, an internet web conference product. They all seemed to have a great time. I guess if you can’t meet at a bar, restaurant, or someone’s home, the next best thing is a bottle of wine and web conferencing.
While my wife was blowing off some steam with the ladies, I was on a conference call too. I am a director for our local youth lacrosse program (a spring sport) and we had a conference call yesterday with our Park District about the status of spring sports. After the meeting my personal opinion is youth sports don’t start up again until late spring/early summer…at best. In the suburbs I think you can get very localized youth rec leagues up and running later this spring but the competitive travel teams are probably sidelined for a longer period of time.
Tiger King (TV-MA) – The latest internet sensation is Tiger King on Netflix. Wow. Once you think they get to 10 on the bonkers scale they bury the needle and take it to a whole other level. It is not for kids and not for everyone, but if you are up for something crazier than what is going on in the world right now, check out Tiger King.
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Craig Turner – Commodity Futures Broker
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