March 23, 2020 | FBN Insights | Kevin McNew

Wheat Bolstered by Panic Buying

FAO warned food inflation could return as panic buying, logistics challenges cause prices to rise rapidly

Panic Buying Helping Surge Nearby Grains Demand               

French supermarket sales of pasta, flour and rice last week were worth nearly three times the amount sold in the same week last year, market research firm Nielsen estimates. 

Furthermore, Europe sales of feed jumped 20 to 30% last week according to the SNIA trade group, reflecting both precautionary purchases by customers as well as the knock-on effect on the animal feed market after consumers started buying more meat.

Over the weekend, the FAO warned that food inflation could return as panic buying and logistics challenges cause prices to rise rapidly. However, the FAO noted there are ample world supplies to keep prices from escalating too far.     

FBN’s Take On What It Means: Take a look at wheat prices which have climbed 50 cents in the last week as case in point. Front-loaded demand is a great way to turn the market higher, but let’s not lose sight of the circumstances. This is purely a short-run demand led rally and its ability to sustain will need to be backed by long run changes in the balance sheet and not distributional issues.                                                                               

Coronavirus Fears Hold Up South America Ports     

Dock workers at Brazil’s Port Santos, the country’s largest terminal for corn, soy and cotton exports, were voting on Monday whether to strike in the face of coronavirus risks. 

In Argentina, a key port town in northern Rosario, Argentina's main grains export hub, was blocking trucks from entering town on Friday in a bid to stop the spread of coronavirus, though the local export chamber said shipments were not yet affected. Furthermore, Argentina harvest is in its infancy so shipments are not in full swing. 

Chinese soymeal futures traded limit up on Monday as a bean shortage crimped supplies.  China crushed around 1.387 million tonnes of soybeans last week, down 5.7% from the previous week, and the lowest since 2016 while supplies of beans are at their lowest since at least 2010 and bean crush plants have been running at 40% capacity. 

FBN’s Take On What It Means:  Surging Chinese demand coupled with logistic constraints in South America could be beneficial for U.S. business. Last week, China was likely the “unknown” buyer of 2 U.S. soy cargoes and it would seem more buying could follow if South America is unable to deliver. 

 

The risk of trading futures, hedging, and speculating can be substantial. FBN BR LLC (NFA ID: 0508695)

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