Commodities market tests COVID-19 resistance, says INTL FCstone

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With greater control of the evolution of the Coronavirus (COVID-19) in China, a return to the country's activities is already being observed, with prospects of normality for the flow of trade in the medium term, after the successive public measures taken to contain it population and goods transit.

"Everything indicates that China is on track to resume its economic activities more strongly over the next quarter," pointed out INTL FCStone, in a special report released on Monday (23). Attention is still focused on the recovery of Chinese port logistics, with the government adopting policies to cut costs and tariffs for shipments in ports in order to facilitate trade.

Although the prospects point to a Chinese recovery, the advance of the virus in the rest of the world indicates a major global slowdown, with several countries closing borders and adopting confinement measures for their populations.

"These measures, although they have proven to be effective in slowing down contamination, have a major impact on employment and income of the population and, consequently, on the economy as a whole", ponders INTL FCStone.

According to the group, even though agricultural commodities have greater resistance in a scenario of changing demand, since they are food, the possible impacts need to be monitored, both in the international market, and internally.

Brazilian market

In Brazil, the demand for national sugar was not significantly impacted. "COVID-19 does not appear to have affected sugar shipments in recent weeks - especially from the port of Santos, the main outlet for the commodity," explains INTL FCStone Market Intelligence Analyst, Matheus Costa.

The functioning of ports is a favorable condition to the demand for Brazilian products. Like the cotton market, whose Brazilian exports are still surprisingly heated, with great Asian demand. "The market expected a strong reduction in Brazilian shipments, which has not yet been observed. In January, the South American country exported 308.8 thousand tons of cotton, an absolute record for monthly shipments", highlights the group, in a report. In February, shipments of the plume reached 169.9 thousand tons, registering an increase of 81.7% compared to the same period of the previous year and a record for the month.

For coffee prices, the slowdown in demand may be minimally balanced by the feeling of tightening of supply in the coming months. However, if the problem continues, the prospect of a large production for the 2020/21 harvest may put considerable pressure on prices, while the arrival of the new coffee on the market is approaching (in mid-June). It is noteworthy that Italy, the third largest buyer of Brazilian coffee, was the first to present severe problems due to the coronavirus.

The evolution of the virus also challenges and modifies the dynamics of the meat trade, with the forecast pointing to an increase in household stocks, while wholesale and restaurants will further reduce their sales scales. "The fall in the purchasing power of the final consumer, in the midst of a possible economic recession, stimulates alternative sources to beef, such as pork and chicken, which are cheaper", explains INTL FCStone.

Meat production still stimulates domestic consumption of corn, for feed, but the more restricted supply in the domestic market worries about the summer harvest below 26 million tons in a year of lower passing stocks. "The off-season is closely monitored, since the lack of rain can damage the productive potential", evaluates the Market Intelligence Analyst, Ana Luiza Lodi.

Regarding the use of corn for ethanol, one of the factors that have reinforced the growth in domestic demand for cereal in recent years, there may be impacts due to the drop in oil / gasoline prices, which have been weighing on biofuel prices, reducing or negating margins of the plants.

Although the COVID-19 epidemic started in China, the world's largest soybean importer, the prospects for Brazilian exports remain positive, with ship line-ups for March indicating volumes that could exceed 13/14 million tons. In the domestic market, for now, there are still no signs that the crushing can be stopped, even because the margins are favorable. In addition, the activity of processing soybean into bran and oil is carried out by a few employees.

Source: Agricultural News