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Coronavirus a ‘Black Swan’ for the Markets

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Coronavirus a ‘Black Swan’ for the Markets

Over 80 people are dead and more than 2,700 cases of the coronavirus have been confirmed in China. There are also a handful of confirmed cases here in the United States. As those numbers continue to climb, markets will likely continue to decline.

Arlan Suderman, Chief Commodities Economist with INTL FCStone, told Hoosier Ag Today that this is what they call a “black swan”, an event that no one saw coming that causes a sharp selloff.

“A black swan is rare, but they happen. And when they happen, they’re painful for those who are either long the cash grain or in the futures market… the market’s reacting to fear right now.”

Suderman says it’s tough to know where the bottom in the market is during these black swan events.

“One of the things in today’s world is the majority of trades put on are put on by computers. Many of those computers are simply trading momentum.”

The grain markets were already moving lower after the signing of the Phase One trade agreement that has yet to provide any mass buying and Suderman says the coronavirus will likely push those purchases back even more.

“China needed to be able to focus to get all the administrative processes changed in order to move forward with this phase one agreement and now it’s all hands on deck trying to control this disease at the top. So, that’s going to make it more difficult for them to focus on the changes they needed to make administratively to open the door for purchases of US ag commodities.”

But on the other hand, Suderman says, “It’s really made our commodities a lot more affordable for them to purchase and may actually help invite those purchases to happen once they’re able to focus on getting that stuff done to do it.”

Suderman says he has already received questions from farmers about what the connection is to them since people still have to eat. He addresses this and provides more insight into the coronavirus and the markets in our full interview. Click the play button below to listen.

Suderman on Coronavirus