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ANALYSIS: Covid-19 second wave panic depresses all markets but presents no real threat

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Back in February this year - how long ago that is - Agrimoney wrote an analysis which in retrospect now seems prophetic. It said that Covid-19 did not have the scale of the 1918-20 Spanish flu, which infected around 500m people and killed up to 20% of those.

 

Covid-19’s lethality rate, expressed as a percentage of the world population (around 7 billion), is currently about 0.006%.

 

That equates to 432,514 deaths of people reported to be infected with Covid-19, compared to estimates by the World Health Organization of between 290,000 and 650,000 respiratory deaths globally each year associated with seasonal influenza.

 

The response to this much lesser pandemic than of 1918 has been shocking. Billions of people required to stay at home and watch idly as their economies collapse and jobs go up in a puff of smoke. Trillions wiped off equity values as the world floundered. Around $10 trillion of new debt taken on by governments around the world.

 

This is no apocalypse

 

Many will argue that the lockdown measures helped keep the loss of life low. This is not a scientific argument, as it cannot be falsified.

 

Commodities have suffered in this faux crisis but to a much lesser extent than equities. Nevertheless, the blunt-edged response to Covid-19 has threatened to sweep aside fundamental matters of supply and demand.

 

News such as Brazil’s cocoa deliveries between 1 May and 7 June (1 May being the start of the country’s cocoa season) being 16% lower than compared to the same period last year - which could have a major impact on cocoa’s global balance in 2020-21 - can easily get ignored in the Covid-19 hysteria. Cocoa arrivals at ports in Ivory Coast, the world’s biggest cocoa producer, between 1 October and 14 June are down by 7.1% compared to last season.

 

Or news such as Malaysia’s palm oil exports between 1 and 15 June likely to have been almost 83% higher than the first two weeks of May, at more than 922,000 tonnes.

 

Balance needed

 

The damage has been done not by Covid-19 but by the world’s response to it.

 

Thus reports that Beijing has had 79 new cases of Covid-19, dramatically invoking talk from Chinese officials of Beijing being thrust into "a war-time mode" needs to be seen for what it is - hyperbole.

 

Of far greater importance is today’s news that China’s industrial output growth in May was 4.4% compared to the same month last year. In a stuttering fashion, China is getting back to normal - with obvious implications for its demand for all the agricommodities it imports.

 

Fundamentals are what should drive agricommodity prices. In the haste to report supposedly dramatic news such positive examples as US driving rebounding strongly (now back to around 80% of its pre-lockdown rate), with obvious implications for ethanol (and thus corn) demand, can get overlooked.

 

Like a bowl of water which has been jolted, the back-and-forth sloshing is already settling, if only we are prepared to see it.

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