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Corona Capital

13 April 2020 By Breakingviews columnists

Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– Oil cheerleading

– Mortgaging Ford

Oil ministers are overenergized. U.S. Energy Secretary Dan Brouillette and Saudi Minister of Energy Prince Abdulaziz bin Salman Al-Saud donned their cheerleading garb on Monday to gee up the price of black gold. Both said that the global production cuts could end up perhaps twice as high as the headline number agreed to by the Organization of the Petroleum Exporting Countries and others over the weekend.

Prices only inched up as a result, though. That’s in part because enforcing compliance is hard. And large producers in the United States, Brazil, Canada and elsewhere that will probably account for most of the extra reductions are likely only to keep cuts in place if oil prices remain low. But as prices increase, those drillers not bound by specific pacts can jump in. Until real demand returns, energy ministers look a little too pumped up. (By Lauren Silva Laughlin)

Is Ford Motor heading back to its mortgage brokers? The Motown automaker said on Monday that it reckons its $30 billion in cash would last at least to the end of September, even if it can’t get its factories up and running again. Breakingviews had estimated as much last month. The company will also “opportunistically assess” raising money before then, Chief Financial Officer Tim Stone said on Monday. But how would it do that?

The company just hit up its banks for $15 billion, and raising money through bond markets isn’t easy because ratings agencies have demoted Ford to credit-market junk. But one option might be a metaphorical trip to the pawn-broker. Ford borrowed against its Blue Oval brand in 2006, three chief executives and four finance chiefs ago. It raised $15 billion, helping it to avoid a government bailout later. Stone is probably already dusting down those old pitchbooks. (By Antony Currie)

Trump may pay for Mexico’s oil-production wall. Mexico’s president, Andres Manuel Lopez Obrador, known as AMLO, scored a short-term win in the weekend’s production-cutting deal between the Organization of the Petroleum Exporting Countries and others. The cartel wanted the Latin American nation to cut 400,000 barrels a day, according to AMLO, around 23% of current output, later reducing the demand to 350,000 bpd. But AMLO refused to budge from the country’s initial pledge of just a 100,000 bpd reduction. He got his way – and he has U.S. President Donald Trump to thank for it.

Trump said the United States would help cut the additional production, and suggested that Mexico will somehow pay back the favor later. AMLO may have taken a page from Trump’s “The Art of the Deal,” but his decision to put the heavily indebted state-owned energy company Pemex at the heart of his economic growth agenda is still a lousy idea. (By Anna Szymanski)

Food makers go from feast to famine. Covid-19 has brought disruption for companies that keep Americans fed, but with widely different results. Consider the effect on meat supply as the disease ravages workforces. Cargill and Smithfield Foods are among those that have closed plants, leading to fear of shortages.

In other sectors, there’s too much supply. Milk demand has fallen so much that the U.S. Department of Agriculture loosened dumping rules. One problem is the large amount that usually goes to schools. Florida farmers are worried labor shortages will mean that fruit and vegetables go unpicked this summer.

The idea of food going spare seems absurd when demand for delivered groceries has even outstripped Amazon.com’s capabilities, and millions of families are struggling to make ends meet. Covid-19 has shown a new problem: It’s not how much of a product is made, but where it is that counts. (By Amanda Gomez)


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