Volatility Returns
What’s Happened…
An explosive upturn in energy prices with crude oil recently reaching $119 per barrel (from the mid-50s a month ago) and a strong influx of speculative money into the commodity complex is providing an underlying support for numerous contracts. Among these are corn, soybeans, and wheat. With the explosion in crude oil prices, primarily due to the war with Iran, it didn’t take long for money flow to find its way into corn and soybeans on what might be termed “energy contracts.” Perhaps more importantly, however, the wheat market has not only followed; it has had a very strong upturn over the last two months as well, due to dry conditions for U.S. wheat and growing skepticism to the size of the Russian wheat crop this past year. Black Sea weather has also been less than ideal, and the continuous war between Russia and Ukraine continue to create additional production uncertainty.
Even with this, other markets have found managed money, as indicated by the Commitment of Traders report released each Friday. These include cotton, hogs, milk, and sugar, and a strong recovery in cattle prices. Investors may be moving away from equities, as both the Dow and S&P 500 indices have weakened in recent weeks. This likely reflects money managers looking for markets that may offer better returns.
Why this is Important…
It has been several years since broad-based speculative buying has pushed commodity prices higher. For the grain markets, record crops year after year in both the U.S. and South America have kept the world flush with ample inventories. The most recent WASDE report (World Agriculture Supply and Demand Estimates) indicated this is still the case. However, strong export demand for corn and expectations that China will buy additional soybeans from the U.S. is keeping the market active. As prices trend higher, it is possible for large traders to add positions. (In a sense, using “house” money to fund additional buys.) From a longer-term perspective, commodities have been considered cheap. To see broad-based buying in grains and row crops in front of production (and weather uncertainties for both hemispheres) makes sense. A very colorful drought monitor map in the U.S. suggests a stressed winter wheat crop.
The upside to this rally is some of the best pricing opportunities in two years. Challenging financial times are being alleviated, perhaps a little. However, it is important that farmers take advantage of the rally, which may mean selling. Though you can be bullish on prices, there is still no evidence that supplies will shrink in 2026. Bird-in-hand may be the order of the day. The recent bridge payments from the government are viewed as helpful, yet not a reason to deviate from good marketing practices.
What can you do about it?
Marketing is never easy. Volatility creates opportunity, and in many ways increases stress. It is more important than ever to explore the pros and cons of marketing tools available to you. Implement those that best fit your risk tolerances and needs. Setting financial goals along with strategic execution are paramount. Now is the time to strike. You can’t depend on a bull market to last. In recent years, one glaring lesson is that price rallies can quickly end. The world is confident in its production capabilities. Communication between members of your farm operation and your advisor are key to planning and execution. The bulls are awake, volatility has returned and so has the need for strategic execution.
Find out what works for you…
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.
About the Author: With the wisdom of over 36 years at Total Farm Marketing and following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of Brokerage Solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the markets and marketing tools, an excellent listener, and communicates with intent and clarity to ensure clients are comfortable with their decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty