TFM Perspective 05-20-2022


A Shift of Thinking Upon Us

The recent ramp-up in commodity prices has caught the world’s attention, as more concern over food inflation hits consumers and mainstream media is taking notice. Yet, this has been brewing for several years and has recently only come to light. The pandemic has accelerated concerns, as distribution of goods (something most of the world took for granted) has been exposed to its fragility. Add to that a war in Ukraine and poorer crops worldwide due to weather, and concern for many countries is starting to become more one of food security. This is evidenced this week, with India banning wheat exports. In April, Indonesia indicated it was halting exports of palm oil due to internal skyrocketing prices.  More importantly, bans of exports affects countries that are buyers, as prices rise and consumers are forced to pay more. Where will they go and what will it cost? Ukraine, also a major supplier of wheat, is problematic for the foreseeable future, and strained relations between Russia and most of the world suggest supplies will remain limited. The bottom line is that the world is on edge, there is no room for error with crop production worldwide – whether wheat, corn, soybeans, or vegetable oils. About two-thirds of the world corn crop is produced in the Northern Hemisphere. As weather goes, so will the markets and prices this summer. It is scary and real. The Biden Administration has taken notice, suggesting incentives for double cropping some crops.

The result of rising costs has caught the consumers’ attention. In general, food has been available and at a manageable cost for consumers for at least a couple generations. For some, memories of parents’ or grandparents’ reflections of just how difficult it was to feed your family during the Great Depression is creeping back into our consciousness and conversations. Double the price and it is felt. The shift in thought, however, is one that is larger. That is, what happens if we “run out?” It is real and it is upon us. The world is one crop failure from major food shortages.

Farmers on the front lines of food production are aware of tightening supplies and higher prices. Good value for crops has restored balance sheets for many. Yet, inflation and supply disruptions have made for an uncertain future, as the risk of farming is rising just as fast. It is felt and this, too, is real. Whether a producer or end user, the world has changed dramatically. Marketing is critical. Growing and storing has paid dividends. Should world crops rebound, this strategy could be financially devastating. The key is to keep an open mind to all alternatives. Doing nothing works in bull markets and is disastrous in bear markets. Create a balance in your vision for the next six to twelve months. Cover cash sales with call options. Cover stored bushels or unsold expected crop with put options. Supplies will either continue to tighten or, with good crops, increase. In either case, price volatility is expected to remain strong in the months ahead. Just as the world is waking up to tight supplies and food security, farmers will need to adjust accordingly, changing their way of thinking of how to manage their risk.

If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing:  800-334-9779.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.


Bryan Doherty

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