Volatility Kicking In

What’s Happened…

In recent weeks, the grain markets have had to navigate a wide array of shifting factors. Weather may be the most dominant in the weeks ahead that will set the tone for price direction. Persistent dry conditions were responsible for a smaller hard red winter wheat crop. Heavy rains in other parts of the Midwest followed by dry conditions leave some of the corn and bean crops in a bad spot. Yields could likely be reduced in these areas. Much of the Midwest is considered in good shape, as recent crop ratings have the corn crop rated 67% good to excellent. Persistent dry conditions in recent weeks are adding to price volatility. Timely rains in mid-June sent prices to contract lows by the end of the month. Since then, rainfall totals have been limited.  

Other supportive variables include continual uncertainty with the war in Iran and war between Ukraine and Russia. The most recent concern is wheat being held up in Russian ports, as the Kerch Strait remains closed. Higher energy prices are adding support to corn and soybean prices. Money flow, as measured by the weekly Commitment of Traders report, indicated large traders exiting shorts and going net long in a matter of weeks. 

Why this is Important…

Crop production concerns coupled with outside influences have created price volatility which, on one hand, creates pricing opportunity. On the other hand, makes it tough to manage. You sell grain one day and prices move either higher or lower the next day. You didn’t sell enough on a price decline and too much on a price rally. It may feel like you can’t win.  

The bigger picture to note is that higher prices provided opportunity. Factors that are geopolitical or weather-related tend to be short-lived. A second chance this year to sell at higher prices is an opportunity to manage opportunities and risk. 

What can you do about it?

Pay close attention to technical signals (price charts) as well as changes in fundamentals (supply and demand factors). Your advisor can keep you informed and help develop strategies customized to your operation. A 5-minute conversation could be the difference between a good marketing year and a great marketing year. Concentrate efforts on strategic marketing rather than based on emotion. In volatile times, emotions are high. It is imperative to cut through these emotions, measure your risk and opportunity, and then implement the tools that can help you best manage prices within an environment of quickly changing prices. 

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