TFM Perspective 8-26-2022


Big-Picture Scenarios in the Year Ahead

One might look back to the beginning of Covid-19 as a time when extreme volatility kicked in for corn, soybeans, and commodities in general. The stock market has had no shortage of volatility, as well. As the summer of 2022 begins to wind down, we’re going to take a big-picture perspective of some of the variables late this year and throughout 2023 that may have a major impact on agriculture throughout the world, as well as add to extreme price volatility.

As 2022 harvest gets underway, the world will likely find that supplies will not measure up to what could have been with better crop weather. Northern Hemisphere weather is challenging to crops in the U.S., Canada, Europe, and China. None are escaping pockets of poor conditions. The ultimate result is smaller inventories. Couple that with a continuous problem of the war in Ukraine (resulting in smaller production and likely limited fall fieldwork) and, suddenly, the big-picture perspective for 2023 starts out on a precarious path of tight world supplies. Then add high fertilizer costs and a lack of resolution to high energy prices. Ultimately, an environment exists where high prices will challenge farmers’ decisions on what crops to grow and how much to invest in them.

Southern Hemisphere weather will be a massive and important variable for crops in Brazil and Argentina. Expectations for large increases in soybean-planted acres in Brazil (to meet world demand) could be in jeopardy if weather is less than ideal. Some forecasters are beginning to predict a third consecutive La Nina pattern. Last year’s Brazilian soybean production was approximately 20 million metric tons (800 million bushels) less than earlier expectations. With a potential increase of an additional 10 million metric tons of production up to 155 million, the world has a very strong appetite and need for South American production to increase. If La Nina is a problem and crop production is less than expected, between bioenergy and consumption, the supply of soybeans will remain precariously tight. Bottom line: a must-have worldwide crop. There is little room for error.

In 2023, we will also need to see a recovery in U.S. production. As dryness in the western half of the United States continues to migrate eastward, long-range forecasters are seeing limited chances for a significant moisture recovery in the western Corn Belt. Already, there are proposals to limit agricultural water use. Irrigation may no longer be an easy solution. Tight supplies of world commodities, including small grains and specialty crops, suggest it will not be easy for any one commodity to swing big acreage from another. Therefore, ideal weather and large production for each commodity will be required to thwart tightening inventory or even rationing of supply. Fertilizer availability and logistical challenges will hopefully be eased in 2023. Still, some early indicators are that fertilizer remains in tight supply and prices high.

Lastly, the political front remains volatile and uncertain. Tensions between the United States and Russia and the United States and China have mounted in 2022, and it doesn’t look like 2023 will be any better. Nonetheless, trading partnerships throughout the world will be necessary to keep commerce active. It could be that the need for feed grains suggests importing countries will still turn to Russia. China’s precarious stance on Taiwan is a major factor as well, and that might complicate relations.  Additionally, supply disruptions continue to be a problem in China due to Covid-19 lockdowns, as well as a weakening economy. China is currently struggling with a very significant heat wave and drought conditions that may affect this year’s production and could lead to a problem for winter wheat seedings and soil moisture profiles for next year.

Are you confused yet? There is certainly no shortage of big-picture variables that may have a major impact in the year ahead. As we look at the marketing perspective, we encourage producers to be open-minded. We’ve laid out several potential problems that could be exasperated. Yet, time does have a way of healing economic issues and political strife. We should also anticipate that weather in 2023 could return more to normal and lead to bigger world production.

The point is that you need to think about what could happen if the market goes up a little or if it goes up a lot. What happens if prices go down a little or go down a lot? Strategic planning and use of all marketing tools for the right time and right place will be paramount. Become a student of the market. More importantly, become a student of implementing the right tool at the right time for the right risk tolerances for your farm operation. If you don’t have one, find a well-versed advisor who can help you strategically navigate the uncharted and unprecedented waters of volatility in the year ahead. An advisor who knows your operation can cut through the plethora of information and guide your focus to what’s most important to you.

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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