Those who yearn for the “good old days” when daily commodity price shifts were measured in pennies and nickels rather than quarters and even dollars of today should probably just put those memories out to pasture.
Farmers have witnessed more wild swings and gyrations in the markets in recent years than attendees of an Elvis Presley concert back in the day. And that market trend will likely remain in place and could possibly leave some “All Shook Up” in the future if they don’t plan accordingly.
“Volatility is not going anywhere, especially with everything going on geopolitically,” Taylor Pope, commodity analyst with Pope Commodities, told farmers at the Illinois summer wheat forum in Okawville. “We’ve had $1 (daily) moves in soybeans the last several days (leading up to USDA’s August crop report Aug. 12).”
So, what should farmers do about crop marketing in the midst of such turbulent times?
“Be ready to take advantage of market highs and use available tools out there (to manage risk),” said Pope, who noted farmers should focus on protecting profitability and not necessarily swing for the fences on every market move.
“The crazy pullback we’ve had (in commodity markets much of the summer) is not just in the grain markets, it’s kind of a macro-level sell-off.
“When (fund managers) liquidate long contracts, we can see bigger pullbacks than we even thought was possible,” said Pope, who noted fund positions cut off close to 100,000 soybean contracts in recent months.
A big fear in the markets and risk for farmers on the cost side remains staggering inflation levels.
Before the pandemic, inflation was just shy of 2% but recently jumped to a 40-year high of 9.1% in June. Meanwhile, food prices increased 10.4% while gasoline prices gushed 59% higher the past 12 months. The inflation rate recently eased slightly to 8.5% in July, which spurred the S&P 500 to climb to its highest level in three months.
“Inflation – it’s nothing new and it’s really escalated the last several years,” Pope said. “The inflation story has peeled off (in light of the July slowdown), but it’s hardly going away.”
On the plus side, inflationary pressure and strong demand should keep some support under commodity markets. But uncertainty of both supply and demand remains tremendous prior to harvest.
“Demand may be the biggest variable out there,” Pope said. “And, obviously, there’s still some supply issues lingering.”
Global supplies are tightest of the three main crops in Illinois for soybeans and wheat. A tight stocks-to- use ratio for soybeans could give that market a chance to rally back to $15 heading into harvest.
Meanwhile, ending stocks of wheat have dipped to the lowest level since 2013 and could leave the door open for prices to get back to the $9-$9.50 range.
“We still think there’s some bullish fundamentals out there,” Pope said. “There’s factors out there that could take (wheat) stocks out of the world market, which would keep things competitive.”
Despite the recent news of some grain shipments embarking from war-torn Ukraine, the pace of Ukrainian grain exports fell from 6 million tons before the Russian invasion to about 1 million tons since. And one recent shipment was rejected for quality issues after sitting in storage for months.
“The fact is, they’ve been able to get some (grain) shipments out,” Pope said. “But, to think Ukraine will suddenly be a major player in the world export market is far-fetched.”
However, with total corn production on the rise globally, Pope believes that market is the least bullish of the three top Illinois crops heading into harvest. He foresees possibilities in which corn could rally to $6.60 or $6.70 or where it could tumble to near the $5 mark during harvest.
Either way, farmers should plan to manage volatility and price risk ahead.
• Daniel Grant writes for Farm Week. This article was distributed through a cooperative project between Illinois Farm Bureau and the Illinois Press Association. For more food and farming news, visit FarmWeekNow.com.