4 factors that are driving a crazy commodities market

If you weren’t able to make it to Commodity Classic 2022 in New Orleans, rest assured we’ve got you covered. One of the most anticipated sessions at the Successful Farming Main Stage each year is an update on the commodities markets.

This year, Cory Bratland, chief grain strategist for Kluis Commodity Advisors, pitched in to share his insights on the current run-up in prices, the global trade situation, and more.

Bratland started his presentation admitting to the wild ride in the markets over the past few weeks. “People always ask me, ‘How are you sleeping at night?’ ” Bratland said. His reply? “I go to sleep happy, but I wake up screaming every two hours.”

Here are the four factors currently driving the huge rally markets.

1) Record export demand from China

After the COVID-induced sell-off until late in 2020, China needed to rebuild its grain reserves and has been a frequent buyer of U.S. grain, Bratland said. And, China continues to buy.

2) South American crop weather

Brazil and Argentina both predicted sizable crops this year. However, dry weather has driven down forecasts there, now as low as a potential 122 million metric tons.

How steep will the drop be? We don’t know, Bratland says. “We have to continue to watch their weather for the next few months,” he said. “They are not out of the woods yet.”

3) The hedge on inflation

The markets have benefited from big, long positions in the grain markets. Will it impact global demand? It certainly will, according to Bratland.

“I’m sure there’s another black swan event that will rear its head that we cannot even think of.”

4) The Russian war in Ukraine

The ongoing conflict has driven more uncertainty across the globe – especially with supply chains and a halt in Ukrainian exports. Farmers’ sold crop is sitting in the country, unable to be shipped. According to Bratland, Ukraine produces 1.6 billion bushels of corn; 80% of that is exported but being held up.

This could be an opportunity, however. The world markets need to find grain. With Ukraine being off the market, the United States could supply that wheat, along with Europe and Australia.

Will farmers there be able to plant a crop this season, Bratland asked. Will they leave the war to go back to feed their people? The next two weeks will be crucial timing for the 2022 crop season, which is a bit earlier than in the U.S. Corn Belt.

Another factor: Do Ukraine’s farmers have the seed supply and the fertilizer for a crop this spring? Bratland is predicting a 25% to 50% reduction in the Ukraine crop this year, based upon what is known today.

In some reports, analysts are worried that fears of fuel being diverted to the war effort could impact its availability for agriculture.

The impact hits all dimensions of agriculture. According to Bratland, suppliers and dealers that service Ukraine are also stuck in neutral. The future looks bleak. “Russia will go through a recession,” he said. “Ukraine will have hardships” that will affect the rest of the world, he said.

The trading volatility will continue for a while, Bratland said. “We’re trading headlines. The markets take off in one direction – and they’re not small increments. The jump is in 20¢, 30¢ increments. We still have great opportunities this year.”

His advice? “Stay disciplined.”

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