Volatility! Volatility!

Record-high prices in February? “Yea, you betcha,” as they say up north!

South American weather, Russian and Ukraine war, bird flu, China and U.S. inflation, dryness in the Plains – let’s see. Anything else we can throw at these markets? It’s a lot for traders to digest. It adds opportunity as well as increased risk for producers. 

Many producers have been selling cash grain into these rallies, which is the thing to do. But they’ve felt disheartened when it then rallies the next day and the day after. 

Marketing is never easy, and the last couple of years have been even more challenging. At least prices are heading higher and at profitable levels to make sales. It’s more fun to sell a rally than be paralyzed like a deer in the headlights and watch the market fall into unprofitable levels. 

The kind of volatility we’ve seen lately with dollar swings looks to continue until more is known about upcoming production here in the United States. We usually see this kind of volatility when a drought in July occurs. A rally at this time of year seems strange, but traders are focused on the whole world these days. Drought in South America has had a huge impact, putting the burden on the U.S. growing season to replenish the supply and hopefully meet upcoming demand. 

As we turn the calendar, traders will start to pay more attention to our weather and planted acres. Last week in their Outlook Conference, the USDA pegged projected corn acres at 92 million, down from 93.5 a year ago. Bean acres were estimated at 88 million, up from 87.2 a year ago. The Planted Intentions Report will be out on March 31. Then we’ll see what spring planting weather allows. Already the wheat crop ratings in the Plains have been declining due to lack of moisture and providing underlying support to wheat futures. Should that dryness expand into other corn and bean growing areas later this summer, we could see additional premium added to these price levels. 

There is also concern about higher fuel and input costs as well as chemical availability. What if weed control and fertilizer become a concern this summer for yield potential?

In 2012, nearby corn futures hit $8.45 and bean futures $17.94. That was also the year crude futures hit around $150 a barrel. Currently, crude is trading between $95 and $100 a barrel. Traders will watch to see whether we take out those highs in order to ration demand should our weather create production concerns. If we have a normal growing season and trend line yield, the landscape of higher prices could quickly erode. 

There are so many factors out of producers’ control. You only control when you sell. This is a year that when you sell something, consider buying fixed risk call options for continued uncertainty this summer. 

Make your sales in 10% increments and when you’ve reached at least 50%, consider buying some puts on what you plan to store. Also, look out to 2023 and maybe even 2024 to lock in either protection or forward sales. We saw in the past, when prices soared to extremes, markets fell for years afterwards. Weather improves, production increases, and product demand decline or goes elsewhere. High prices will cure high prices. 

If you have questions, you can reach Cathy at cekstrand@s-pelmwood.com or visit TotalFarmMarketing.com for more information. 

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