Mark's Market Talk
Mar 07, 2022
If anyone has counted the number of times I have said “last week’s trade was wild” in the past year let me know. And you can add one more to that count because I am going to say it again, last week’s trade was wild. Not only was it wild, but it was also unpredictable. The war in Ukraine has everyone searching for answers right now and in some cases I do not think the answers are there. The wheat market shot to new heights as it appears the chance of exports out of the Ukraine will be difficult if even possible this summer. Their wheat crop is starting to break dormancy right now so harvest should start in 100 days or so. However, the wheat harvest will face the same issue as the planting of corn there. The farmers do not have any fuel and that does not look to change anytime soon. Any fuel that is becoming available is going to the military. It has also been reported that fertilizer for the corn crop is hard to find and not affordable if it is available. This is sparking the world corn market. Ukraine may not raise a huge amount of corn, but they account for 17 percent of the corn that is exported worldwide. That means they export most of the corn they raise as they do not have a large livestock segment to feed. If this carries through, buyers will need to come to other sources and the US is a major one. This past week May corn closed 98 cents higher while the Dec contract closed 50 cents higher. Meanwhile May beans were 76 cents higher last week while the Nov was 35 cents higher. BUT, and isn’t there always a but involved somewhere? The grain terminals and end users have been fighting a huge inverse to the future months and this past week they decided to take the first step in shoring up their risk. The ones that have their short-term needs tied up, which is most of them, moved their current bid basis month to the July on both corn and beans. The minute they did that we saw corn lose 25 basis points while beans lost close to 39 cents. You might ask why did they do this? The highest amount of volatility has been in the front months. That means buyers who need to hedge their purchases in future months must cover the inverse when they do this. The smart move for them is to price off a future month to start with. As this happened the cash seller did not see a lot of difference in their final bid as the end user either had to widen their current basis or move to a later delivery month. However, anyone that has grain hedged in the May contract will have to find a way out of the true inverse that they now find themselves in. Going forward producers need to realize they cannot depend on the moves the board makes day to day to be the only measure of the price they will receive, especially on old crop supplies. While all of this is going on do not lose sight of the new crop pricing opportunities we are seeing. Making some sales on the way up is always good advice. If you can truly predict when we will see the high in this market, I want to talk to you. Meanwhile keep track of the world news and monitor things at home that you do have control over. That includes checking your bins if you have old crop stored at home. We will start to see some issues as the temperatures increase this spring. Damaged grain can cost you a lot of money regardless of where the market price is.