Market Swings

Oct 16, 2020


What a crazy start to the 2018 production season! The market continues to make swings both to the upside and downside. As is the case in a lot of years, we have concerns of too much moisture in places and not enough moisture in other places. The China/US trade negotiations, and the possibility of making some major progress with North Korea, is adding more fuel to the fire. Private estimates of the Brazilian corn crop are decreasing as the weather continues to be unfavorable. Planting progress for beans is running ahead of the 5 year average while the corn is near the 5 year average here in the US.

Weather and its impact on planting progress will be at the forefront as we move forward in to June. June acreage report will bring to light any corn acres that were switched to beans. Recent rains in Argentina and its potential impact has the market wondering about the quality of the bean crop which is currently estimated at 36-37mmt. Current weak Brazilian currency values and Chinese tariffs are creating new crop bean movement by the Brazilian producer. Record low values of the Argentine peso is creating record high prices for the producer there. This is the Argentine farmer’s hedge against inflation and the cash market has been showing a carry so movement has been light out of them.

There are several things that could lead to increased volatility in the corn market. One example is the most recent USDA crop report which has global corn stocks decreasing 35.7 MMT to 159 MMT. A decline of that much has not been seen since 1983 and 1988, which were both major drought years. With a projected stocks-to-use ratio of 14.6% in 2018/19, the situation for corn is tightening up a bit. One must temper that thought with the reality that today’s genetics and technology are much improved. Trend line yields for corn have been increasing, however, and a production number that is larger than expected and demand that is disappointing could result in a larger cushion to ending stocks. Changes in market direction are unannounced and can happen very fast.

Incorporating options into marketing commodities can help control emotions by utilizing a more disciplined approach to risk management. For example, having a put or call option in place allows a producer to manage higher or lower markets. This is in sharp contrast to an approach that is characterized by hoping the market will continue to move higher or rebound after experiencing a setback. Options give us the flexibility to manage through these unknowns and can be a valuable piece of a comprehensive risk management plan.

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