One of the most common questions I’m asked is: How high are markets going, and when will that happen? My answer is always, “That is the job of the price discovery system.”
During trading hours, day and night, opinions of producers, end-users, hedgers, speculators and investors put their money on the line based on a vast number of fundamentals that can, have and may influence the supply and demand of commodities. That is what ultimately determines a value (price) at that point in time. It is a net-zero situation; for every buyer there is a seller.
Such price discovery yields price charts that are a snapshot of the thousands of things happening in the marketplace. I learned long ago to watch price charts as a road map of where price has been, where it is now and where it appears to be heading. Do I rely only on charts? No! But I embrace them because they can simplify my life when it comes to analyzing markets.
Previous bull markets have revealed some interesting actions. These actions have helped me navigate grain price outlook when it comes to weekly price action that helps to smooth the decision-making process.
In our age of social media, tariffs, supply chain disruptions, a global pandemic and war, narrowing our analysis to something simple might help in answering the question of when price appreciation is actually over.
PRICE OUTLOOK
Price discovery suggests price will go high enough until demand is curbed sufficiently so we will not run out of stocks, but someone(s) might have to use less. History tells us old-crop corn got to that level. Prices were extremely inverted, and the war caused immediate force majeure creating shortages of corn for feed especially in Europe and a loss of exportable wheat supplies as well.
As of mid-April, price action shows old-crop corn has reached levels where demand was reduced with alternative responses evolving.
The Russia-Ukraine war will have consequences of supply disruptions, demand and a restructuring of the world geopolitically. There will be economic hardship in many countries, and we will see defaults, recession, unemployment and social chaos in many countries.
This potential lower demand from the world is more important than the U.S. spring acreage mix. Additionally, the Brazilian corn crop might still be underestimated by 3 million metric tons (MMT) to 5 MMT.
The April World Agricultural Supply and Estimates (WASDE) proved to be a price barnburner. New-crop corn went to new highs, but old-crop corn did not. Printing new high weekly closes will require re-assessing markets. The May WASDE should be equally important.
Farmer Jerry Gulke is president of Gulke Group, a market advisory firm offering daily advice and low-cost order execution. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.
