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Market Commentary for 3/4/22
All eyes are focused on Ukraine, “The Breadbasket of Europe.” This week the war raised more questions than it provided answers.
- How and when will this war end?
- Will Ukraine farmers plant corn in the next two months?
- Will the winter wheat crop be harvested this summer?
- Will the ports be operational soon to export grain already stored in the bins?
- If Ukraine does not plant corn this spring, where will the world find the extra 1 billion bushels of corn to make up for this production loss?
The Market Is in A State of Fear and with That Comes Volatile Prices
The wheat market has traders panicked, consequently it rallied $3.50 per bushel this week. The market was locked the limit up most days this week, so on Sunday night when the market reopens, prices likely go even higher. This has made it impossible for some grain buyers to buy cash wheat from producers, because these buyers would not be able to hedge their purchases. Once the market is no longer locked the limit up, it could turn very volatile and maybe even trade limit down the same day.
With so much uncertainty ahead more market participants have moved the sidelines and are not trading. With less traders in the market, it means less liquidity and more extreme price swings.
Some traders find themselves short Chicago wheat positions that they are losing money on, and these traders have resorted to buying other commodities as a potential hedge to help offset their losses from the massive rally in the Chicago wheat market. This partly contributed to corn’s $1.00 per bushel rally this week. Once those who are short the wheat market are done liquidating their positions, there could be a quick drop in all grain futures prices. Unfortunately, no one knows how much higher wheat will trade before it tops out.
After this week’s big futures rallies, basis values for corn, beans and wheat plummeted throughout the US. Consequently, many buyers moved their basis bids to the July contract because the spreads between the May and July were at record levels. This would seem to suggest in the short-term that futures values are overvalued compared to cash values. However, if the war in Ukraine drags on and prevents grain from being exported out of the Black Sea region or keeps the Ukrainian farmer from producing a crop at all, current futures values may turn out to be a good value in the long-term.
Moving forward it would not surprise me if the market traded up the limit and then down the limit in back-to-back days or even the same trading day. Until more information is known about the outcome of the war in Ukraine the market is going to be extremely volatile.
Want to read more by Jon Scheve? Check out recent articles:
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Will Beans Find Their Way To $14 Or Will They Trade Back Under $13 Again?
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Jon Scheve
Superior Feed Ingredients, LLC
