Historically high prices and a volatile market environment seen as good reasons to forward sell more than usual this year
Jacob Shapiro woke up to two big market developments the morning of his FarmLink webinar presentation.
There was a Reuters report that Russia is preparing to back out of the Black Sea grain corridor deal, which allows Ukraine’s grain to leave the war-torn country by ship.
And there was another report that inflation continued to climb in the United States and is now up 8.2 percent over the last 12 months.
Those are just two examples of the seemingly endless stream of market-disrupting factors making today’s grain markets wildly unpredictable, said the founder and chief strategist of Perch Perspectives.
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“All these little brush fires that keep popping up every day and keep me up at night, those are the big reasons pushing towards what I think is going to be an even more volatile year next year than this year, which is saying something,” Shapiro said during FarmLink’s From Bin to Bank webinar.
So how do farmers cope with such turbulent markets?
Neil Townsend, FarmLink’s chief market analyst, said his first piece of advice is to sell their crops in increments during market rallies.
The other thing they need to recognize is that today’s prices, while below the peaks of earlier this year, are still sky-high historically speaking.
Accordingly, he believes farmers should be further sold than they usually are this early in the marketing year. FarmLink recommends growers be at least 60 percent sold on canola and 50 percent on CWRS and durum.
“It’s tempting to sell more, frankly, because we’ve seen the prices go up again in the last week and strong basis throughout the countryside,” said Townsend.
John DePutter, founder of DePutter Publishing, provided some historical perspective on today’s prices.
He put up a chart detailing 100 years of U.S. corn prices. The chart shows there have been four previous mega price spikes prior to the outstanding 2022 bull run.
“It helps us step back from the noise, from the day-to-day news and so forth,” said DePutter.
The first major spike occurred just after the First World War, a time of rampant inflation. That was followed by a long stretch of tough times leading to the Great Depression.
The second spike happened at the end of the Second World War, a time of prosperity for farmers. That was followed by tough times in the 1950s and 1960s.
The third mega-spike occurred following the Great Grain Robbery of 1973 when the Soviet Union purchased 10 million short tons of U.S. wheat and corn at subsidized prices instead of market prices. That led to a grain shortage that drove prices higher.
That was followed by decades of stagnant markets until prices spiked again in 2008 and 2012 surrounding the global financial meltdown, and then crashed.
Grain markets are once again experiencing a boom phase, but it won’t last, warned DePutter.
“This too shall pass,” he said.
“We will see a lull someday. The reasons and the timing are uncertain, but the cyclic swings will continue.”
His best guess based on history is that the market will bottom out during the 2030-35 period, but it is nearly impossible to predict with any precision.
In the meantime, markets will continue to be rocked by daily developments like the news that Moscow is prepared to reject renewing the grain corridor deal when it expires next month.
“That Russian threat to withdraw from the grain deal just keeps with Russian strategy, which seems to be they are going to leverage high energy prices and high food prices to get political concessions from the Europeans that the Europeans aren’t going to give,” said Shapiro.
Another issue on his radar is China’s looming real estate property crisis that could threaten the Communist Party of China’s control over the world’s biggest grain-buying nation.
And then there is rising U.S. inflation, which is forcing the Federal Reserve to raise interest rates.
Ranulf Glanville, chief market analyst for DePutter Publishing, doesn’t expect interest rates to peak until sometime in 2023.
The strengthening U.S. dollar is also an important part of the macroeconomic situation. The greenback has been the beneficiary of market fear and uncertainty, reaching a 20-year high.
Glanville does not think it has topped out yet, which means the Canadian dollar will remain weak by comparison. That is good for basis levels but bad when it comes to purchasing crop inputs, he said.
