Farmers probably haven’t been driving their tractors into the ditch with excitement while listening to markets news.
It’s been a bit dull, to be honest.
Some analysts think this mood might linger into summer unless something big happens.
“People want more of a story, but the story is more of the same,” said Neil Townsend, head analyst at FarmLink Marketing.
“There are little ripples that might become a story, but they aren’t stories yet.”
Though the spring, crop futures markets haven’t roared higher or sagged lower. There was a sharp but short weather rally in winter wheat markets, spurred by a snowstorm that hit the southern plains at the end of April. There have also been numerous small events-of-the-day that have momentarily moved markets.
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As well, there are various situations traders and analysts are watching:
- Rumours of early U.S. corn crops looking weak, and some looking good.
- Unseeded acres affecting canola production expectations in Western Canada.
- Stocks of various crops being adjusted.
- Local storms hitting some parts of the globe, and other parts enjoying good weather.
In other words, there’s no big story right now to sweep markets along one way or the other.
Calgary broker Errol Anderson said it’s not just crop markets that are dull. It’s almost everything.
“The whole world right now is in a kind of dulled state,” said Anderson.
“There’s a total lack of inflation.”
Without strong growth or serious economic slumping, the markets have little to trade off, allowing volatility to decline to low levels.
As he sat in his office on a quiet May 29, with American markets closed due to the Memorial Day holiday, Anderson spent time putting together bids for bull call option spreads on corn.
Not only was this better than playing tiddlywinks, but he was trying to take advantage of the market’s low volatility to get a discount on the call option spread.
A bull call spread subsidizes the purchase of an at-the-money or close-to-the-money call by selling an out-of-the-money call. That gives the spread holder an ability to benefit from higher prices at a lower cost than buying a call. The potential gains are capped at the higher call’s value.
Anderson was putting in bids for bull call spreads of $3.80-$4.30 per bushel on September Chicago corn futures at a 12 cents per bushel premium, while usually at this time of year he’d have to bid 18 cents for that spread.
“If it’s gets filled it’s a four-to-one ratio, which is unheard of at this time of year,” said Anderson. The potential gain at 12 cents is 38 cents per bushel, which is the difference between $3.80 plus the 12 cents premium and the $4.30 cap.
“Usually it’s three-to-one.”
There’s no reason to assume the corn market will rally this summer, but “they’ve got weeks and weeks of summer weather market volatility and all that could spark.”
With northern hemisphere crops exposed to whatever the weather brings, something could happen to spark a rally.
But for now, that is just speculation. The markets are snoozing.
“It can’t get much duller,” said Anderson.
