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Prepare Grain Marketing Plans, As Inventories Tighten, Analyst Says
The year 2019 has been a wild one for the commodity markets.
Variables that move prices have aligned to bring volatility and speculation for price direction. Uncertainties include political unrest affecting the energies, tariffs affecting trade, and unusual weather patterns impacting agricultural production (supply).
We thought it would be interesting to highlight these events and draw some logical conclusion as to what the future may hold.
We'll start with weather in the U.S.
We experienced an extremely wet and cool spring. Planting was delayed to the point where only two-thirds of the corn crop was planted by June 2. That left a full one-third left to be planted. Typically, planting is all but done by June 1.
To date, uncertainty continues to swirl around the number of corn and soybean acres that may not have been planted. Recently, Bill Northey (Agriculture Undersecretary for Farm Production and Conservation) suggested that more than 10 million acres may be designated for prevent plant, qualifying farmers for an insurance indemnity.
Questions abound, and are not yet answered. Did farmers forego bean acres and take prevent plant, or did they plant anyway through late June, or even in July?
On August 12, The USDA will release a new acreage estimate. They are in the process of re-surveying farmers, an unusual course of action, yet necessary this year.
U.S. wheat acres will be down, probably the most predictable of the three grains. However, on the world front, dry weather in Canada, Europe, Russia, and Australia have combined to reduce world inventories. Though still adequate, the supply of world wheat will be tighter in the year ahead.
The political front has been in a state of upheaval, with China and U.S. negotiations on and off again for well over a year.
For most of the winter months, anticipation of a deal lead to disappointment, as trade talks broke off in May. Mexico and Canada took center stage as well, however, progress was made with a new deal struck that replaced NAFTA, and now awaits ratification. Without ratification, there is still uncertainty, and without agreement with China, even more uncertainty.
As of late, these agreements (or lack thereof) have become old news, as weather is the dominant factor affecting supply. These agreements remain in the background, and may quickly come to the forefront as key fundamental market movers.
There is always some type of political unrest. Growing and mounting concerns over the relationship between the U.S. and Iran have taken center stage, with higher volatility in energy markets noted. Add to that concerns that the European economy is slowing, and you have a recipe for continued unrest and price volatility in energy markets and equities.
African Swine Fever
In China, African Swine Fever has affected a significant portion of their hog population, perhaps up to half. There is no known cure. Consequently, a drawdown in supply is creating a shortage of pork, the main staple in China's food supply. A lack of hog production in China will likely mean less demand (imports) of commodities such as soybeans. Good crops in the Southern Hemisphere and lower demand from China suggest burdensome world supplies of soybeans. U.S. pork exports to China and Hong Kong in May were up 33% from a year ago.
There is no end to the potential scenarios for commodity supply and demand in any given year. 2019 is shaping up as one of the more uncertain years. Producers and end users are seeing more dramatic price swings.
Corn futures reached their highest level in five years this summer. Soybeans have traded to their lowest levels in a decade. This spring was the latest planted corn crop on record.
Big questions loom in the months ahead: How big will the U.S. corn crop be? Will war break out with Iran? Can the stock market continue to move upward? What if stock prices begin to slide? If stocks slide, will investors head to the sidelines or buy commodities? It's tough to outguess the future, yet the winds of commodity oversupply appear to be shifting.
With all these questions, the world needs to be prepared for tighter inventories and higher price volatility for the remainder of 2019. Consider marketing tools as a way to prepare yourself. There is a great variety of tools available. Seek out a professional who can help you design a strategy using a combination of the tools available. Do some scenario planning to find ways you can meet your goals, and put these questions (and yourself) to rest.
If you have comments or questions, or need help implementing put option strategies, contact Top Farmer at 800-TOP-FARMER extension 129 and ask for Bryan Doherty.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.