Grain prices have been incredibly volatile over the past few weeks. Spring wheat has been particularly in focus as extremely hot and dry conditions in the Northern Plains of the U.S. and concerns about Prairie conditions have resulted in falling production estimates. To give some context on how variable prices have been, Minneapolis hard red spring wheat futures values spent the past two years trading in a range of roughly $1/bu. In just the last three weeks this market has seen four individual sessions where the range exceeded $0.50 per bushel in a single day, and several others with a range of $0.30 – $0.40/bu. In other words, we are seeing prices swing as much in a single day as we had previously experienced over a stretch of weeks or months.
While hard red spring wheat may be the extreme, nearly all other crops have seen wide price ranges during this time as well, including canola, soybeans, winter wheat and corn.
It’s common for the market to be more volatile during the heart of the growing season. After all, prices are the result of the market’s estimate of where supply and demand meet. Until supply is known with some certainty, it’s impossible to know exactly what the outlook will be. And while demand gets worked out over the entire 12 months of the marketing year, the supply side of the equation largely gets determined in this very short window.
What makes the current season feel so much more volatile than previous years is because it’s been some time since we’ve run into a meaningful weather threat in North America. Each year has its areas of imperfections, windows when the forecast is more threatening or certain regional crops that have their challenges, but overall we need to go back about four years to find a season where U.S. yields ended up well below initial expectations. Global conditions have generally been quite good during this time as well. In some ways this had lulled the market into some complacency.
Markets are always more sensitive to potential changes when the outlook tightens up. The same adjustment to the weather forecast that barely elicits a shrug from the markets when conditions are generally good might trigger a multiday rally when the crop is at a tipping point in needing rain. This is currently one of those seasons.
For those who hate market volatility, the good news is that this will all be over within a few weeks. The winter wheat harvest is nearing completion and spring wheat yields will be mostly determined. The canola crop will be in its later stages of development, while corn will have passed its pollination window. Soybean yields are largely driven by August conditions, but forecasts will project well into that window and be pricing in expectations. Good or bad, we are in a classic weather market, which means sharp moves higher and lower with every change in the forecast for just a few more weeks.