‘Twas the week before U.S. Thanksgiving, when all across the screen
Nary a market was stirring, creeping barely into the red or green.
Hedge funds are watching expected bonuses with care,
Taking a cautious approach to ensure the year-to-date profits would remain there.
Grain traders have their S&Ds cemented for the season,
While visions of hoped for volatile markets ahead is within reason.
But with uncertainty seemingly absent, and plenty of supplies on tap,
It seems all but ensured that grain markets will settle in for a long winter’s nap…
Or so it seems in the current environment. Market volatility picks up when there is uncertainty, and particularly if balance sheets are tight. With the critical Northern Hemisphere behind us, the supply side of the S&D tables is largely in place. There are unknowns over how the South American crop will fare, something that is particularly important for soybeans and to a lesser extent corn. At this point there aren’t any major concerns in the region.
Aside from the occasional spike higher due to temporary weather threats, the futures markets for corn, soybeans and wheat have spent several years trading back and forth in a range. Based on what we know today, it’s hard to see what would push us decidedly out of those bounds either higher or lower. Prices ebb and flow and events rear their head which can get traders nervous, particularly if it coincides with speculators leaning too heavily to one side or the other. However, unless we see a major production threat or an unexpected demand shock, it’s reasonable to expect further rangebound trade for the next several months, and perhaps longer.
At the same time, one cannot be too complacent either. As of right now it doesn’t look like markets are setting up for a big move, but there is a big difference between ‘not likely’ and ‘can’t’. Markets have a nasty habit of catching everyone off guard. The primary source of volatility is typically weather, although it could also come from geopolitical uncertainty, renewed buying interest in the commodity complex overall, a new source of demand that was overlooked by the market or, more likely, something that is totally unexpected.
When out of nowhere there arose such an event
Traders awoke from their slumber to see where their profits went
Away to their screens they flew like a flash
Only to see that their positions had crashed.
The newswires revealed a fresh story flow
A policy announcement, a military coup plus a hurricane to go.
Which, to their wondering eyes would appear.
A three standard deviation move, and a renewed sense of fear.
What does this mean for farmers’ marketing plans? First, keep a disciplined focus on margins and profitability. Marketing plans should be anchored around likely scenarios and highly probable outcomes. This means markets that are largely a bit lackluster, with periodic rallies that provide good opportunities to manage risk. We also need to remain aware that surprises do occur, so don’t close the door on strategies that allow one to capture upside in the market as well. Good marketing planning helps one prepare for all potential outcomes.
Farmers spoke not a word, but went straight to their work,
Executing their marketing plans according to book.
Locking in profits and managing risk,
Good preparation left them up to the task.
At the end of the day they sat there content,
While the unprepared found themselves exhausted and spent.
Not all risk was gone – Mother Nature’s tale has yet to be told.
But they did what they could with what can be controlled.
Jonathon Driedger, Senior Market Analyst