If you looked really hard this week, there actually where signs of spring as warmer temperatures melted a lot of snow in the deep southwest of Ontario. However, even if you didn’t have those temperatures, the month of February end on Sunday. With January and February behind us, there is a lot warmer weather in front of us. By the end of March, we’ll even have the USDA chiming in with their prospective plantings report. We’ve almost turned the corner on winter. The Covid winter seems long, and it cannot end soon enough.
As we peer into March, grain prices have been effervescent. We know the story, in many ways there was the great snookering, as we couldn’t imagine these grain prices going as high as they’ve popped since fall. Grains were off a bit today, but with March corn at $5.54 and March soybeans at $14.06 many famers think it’s time to sell. Those aren’t my thoughts, but the thoughts of many farmers who consistently tell me when the best time is to sell grain. I don’t think there is any system other than their emotions, these recommendations show up via twitter, email or even over the phone. I suppose they want some sounding board, but if they do decide to sell, they are probably doing just fine.
These are the highest prices we’ve seen since 2012, which is a lot farther back than it seems. During the price run up in 2012, we had the Canadian dollar at par, which led to negative basis levels, but with big futures values, nobody seemed to notice. (tongue in cheek) This morning when I posted cash prices in Ontario, the Canadian dollar actually broke thru 80 cents US. We haven’t seen that since 2017. Needless to say, Ontario old crop cash prices are $17.31 for soybeans, $6.95 for corn and $8.00 for wheat. Foreign exchange still matters.
Of course, we all want to know what happens next. I won’t hear from my guys above unless crop prices head down. In fact, I’ll hear from them more often if prices head down at a rapid clip. Needless to say, at these elevated higher grain price levels we’re going to see more violent market activity ahead. Having ice water in your veins as we move into spring might be helpful, especially for those of you still with old crop. After March 15th, the volatility might grow even more violent.
Why you say? Well, as all of you know, I farm for a living, but constantly keep abreast of the nuances of market factors leading to our price discovery. One of the characteristics within these winter grain markets have been the inverted futures. Take a look at soybeans futures, we have inverted markets all the way out. That is nearby futures prices are of greater value than the months after, a reflection of demand, where end users are looking for beans. The soybean market is the most inverted, but so is the corn market as well. For the most part, we know that drill, but what we don’t always know is the behaviour of the non-commercial traders who pile into commodities to get part of the action. They represent a huge segment of the market.
You might say there are “boatloads” of money available for investment, in this Covid era of government stimulus. A few weeks ago, I talked about GameStop, then I talked about bitcoin. However, those exotic investment choices have incredible volatility, GameStop went up 104% in one day last week. Trading was stopped twice. It’s like the pipeline couldn’t handle all the trades. It’s not quite the same on the corn and soybean side, but help is on the way. March 15th is coming.
What you say? Well, it was announced earlier in February that the CME would be increasing “both spot-month and all-months combined speculative limits on March 15th, essentially adding more pistons and cylinders to an already overstretched grain market engine. The last time we saw that was in 2005 after the US Energy Act had been past with it the creation of the RFS (Renewable Fuel Standards). Needless to say, ethanol changed the game and with the expanded spec limits, grain prices surged amid even greater volatility. The river, if you will, grew wider with more speculative trading.
On March 15th, it would seem obvious to me, that we could see this play out again in a market, which is arguably more bullish. Add more speculative money to this scenario with some kind of weather scare come May, June, July or August, and we could see violent prices movement, like we’ve never seen before. Our market structure is morphing into something much bigger. It’s all part of the crop pricing paradigm.
So, is it time to sell? You know my standard answer, nobody knows. Keep in mind as farmers and as marketers, March 15th represents another sea change for grain market volatility. There will be a lot more people coming to the grain party, who don’t really know anything about grain. However, its 2021 in late Covid19 winter. Risk is on. As farmers we need to keep our bearings.