Grain Price Volatility: It’s No Time to Get Nervous Now

Well, that was a kick in the pants. Grains got nuked today. Last week I said 2021 markets were waiting for the next big thing. It was almost like the algorithms were listening to me, as December corn finished down the 40-cent limit, November soybeans were down 90 cents. As we head into Friday, there are expanded limits on corn of 60 cents and soybeans of $1.50. Volatility is being redefined. It’s never as fun when markets crash so violently.

At the farm level, it’s not that anything has change much. Last weekend the forecast was for hot and dry, but that all changed Sunday night where a cooler, wetter forecast came into being. Needless to say, even that hasn’t happened yet, and things are still very, very dry in many places. However, when the funds started to liquidate their long positions today, the algorithms just did their job. Eventually grain fundamentals will win the day, but we are so far away from knowing when this crop will be made.

Of course, much will depend on weather and acres as we move ahead. It was so interesting on how crop prices moved up incrementally over the last 8 months, we’ll see what the near future holds. November soybeans broke below their 100-day moving average today, the lowest level in two months. However, keep in mind, the sky is not falling, the last eight months have provided all kinds of opportunity to price grain at profitable levels. We knew volatility would be violent and here we are.

To put it in perspective, a year ago in mid-June grain prices were lower. July corn was at $3.30, July soybeans at $8.71 and July Chicago wheat at $5.02. In many ways, the sky was falling, as a once in a century pandemic took hold. However, out of Covid, there has been so much change. How about the change in demand for lumber and computer chips, needless to say, food and agricultural commodities? The world still has to eat, and we found that out again in spades. Covid 19 fomented much fracture in markets, and it continues today, albeit at a lesser extent.

Looking back at that, even with the violent volatility, things are so much better on the price front than they were a year ago. In Canada, we’re still under severe restrictions from Covid, but hoping to get past that. In Ontario, currently, over 75% of us are fully vaccinated, and about 20% have our 2nd dose. I’m hoping, we’re hoping this represents the road out of the pandemic and everything it represents. Covid fractured the economy last year and in some ways it’s still lingering.

I mentioned lumber and computer chips and you can surely mention grain too, even with the price drop today. There has been inflationary pressure partly because of Covid pandemic consumer behaviour. Even at this late hour, Covid economic effects continue. My farm mechanic told me last week, he’s having trouble sourcing parts out of the US in a timely manner. Needless to say, part of that is a coefficient of cost as prices have risen. With the greater world our side of North America still suffering under Covid, the road ahead will likely remain uneven.

Then there is the Canadian dollar, which has rocketed up 20% over the last year. In an uneventful time when grain futures go sideways, that would have sent Ontario and Quebec grain prices downward. In the environment of the last 8 months of grain futures appreciation, it’s been lost on cash pries. However, it had the same effect. As I’ve told many Canadian journalists who’ve asked, grain futures didn’t get close to record levels. What was different this time vs 2012 for cash grain prices was a loonie at 82 cents US. That led to the highest Ontario and Quebec soybean prices in history.

As I’ve said many times, the Canadian dollars moves in an inverse fashion to the US dollar, which rocketed higher today. Interest rates are not expected to go up any time soon. Keep your eye on the US dollar, because you all know, it has big effects on grain futures prices as well as that opposite effect on the loonie.

Rain is predicted for tomorrow on my farm near Dresden Ontario and this will be welcome as things are getting dry again. In fact, in Ontario and Quebec subsoil moisture especially as you go East is very dry. Needless to say, we don’t know the future, but we do know that the next 3-4 weeks will be critical for crop development and market prices in 2021. Daily market intelligence remains key.

That means a scouring of your DTN Canada Pro monitor and all it offers for markets and weather. In addition to that, soak up other information sources which you think are credible and count your new crop bushels. It’s shaping up to be a very successful year, despite the negative price volatility we saw today. It’s no time to get nervous now.