Volatility is expected to rise over the next several weeks as uncertainty mounts around grain markets.
Weather is one of the direct market impacts as dry conditions have come to many regions of the Midwest, leading to worries about a drought. Weather forecasters have predicted an El Niño pattern beginning, but that weather pattern has yet to emerge.
“Talk of things like flash drought or pockets of extreme heat may also provide reason for traders to be active,” said Brian Doherty, analyst with Total Farm Marketing. “With higher interest rates this year, using leveraged paper strategies (call options) may be attractive where risk is quantified for the buyer to premium, commission, and fees paid.”
There are also worries about growing world supplies in corn, soybeans and wheat if rains come following a “near ideal” planting season. Doherty said that isn’t a likely scenario, however.
Doherty noted that markets are currently trading low enough that farmers are more hesitant to make sales.
“The market is already factoring in big crop expectations,” he said. “Most farmers feel comfortable with crop insurance as a safety net, so the need to sell at lower prices is not present.”
Outside market pressures are also expected to add to the volatility. Between uncertainties around a resolution to the debt ceiling as of May 26, the continuing war in Ukraine and a renewed surge of COVID-19 in China, the markets are unsure which direction to move.
“As 2023 unfolded, prices (have been) on the defensive, trending downward on expectations for world supplies to grow while demand diminished,” Doherty said. “That can be seen in weekly export sales and in ethanol.”