Market volatility impacting ag markets now and in the future

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WATERTOWN, S.D. — Joe Camp, director of managed programs at Commstock Investments, spoke at the Watertown Winter Farm Show on Feb. 12 about the abundance of risk for producers throughout the markets.

“That started recently with a big blow-up in the metals, spilled over into the energies and the question for farmers today is whether or not we have a precursor for what’s to come and possibly higher volatility for the grains and livestock,” he said.

The volatility scores for grains and livestock are less than that of things like metals, energy and natural gas right now, Camp says.

“It could be that traders are right in expecting relatively limited moves over the long haul, but, if these markets are again an example of what we might expect going forward, then the volatility might be set to increase for corn, soybeans, wheat, cattle and hogs,” Camp said.

The Brazilian crop harvest is currently underway, which can mean more competition for the United States’ crops.

“They’re moving through their soybean crop and first corn,” Camp said. “All indications are that the first crops are really sizable and healthy in yield and accounting for expanded acres this season and they are now competition for U.S. exports, particularly soybeans and that business to China, whether or not Chinese buyers continue to price shop based on what is currently lower values being offered in Brazil, or if the political nature takes over and more of that market share shifts back to the U.S.”

Soybeans, along with corn and wheat, had a relatively negative reaction to the January crop report, Camp said.

“Taking a step back at the start of the new calendar year, but since then, becoming elevated first on biofuel policy enthusiasm, bullishness spilling over from the soybean oil futures making new highs. And then it was on soybean exports this last week and President Trump’s social media post about his phone call with Chinese President Xi Jinping and this U.S. desire for China to buy more U.S. soybeans,” he said. “Now, we are left back into this scenario where the political drive could lead to more purchases or we could see yet a balance with more business shifted to South America, as is seasonally normal with that harvest coming online.”

President Trump’s efforts to import more Argentine beef caused a dip in the cattle futures.

“This is a reminder of when the cattle market topped last fall, it was in October, we had just made new all-time highs, and then gapped lower after comments from President Trump about having a quote-unquote deal to lower beef prices. That thought linked to dealings with Argentina,” Camp said. “So it’s once again in the news as a negative, but, being weighed out against what are still fundamentally sound livestock markets, both cattle and hogs for that matter.”

Camp says that there is volatility everywhere in the markets, but that also leaves some open opportunities as well.

“If you know your position, if you develop your outlook for not only futures and basis, but for volatility as well, and then assess the risk points, where could things go wrong relative to your outlook, that allows you to wrap up and form a marketing plan that hedges for both the good and the bad,” he said.

In the coming weeks, Camp expects to see more volatility on the political front.

“This back and forth on will China follow through on more soybean purchases, for one, and likely more conversation about the impact of biofuel policy developments that have, as mentioned, rallied the soybean oil, for one. You talk on corn ethanol and year-round E15 as well, for an example,” he said. “So, the political influence is absolutely first and forefront in these grain markets and livestock, too.”

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