I post grain market insights on a couple different social media platforms throughout the week. I enjoy trying to break down what happened on any given day, or what I may be watching in the week ahead. This week I had a farmer comment on one of my posts that ‘market people’ are worse than meteorologists when it comes to telling folks what’s going to happen.
I think he may have thought I was going to vehemently disagree or take it as an insult, but honestly, he is not wrong at all.
First off, fun fact about me, I wanted to be a meteorologist growing up. I was obsessed with weather from the time I was a young child until I was well into high school. Being able to focus on weather and how it will influence crop production is one of my favorite parts of my job now.
Meteorology is a science. Weather forecasts are put together through a slew of computerized models that can analyze the thousands of factors influencing what should happen, taking into consideration historical data along the way. As science and technology advances, the developments in meteorology also improve.
The ability to forecast weather has grown so precise we can tell where a hurricane will likely make landfall within days, or if a winter storm may wreak havoc on our travel plans a week or more in advance. And while in agriculture we get angry on those days where an 80% chance of rain brings no measurable moisture, the forecast was not wrong.
Analyzing the markets is an art. While there are a few tools with a scientific base to them like technicals, gauging what is going to happen in the grain markets months in advance is like trying to guess the outcome of the world’s largest poker game.
Many on the outside of the industry underestimate the negotiation that goes into trading physical grain and how hard each party along the supply chain fights for every penny of margin they can get. Trading physical grain successfully means understanding most every aspect of your ownership as a seller, while buyers need to know their daily needs and the factors that could limit their ability to meet that demand.
A friend of mine in the business once said it best, “the margin is in the hustle.” This means successful grain traders are always looking at how they can put on their next big trade. This is something that permeates through physical commodity markets around the world and is one of the reasons the world’s largest grain traders can make hundreds of millions of dollars a year.
Of all the things that separate forecasting grain market moves from forecasting weather, it’s the human element that many underestimate.
When I say human element, I’m not only talking about physical trade, but I’m also talking about understanding the geopolitical factors that impact one’s ability to facilitate a transaction. This was seen most recently when Russia invaded Ukraine limiting Black Sea logistics and sending prices soaring to multi-year highs.
Forecasting grain market moves is one part understanding the economics of a trade—freight, basis, quality, and target margin, it is also guessing how the human element will affect price direction in the months ahead.
Right now, I have to say the human element and its role in grain market moves is at one of the highest levels I can remember in my nearly 20 years of doing this. From money flow, to who is doing business with whom or where the next war will begin, uncertainty thanks to human involvement seems to be at an all-time high.
The increase in world grain and oilseed production has opened the door to global expansion for many of the large conglomerates already successfully trading in the US. While this is not a new factor, the increase in supply around the world, what have been fat elevation margins and increases in export infrastructure investment has made the world export market much more competitive in recent years.
In addition to understanding the influence of economics on trade, we must watch the ramifications of an ever-changing geopolitical situation. I will not pretend to be an expert in geopolitics, but I don’t think you need to be to see the obvious tension between the US and China. Having lived through the first trade war and then seeing the subsequent surge in price when China returned to the market, we cannot ignore how important Chinese business is when it comes to price.
This week China held a celebration in honor of their Belt and Road Initiative being a decade old. With the economic issues China is facing, the initiative is expected to be dialed back in the years ahead as China works to collect the nearly one trillion dollars they have already lent out. What I feel was the most interesting aspect of this event was Russian President Putin being treated like he was the guest of honor.
The US and its Western allies have continuously threatened China and others not to get too cozy with or show obvious support to Russia. This was something that in the initial stages of the invasion China seemed to honor. Xi made moves to publicly distance himself from Putin, calling for peace and seemingly unwilling to take sides shortly after the start of the war. So, while China is not blatantly anti-Ukraine, as they are rumored to be buying corn to be shipped out of Ukrainian ports and still calling for peace, it appears their willingness to align themselves with Russia, even in the face of obvious US discontent, is growing.
As I have discussed previously when looking at China’s desire to grow the BRICS alliance, China seems to be actively working to widen the divide between Western Nations and the other nations around China believes have been picked on or left out by the West.
In addition, we saw this week the state of Arkansas determined Syngenta must sell 160 acres of land they own in the state. Syngenta is owned by ChemChina, who as Arkansas’ Governor Huckabee Sanders pointed out in her speech this week, is on a US list of Chinese Military Companies operating in the US. There are several other states around the country reportedly looking at making similar moves to restrict foreign entities, specifically Chinese in many cases, from owning land, making it likely we see similar announcements in the future.
Taking it a step further, when listening to Huckabee Sanders’ speech and hearing others with similar sentiment, there is a very anti-Chinese investment in US agriculture attitude starting to show. While this is understandable when taking into consideration technology theft and other concerns, it is unlikely to be received kindly in China. How Syngenta’s role continues in US crop production or how other Chinese owned entities operating in the US agricultural industry are handled in the months and years ahead will be interesting to watch.
I have no way of knowing all the human elements that will impact the decision making that goes into sourcing the 95-100 mmt of soybeans, the 10-13 mmt of wheat or the 17-28 mmt of corn China is estimated (another human element) to need in the marketing year ahead. But I do know that as it stands currently, if our global competitors are able to produce and ship a crop, they will likely look for alternative sources.
Speaking of producing and shipping a crop, I will be watching South American weather closely this week, as it looks like we could be seeing a pattern change developing there. The start of the planting season in Central and Northern Brazil as well as in Argentina has been dryer than many would like to see.
This hasn’t limited plantings in Brazil in a meaningful way so far but could if dryness continues or many acres need to be replanted. Argentina farmers have been delaying corn planting because of the lack of rain, meaning many will likely look to plant soybeans earlier in the planting window, choosing instead to plant corn during their second planting window in December.
Rain is in the forecast for this week across much of Argentina and Brazil according to Euro models. The GFS has a delayed start to Brazil’s rain, putting out into the weekend or early next week, though it agrees with the Euro that Argentina will begin to see much needed moisture.
In the end, another reason I really love my job is that you never know what is going to happen next. We can try to rely on what we think we know or what we expect to happen, but in the end our accuracy almost entirely hinges upon our ability to forecast how humans will behave.
As always, don’t hesitate to reach out with any questions. Have a great week!
On the date of publication, Angie Setzer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
