The head-spinning volatility in the grain markets that has coincided with Russia’s invasion of Ukraine is expected to continue for a while, as the market continues to grapple with what the war means for a supply-demand scenario that was already tight.
“We need to remember the table was set coming into this. We were already tight in most of our commodities, as well as in fertilizer supplies before this ever happened,” points out Arlan Suderman, chief commodities economist for StoneX Group, in this interview with Shaun Haney from Commodity Classic in New Orleans, Louisiana on Thursday.
Hundreds of millions of dollars have moved into commodity-related exchange-traded funds in the last week, adding to the grain market’s explosiveness, he notes.
“That just amplifies all the volatility much more, because that money is largely going to computers that are reading signals that change in momentum. And so when momentum heads up, it really pushes prices up, and then momentum flips, sometimes on a second, and it pushes momentum to the downside.”
“And unfortunately, I think it’s going to be this way for quite some time,” says Suderman. (Story continues below video).
As for what’s happening with the wheat crop in Ukraine, 95 per cent of the country’s wheat production is winter wheat.
“That crop was looking good, and looks good yet where tanks haven’t gone across it. It needs to be top dressed in order to produce good yields, and about 50 per cent of the fertilizer was in position before the war started,” says Suderman. “No more [fertilizer] expected to come in. Some of the wheat in the western half the country actually got top dressed as the war was starting in the east, but now that’s come to a halt. So we’re going to have a lot of mixed yield potential.”
In addition to the obvious war-related safety concerns, there are also major questions about fuel availability and financing for both winter wheat harvest and spring planting of other crops, such as corn and sunflowers.
“What our customers are telling us, and we have customers in that area, is right now there’s so much uncertainty. Even if the war ended this week, there’s not a lot of incentive for planting a crop this year. So we have the wheat, will it get harvested? Some of it may, much of it probably not. If it is harvested, it will probably be held there for local food needs and very little export. And then the ’22 crops, will they get planted in spring? Probably not, at least not any exportable supplies.”
Since Ukraine is a large corn exporter to China, Suderman says he’s watching for signs China is shopping elsewhere.
“We have seen a big surge in corn purchases to unknown destinations. We don’t know if that’s China yet. There’s a good chance it is, we don’t know that,” he says. “They’ve really stepped up taking shipment of corn that they had on the books from all the way a year ago when they bought it… Now it looks like they may be starting to step up their purchases and they’ve definitely stepped up their purchases of old crop soybeans, as well as new crop soybeans. It looks like they’re getting worried about tightening supplies.”