Grain market pullback a function of weather, risk-off, and a looming recession

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Grain markets are losing some steam as summer starts to heat up, but it’s not the dry corn crop that’s driving the sell-off.

Joe Vaclavik, founder and president of Standard Grain based in Tennessee, says that yes, weather is front and centre for those with plenty of experience trading agriculture commodities, but there’s far more in the mix, including changing risk patterns, investors unfamiliar with ag markets, and more.

“If the trade thinks there’s going to be reduced economic activity, and you’ve got large speculators that are losing a bunch of money in other markets, you know, they’re long the stock market, they’re leveraged here, their leveraged there, they may just want out of some of this length, it may just turn into like a risk-off situation,” he says.

While there are similarities now to the 2008 market, there are differences too. But commodity market sell-offs and recessionary periods are correlated, there’s no question. (Story continues below)

One major difference between 2008 and now is the on-going war in Ukraine. While it does add volatility and uncertainty to the market, it doesn’t create a fundamental floor, Vaclavik says.

“We’re still above what I would call post-invasion lows that we saw in the wheat market…I don’t think if there were to be some sort of big liquidation event that corn is going back to three bucks or wheat going back to six,” he says. “There’s dollars of risk here. I think personally, I think that that situation is it’s an underlying frenzy factor. But I mean, commodity markets, are boom and bust. And if you get into a recessionary period, I mean, it could be bust.”

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