Three things to watch in commodity markets in 2023


Now is an interesting time to be making decisions on old crop marketing or pulling the trigger on new crop pricing. Some farmers are well set for new crop, but market analyst Jonathon Driedger of Leftfield Commodity Research says there are three key factors that bear watching early in the new year.

Looking very big picture, it’s easy to find loud voices on either side of the inflation/deflation debate, Driedger says, and whose outlook is correct will bear out in the coming months.

“I don’t know if I can ever remember a time when you have had such starkly different opinions on inflation versus deflation going forward. Some of these inflationary factors are so well entrenched that, you know, inflation isn’t going away anytime soon,” Driedger says, but the balance to that is that central banks have been raising rates so quickly, and given the amount of debt, they’re going to force a recession — and that’s deflationary. Either outcome will have a major impact on grain market direction for new crop.

Then, there’s the question of Chinese demand. Has China pre-bought commodities? Will the economic superpower jump in to a market and disrupt demand? How much has the market worked this in to prices already? These are all the questions being asked of what’s to come for the year ahead.

“Some of these balance sheets have some some pretty lofty demand numbers baked in. I think, in many ways the market already has maybe pricing in China buying less than what expectations maybe had been. Are they going to continue to disappoint? Or is that going to be a bit of a headwind? That’s a real uncertainty… [and] what they do really matters.” (story continues below audio)

Lastly, and it may not be the most exciting topic, but tight balance sheets and projected carryouts round out the top three list right now.

“It wouldn’t take a whole lot of a swing, say in the corn carryout or soybeans or canola or whatever it is to really crank up that urgency because now the risk is amplified,” Driedger says. Or, maybe we add just enough bushels where conditions aren’t the best in spring, but the markets not too worried about it, then you get maybe some timely rain and suddenly there’s a heaviness that’s there.”

Because of historically high prices, even small gains in production or supply tend to cause some downward pressure, Driedger adds. “Wheat is is a good example where it’s really tight globally, and yet this market has been sagging sort of heavy over the past month,” he says. “We haven’t added supply and there’s enough risks already — acres are down in Ukraine, there are some risks to the U.S. crop already, and it’s still dry in Western Canada. Spring condition for North America could quickly turn a tight supply even tighter” says Driedger.

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