All eyes on Ukraine

By Jon Scheve, Superior Feed Ingredients, LLC

All eyes are focused on Ukraine, “The Breadbasket of Europe.” The war has raised more questions than it provided answers.

  • How and when will this war end?
  • Will Ukraine farmers plant corn in the next two months?
  • Will the winter wheat crop be harvested this summer?
  • Will the ports be operational soon to export grain already stored in the bins?
  • If Ukraine does not plant corn this spring, where will the world find the extra 1 billion bushels of corn to make up for this production loss?

The market in in a state of fear and with that comes volatile prices. The wheat market has traders panicked, consequently it rallied $3.50 per bushel last week. The market was locked the limit up most days last week, so on Sunday night when the market reopens, prices likely go even higher. This has made it impossible for some grain buyers to buy cash wheat from producers, because these buyers would not be able to hedge their purchases. Once the market is no longer locked the limit up, it could turn very volatile and maybe even trade limit down the same day. 

With so much uncertainty ahead, more market participants have moved the sidelines and are not trading. With less traders in the market, it means less liquidity and more extreme price swings.

Some traders find themselves short Chicago wheat positions that they are losing money on, and these traders have resorted to buying other commodities as a potential hedge to help offset their losses from the massive rally in the Chicago wheat market. This partly contributed to corn’s $1 per bushel rally last week. Once those who are short the wheat market are done liquidating their positions, there could be a quick drop in all grain futures prices. Unfortunately, no one knows how much higher wheat will trade before it tops out.

After last week’s big futures rallies, basis values for corn, beans and wheat plummeted throughout the U.S. Consequently, many buyers moved their basis bids to the July contract because the spreads between the May and July were at record levels. This would seem to suggest in the short-term that futures values are overvalued compared to cash values. However, if the war in Ukraine drags on and prevents grain from being exported out of the Black Sea region or keeps the Ukrainian farmers from producing a crop at all, current futures values may turn out to be a good value in the long-term. 

Moving forward it would not surprise me if the market traded up the limit and then down the limit in back-to-back days or even the same trading day. Until more information is known about the outcome of the war in Ukraine the market is going to be extremely volatile. 

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

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One comment

  1. At the moment, the agrarian issue is not the worst!!! People are dying. It is necessary to think about the people and the crippled lives. It is urgent to close the sky over Ukraine. The sooner the war ends, the less agrarian issues will arise. It will not be like before, but Ukraine will again become one of the largest suppliers of Europe!

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