Extreme volatility last month

By Doug Tenney, Leist Mercantile

The reality of seeing Russia invade Ukraine the last week of February was displayed full force in a period of two days. The previous six weeks provided multiple days of double digit increases or declines and often two or more times in just one week. In the hours following the invasion, corn, soybeans, and wheat had huge ranges. Wheat was up its 50 cent limit on Thursday, February 24. Soybeans had over a dollar range for that day. At one point corn was up the 35 cent limit. Corn, soybeans, and wheat were down sharply the following day as wheat was down its expanded daily limit of 75 cents. The sharp declines of that Friday were fueled largely on two fronts. First, the market realization that U.S. sanctions on Russia at that time did not involve agricultural or energy components. Second, the perception that a quick end to the war just days after the invasion began, would allow Russia to ship already sold wheat and corn exports out of Ukraine ports, gaining much needed currency for Russia. 

South America 

The drought of December, January, and February had a profound effect of severely reducing both soybean and corn production. Soybean production was reduced more than corn production. While soybean production is not yet finalized in South America, its reduction is strongly evident in reviewing monthly WASDE Reports from USDA. In November, Brazil soybean production was noted at 144 million tons. The February WASDE Report estimated Brazil’s soybean production was 134 million tons. 

Demand driven 

It’s a term used to describe market conditions with actual supplies of grain no longer the main price driver. It’s either a demand market or a supply market. With the end of February bringing both huge daily price changes and daily trading ranges of gargantuan proportions, it’s easy to forget both soybeans and corn have been in a demand driven market since late last year. Last fall many had expected soybean prices of $12 to be the top end. Yet, in February, soybean prices reached $15, then $16, and then $17 in the midst of the Russia/Ukraine turmoil. Record soybean oil prices have been a part of the world-wide vegetable oil demand. No longer is soybean oil regarded the weak step-sister of the soy complex. In addition, record prices for palm oil have helped add to the strong world demand for soybean oil. Soybeans in the U.S. are now strongly desired for crushing to get the soybean oil in spite of it being the lesser component in soybean crushing (see the mid-February column for further details.)

Grain markets were in a demand driven mode before the South America drought gained intensity and traction or before the possible Russia invasion of troops into Ukraine. To put these two events in pictorial representation, the South America drought was a gallon of gasoline thrown onto a field brush clearing fire, now out of control. Meanwhile, the Russia invasion into Ukraine was a five alarm house fire which suddenly had exploding tankers of gasoline further fanning the intensity of its ferocious flames. 

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