Markets Good, but Volatile: Clark Johnston
Boise--At the Idaho Farm Bureau’s Annual Winter Marketing Seminar, Annalyst Clark Johnston told a packed house that despite favorable market conditions, farmers are still cautious.
“Producers are a little more mindful this year than in the past,” said Johnson. “We continue to see producers change the class of wheat or change to different commodities all together in an attempt to lower their costs.
He says Chicago wheat prices decreased by 18% while heating oil futures are up15% taking diesel prices with it. Johnston told the House at the Downtowner that: “Each year we see new challenges as we look for opportunities to sell our crops for the best prices but also manage our costs.”
Johnston says it’s shaping up to be a year where its smarter to spend more time managing input costs that will directly help the bottom line.
January markets held true to form, moving the corn market 40 cents lower than the day it was released. “It’s not that the market always moves lower but it’s making a volatile move whether higher or lower at that time,” said Johnston.
Johnston showed members a series of charts that showed interesting historical data looking at January and February reports from the past 13 years. The corn market traded 12 cents lower to 15 cents higher. Since 2007 the markets have experienced an increase in volatility during this same time frame. Volatility is the norm this time of year. The least volatile year was 2010 when the market only moved 30 cents lower. The remaining years the trading range has been 60 cents lower in 2009 to 80 cents higher in 2011. This year the futures traded 58 cents lower within the first 5 trading days after the report.
Johnson told the crowd over and over that markets are more volatile simply because prices are higher. “There’s some truth to the price model, but there’s other factors that contribute to the market movement. One of the contributors is the amount of contracts that have traded in the market before and since 2006.”
In the years leading up to 2006 large traders held positions totaling more than a 100,000 contracts. “Since then we’ve seen these large traders accumulate positions of 400,000 to 500,000 combined contracts. So of course we‘re seeing added volatility.” said Johnston. “We won’t debate whether or not the large traders are good or bad for the markets but let’s just say they do give us the opportunity to merchandise our commodities at better prices throughout the year and quite often if we miss the first one we will get another chance.”
Johnson went on to discuss wheat to a dead silent crowd. “The stocks to use ratio is expected to increase this year. Baring something unforeseen in the world this will leave the wheat prices at the mercy of the corn market.”
Johnston says that’s not all bad. “We’ve seen the local feed wheat markets stay competitive with the domestic flour market in pricing since last harvest. With the carry in the wheat futures you should continue to look for your opportunities to sell either forward fixed price contracts or hedge to arrive contracts for new crop.” Johnston added that strength in the market will be quick and short lived so its important to have pricing objectives in mind and move quickly when the market reaches target prices.
Johnston says it’s always important to remember to sell when someone wants to buy. “Remember, each day that goes by moves us one day closer to 1st crop.”