A simple definition of volatility in the grain markets would be the rate of price change over time. Certainly, there has been no period in history with more volatility than today.
Oddly, volatility is not a measure of how fast the price goes up. It is a measure of how fast the price changes. If it feels like the price has just gone up over the last few months, you missed a few interesting days lately.
Certainly the most interesting day in my lifetime in this business was Feb. 27. That day put some marks on the charts that did not make sense, especially in wheat.
Overnight, in the electronic trading, May Chicago wheat futures declined an amazing $1.35. That was surely a harbinger of things to come when the market opened, right? Don’t bet on anything this year.
When the pit trading market opened, wheat started out at down $1.245, not as low as the overnight. I watched in amazement as it turned around and went higher. May wheat posted a high for the day at $13.495, $1.35 higher than the previous day’s close.
This meant the market had a total range from high to low of $2.7025 in one day. Remember when $2.70 used to be the futures price of wheat? That is what we were in May of 2002 — a lifetime away now.
We were in the 3.70s in June 2006, and as high as the 4.70s in March 2007.
The last year has been a different matter. From a low of $4.10 last April, we have gained $9.40 to the recent high. In other words, we have tripled the price of a few years ago.
In December 2005, just a little more than two years ago, we posted $1.86. This month, we hit an all-time high of 5.70. That’s a little more than three times higher now. In the middle of that range, we hit a high of 4.37 a year ago, then declined to 3.085 in July of last year.
Will we see that kind of decline in the summer months this year? That would be volatile.
In March through May 2004, we made ridiculous highs in the 10.60s. That was followed by a harvest low of around $5, half the price. This month, we made an all-time high of 15.865, a little more than three times higher.
So, prices have been so volatile that we have seen all three commodities triple their prices in a relatively short time. But, we have also seen them lose those prices, also.
In fact, they tend to lose more quickly than gain. Remember the wheat where we had a $2.70 range in one day? By March 3 we were at May futures of $10.52, nearly $3 off the high.
So, we see that the market has been dominated by record volatility, but also a lack of direction. In general, it seems the trend is higher if you look back six months or a year. If you look at the last few days and weeks, the picture is murky.
May soybean futures gained nearly $3.80 form Jan. 23 to March 3. In 11 trading days since, counting the Monday night e-trade, we have lost 3.33 of that. Corn has traded in a 50-cent range, and we are at the low end of that in the Monday overnight, at 5.32, down 7 cents after a limit-down 20-cent loss Monday.
Volatility means no one can predict prices. That means no one can afford to buy grain and take the risk of the record margin calls. That means a farmer cannot guess when to sell, and if he does, he will hate himself when the market goes higher and hate himself if it goes lower and he did not sell enough.
Of course, that assumes he can find a buyer. Buying by jobbers remains nearby. That is, no one wants grain except for that he can move this month. The risk is too great.