Volatility is still the biggest factor in grain markets

Volatility is an interesting thing, by definition. It is a measure of price change over a certain time.

In reality, it is a measure of mood change or fundamental perception. If traders think they are looking at certain known fundamentals of crop supply and demand and there is a sudden change in assumed fundamentals, prices change quickly, and we talk about volatility.

The last week pretty well-defined volatility on the Chicago Board of Trade. December corn futures had a range of 60 cents in one day, June 30. November soybean futures had a range of $1.82 1/2 between June 17 and July 1. They ranged $1.17 1/2 June 30 alone.

November futures actually had a range of $2.39 1/2 between June 7 and June 17. Now that was a real gut-wrenching 10 days!

The good news is that the volatility has, in the last few days, been to the upside. This represents the third phase of our weather market.

The bad news is, weather markets are normally over by now. The bad news for me personally is that I don’t have all the news I need to react to this and explain it to the reader.

I assume we will have some follow-through until we get serious rain in the driest parts of the upper Midwest. Of course, to assume means … you know. Only in this case it will only be me.

Conflicting fundamentals

Blame recent volatility on conflicting fundamentals in the markets. The farmers say they mostly are burning up. The traders see rain on LaSalle Street, and in Iowa (ignoring the parts of Iowa that remain critically dry).

In addition, weather forecasts predicted more rain in some areas. Then, there was a Supreme Court decision that was thought by an over-reacting market to predict a cut in ethanol production.

Then, there was the expectation by the market traders and observers both that the June 30th U.S. Department of Agriculture acreage and grain stocks reports would be bearish as acres planted were more than expected.

In fact, USDA reported that acres of corn and beans were not as high as expected, and they did not change them much. USDA increased corn acres to 92.7 million, up from 91.1 million in the March report.

The average trade estimate was 93.8 million, however, and there were some who believed a major private pre-report guess of 96.5 million acres. This was a huge bullish shock.

The corn stocks were no surprise, but the soybean stocks were deemed bullish. The trade expected a small increase in stocks, but the 767 million-bushel estimate was 20 million below the trade guess. The soybean acres were also bullish, with USDA leaving the estimate unchanged.

Still bullish?

So, with the biggest USDA report of the summer behind us, we are struggling to decide how bullish the market is now, with huge exports still to ship, and weather still iffy.

The Eastern Corn Belt has been in good shape for water, but a little cool and late in development. Parts of the Western Corn Belt are pathetically dry. Generally, we have enough rain east of the Big Muddy, but we are short west of the river.

Wheat markets continue to be a matter of which class is being looked at. Minneapolis Hard Red Spring wheat continues to gain dramatically on the Kansas City Hard Red Winter wheat and the Chicago Soft Red Winter wheat.

For the week, KC was up 11 cents and Chicago was up nine, but MN was up 40 cents. MN wheat was up $1.40 in June. This is a function of significantly lower spring wheat acres and much lower, drought-driven yields.

Demand for spring wheat is being increased by the historical trend to blend it into the KC wheat when that is low in test weight like it is this year. Winter wheat harvest is in full swing and expected to be 60% complete in the next harvest report.