War and acreage surprises drive grain market volatility
IN ONE LOOK
- USDA’s June acreage report showed less acreage planted to soybeans and more corn than expected in the spring
- Agricultural producers have faced additional crop risks this season, including war, an ongoing pandemic and increased inflation
The U.S. Department of Agriculture’s June acreage report revealed a few surprises for market participants, including fewer acres of soybeans planted than expected and more corn planted than expected by farmers in the spring.
The survey-based update of acres planted for the 2022/23 agricultural season showed farmers planted 88.3 million acres of soybeans, up 1% from 2021, but that figure was significantly lower than the USDA’s March Prospective Planting Report – down 2.6 million acres. Meanwhile, the June report showed 89.9 million acres planted in corn, down 4% from 2021, but up about 431,000 acres from the March report.
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At a recent OpenMarkets roundtable, Consus co-founder and partner Angie Setzer said the soy figure was lower than pre-report estimates. “We’ve lost about 100 million bushels of production with this report, and we’ll see that in the next USDA supply and demand numbers,” she said.
She added that the acreage change likely stemmed from a “substantial change” in the soybean-to-corn ratio following the prospective planting data, which likely encouraged the planting of additional corn in the northern plains where the poor weather initially prevented seeding. This region experienced the largest decline in total soybean planting. The USDA will reevaluate planted acres in the Northern Plains and report the results in August.
Weather still plays an important role in farmers’ lives, but growers have faced additional risks this year, including Russia’s invasion of Ukraine, the ongoing pandemic and inflation. The increased uncertainty has led market participants to use more short-term options to hedge these risks.
Tim Andriesen, managing director of agriculture and alternative products at CME Group, said the market has seen particularly strong adoption among growers using short-term new crop (SDNC) options. These products have been around since May 2012 and have been specifically designed for situations of high volatility and high premiums.
Volatility has been unusually high, Andriesen explained. Historically, volatility tends to abate in the winter, then begins to increase during the planting and growing seasons. This year, volatility in the CME Group’s CVOL Index, a measure of volatility, soared to over 60 in February – an all-time high for corn – in a counter-cyclical move due to the initial invasion of Ukraine by Russia. CVOL fell soon after, but started to recover at the start of the growing season, and Andriesen expects the market swings to continue.
Corn volatility hit an all-time high on the CVOL index in February
“There’s still a lot of stuff out there that we don’t know,” he said.
Despite Russia’s invasion, Ukrainian farmers have managed to export grain, but Setzer said the country is likely to ship around 20% of the grain it usually sells on a monthly basis.
“That leaves us with a pretty solid backlog,” she noted. “The world is going to have to reorganize its global trade flows for some time to figure out how to get grain from where it is to where it isn’t. It’s a logistical challenge.
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