Todd's Take

A Volatile Time of Year

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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Thursday looked like another bullish day for Chicago wheat, especially after new 2018 highs triggered heavy buying volume. The sudden rally did not last long however, related to comments from Ukraine, which were apparently misunderstood (DTN ProphetX chart).

Part of my job as DTN's grain market analyst is to keep track of price trends for various markets and let our readers know when those trends change. Most of the time, it is not hard to spot new highs or lows when important support or resistance levels are being broken.

For most of the year, price changes in grains happen gradually and are often accompanied by some fundamental reason that isn't too difficult to understand. We never have total certainty, but both of those factors make it easier to spot significant changes in trend.

You may have guessed where this is headed already, but the time of year when trends in grains are not easy to identify and prices don't necessarily play by the rules is the season we're in -- summer. In general, the U.S. only gets one shot to make a corn and soybean crop each year, and it all comes down to weather. Few things make traders more nervous and prices more volatile than the vagaries of weather, and we just saw two examples of that this week.

On Tuesday, November soybeans jumped up 28 cents with two gusts of wind in its sails. First, Bloomberg news reported U.S. Treasury Secretary Mnuchin was having private conversations with China's vice premier in trying to find a way to resolve the current trade dispute. It's difficult to believe anyone actually believed the trade war was about to end, but the news was bullish enough to scare some shorts out of the market.

The second factor helping Tuesday's prices was an early hot and dry six-to-10-day forecast just after USDA said 60% of soybeans were setting pods. By midday Tuesday, the six-to-10-day forecast changed to a more moderate outlook, but the higher close prevailed.

Early Wednesday, any optimism for a resolution with China quickly vanished after unconfirmed news reports were saying the White House was considering another increase in tariffs. The six-to-10-day forecast held on to a better chance for rain in the Midwest, and November soybeans ended the day down 17 1/4 cents.

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Up 28 cents one day, down 17 1/4 cents the next. Welcome to summer and in this case, the fluidity of both weather and political winds.

The other example is still fresh as it just happened Thursday in wheat. September Chicago wheat had closed higher every day this week, thanks to bullish influence from dry weather concerns in Europe, and Thursday was looking no different. At 10:28 a.m. CDT, the September contract broke to a new 2018 high, accompanied by heavy buying volume that lasted 24 minutes. The peak of $5.93 at 10:52 a.m. was up 34 3/4 cents on the day, but did not last long as prices rolled all the way back to $5.60 1/2, up just 2 1/4 cents by the close.

Bloomberg news later offered an explanation of the brief rally here:

https://www.bloomberg.com/…

As the article describes, Ukraine said on Facebook that it was limiting exports of milling wheat due to concerns about Europe's lower wheat production. Ukraine's Ag Ministry later explained it did not mean strict limits, but informal limits it would work out with its exporters.

One could argue, even if Ukraine did enforce a strict export limit, it would not necessarily justify a 24-cent jump in U.S. wheat prices in less than 30 minutes, but there has never been a law that says markets have to be reasonable. Especially in summer when dry weather has already sent prices of Europe's milling wheat to new four-year highs.

For the record, anyone that looked at USDA's July 12 WASDE report could see that USDA was only estimating 1.0 million metric ton (mmt) (37 million bushels) of ending wheat stocks for Ukraine in 2018-19, so some form of export limit would not be unreasonable to protect Ukraine's domestic supplies -- even if Europe wasn't suffering drought.

Two weeks ago, this column explained how USDA was estimating a six-year low in the world's ending supplies of exportable wheat, and wheat prices have traded higher since then as dry weather concerns persisted. Here in the U.S., there is plenty of excess wheat available, but right now, the only thing on traders' minds is weather and the anxiety level is high -- a conducive environment for erratic behavior like we saw on Thursday.

I don't know of any magic pill to escape the unpredictable ups and downs of a volatile summer, changing forecasts, market rumors, or political flip-flops, but I do know that we don't have to lose our sense of value just because it seems like everyone else is losing theirs.

Sort out the things we know from the things we don't, keep a perspective on the bigger picture, and give the market room to be wrong. Those are good tips for any season, but minimal requirements for a summer like this one.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman

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Todd Hultman