Commodity Markets | Field 2 Field

May 4, 2022May 4, 2022

Market Prices are Still Higher, But How long?

Market Prices are still higher, but for how long? Commodity markets are rarely dull and sometimes are outright wild. One-quarter of the way into 2022, and we’ve seen a lot of upward pressure in several commodities. The curious question is how long is this going to last given multiple outside factors that could bring the higher push to a halt.

Mike Zuzolo is the founder and president of Global Commodity Analytics in Atchison, Kansas. He’s been working in the markets in various positions since November 1995. Zuzolo has seen a lot of ups and downs over the years, and the corn market has been near all-time highs for quite a while.

“We’ve been within reach of the all-time high for corn set in August 2012, at $8.43 3/4,” he said on the phone from Kansas. “You have the Hard Red Wheat drought, you have the E15 blend increase this summer, planting delays that are pressuring a marketplace that’s expecting more acres than what the USDA predicted earlier this year.

“And then you have the soybeans getting support from the vegetable oil market, which is supported by the crude oil market, and that is supported by the biggest feature of all, the war in Ukraine,” Zuzolo added.

Over the past four months, Zuzolo said there are two overarching factors that had the most influence on the corn market prices. One is the idea from the Federal Reserve that the U.S. had transitory inflation. At roughly the same time the Fed began to publicly acknowledge that wasn’t the case, Russia began its attack on Ukraine. He said most people didn’t seem to truly expect that would happen.

He calls these two events “black rhinos.” Those are events the public knew were possible but kind of turned away from, not thinking they would actually happen. “They aren’t like black swans that we didn’t know where out there,” he said. “You didn’t think they would have the impact on the markets that’s happened so far.”

The market prices could potentially feel the impacts of the war in Ukraine for years. Zuzolo, a long-time market observer, says the length of the impact may depend on who “wins” the war and how big it may get before it’s done.

The commodity markets may feel the impact of the war in Ukraine for years to come. (Photo from Hindustantimes.com)

“Does NATO get involved?” he wondered, “It would then go from two countries directly involved with a lot of support from multiple other countries, or does it expand into a NATO and China and Syria and Iran conflict. The regional conflict would have a great chance of blossoming into more of a full-on world war.”

He thinks the trade is beginning to take the potential conflict escalation into account, “and they should.” A recent weekly stocks report of distillate fuels in the U.S., which is mainly heating oil and diesel fuel, showed America’s distillate fuels at their lowest point since 2008.

“All of the sudden, we have a situation where the wheat market is contending with a situation similar to 2008 in terms of drought potential, knocking down yields,” he said. “Now, we have the energy sector also looking like 2008. If you throw the Russia/Ukraine issue on top of that, then yes, you could have something that lasts for quite some time.”

There are a lot of negative features out there that can affect market prices. He said the trade can’t get a handle on what the supply is right now. Folks in the markets don’t know if the demand is being rationed aggressively enough at this point, because they don’t know if the supply has stopped going down yet.

“The Highly Pathogenic Avian Influenza is in 20-something states right now,” Zuzolo said, “we have a hog herd that is shrinking as of the March Hogs and Pigs Report, and we have a cattle herd that is seeing an almost-weekly drop of one-to-three pounds on a dressed basis. I think we’re only four or five pounds above where we were a year ago, and this is in the beginning of what could be one of the worst droughts in cattle country.”

The International Monetary Fund (IMF) recently cut world GDP by almost a full percentage point just since January. While the IMF puts a lot of it at the foot of the war in Ukraine, Zuzolo says it goes back to the supply chain issues. The U.S. couldn’t afford any more problems on the supply side with energy and crude oil than what the country already faced because of COVID-19.

Thinking long term, Zuzolo spoke to the possibility of the U.S. having to ration exports in order to make sure the U.S. had enough food to feed the country. He doesn’t think it will happen in terms of food exports, but it could happen in other sectors.

“In terms of crude oil, we recently lost a lot more barrels of oil than the trade expected,” Zuzolo said. “It wasn’t because of extra strong demand, it was three times more than the trade expected because we were exporting it out the door. If we can’t bring up the rig count here in the United States and start producing more to meet international and domestic demand, it will then be time to start thinking about rationing.”

Zuzolo said this will have to be a topic of conversation three-to-six months down the line if the war expands and the conflict gets any bigger than it already is. In the meantime, it’s harder than ever to guess what’s ahead in 2022 for the markets.

“I’m gonna stick with what I’ve said recently,” he said. “Because this is a supply cost-push, weather-induced, inflationary move, I still feel the first half of calendar year 2022 is the best time for grain hedgers to get their hedges in place, and yes, I do think they’ll need them. It’s because of the fact that it’s not demand led, and that we are on track for a recession, a greater than 50 percent chance, by the fourth quarter of this year.”

Commodity markets are never dull, are they? (Photo from wikipedia.com)

He says it’s important to get grain hedges in place by the end of June. For the livestock and poultry producer, the second half of 2022 is going to give them a better opportunity to hedge better profit.

“At that point, not only will high market price prices for grains pull down the weights, the HPAI will pull down supply, as will some natural herd reductions. That will all begin to be felt in the market price and the available supplies of market-ready cattle and hogs by the time we get to August and September.

“I still want to hedge the livestock markets, but I don’t think we’re on as big of a timeline as I am on the grains during the first half of the year,” he added.

July 29, 2021July 29, 2021

Ag Economy Turnaround Came Quickly

Ag economy. Have two words ever been gloomier in rural America than they’ve been for the last several years? Well, we’ve had a bit of a turnaround, but my assignment was to find out not only the current state but what might be ahead in the future.

So, I gave Dave Widmar of Agricultural Economic Insights in West Lafayette, Indiana, a call to find out more about the ag economy. He has more than enough experience to make a rational judgment. Before launching out on his own, Dave was a researcher in the Economics Department at Purdue University, as well as the economist for the Kansas Department of Agriculture.

The first thing he told me was that the ag economy turned around quickly. “Not only is it a big difference from 2020 to 2021, but the turnaround also took place in a short period of time,” he said on the phone from his Indiana office. “Last summer, the outlook was very bleak, and it was hard to put together a list of positive things going on.

“Now, just past the midpoint of 2021, we have a very strong outlook with a long list of positive things going for us,” he added. “The biggest piece is higher commodity prices, which have really turned around.”

That turnaround didn’t start until last September, and it has played out quickly over the past several months. That rise in commodity prices has been especially good for corn and soybean producers.

While it’s not as true as it was earlier in 2021, another thing the ag economy and farmers were benefitting from was a low-cost environment. “Over the last six months, fertilizer went from about $9 an acre in the fall of 2020 to between $130 and $140 an acre today,” Widmar says. “Farmland values and cash rental rates have increased as well. But it’s important to recognize that last year and early in 2021, the lower cost structure helped profitability.”

Here’s the rest of the conversation:

May 18, 2020May 18, 2020

Farm stress management via the HERD

Farm stress. There’s far too much of it going on these days. What a way to make a living as the farming economy has been in the dumper for over half a decade and it’s getting worse, just as we were beginning to see a tiny light at the end of a still very dark, very long tunnel. This COVID-19 outbreak and its effects on the economy are only making things more difficult.

The assignment from the National Association of Farm Broadcasting (I work there as Assistant News Service Editor) was to find an expert who could give farmers tips on how to handle the enormous stress they were carrying after the trade war with China, numerous weather disasters, as well as commodity prices so low that farmers could no longer cover their cost of production.

Thanks to a Google search, I found out that Dr. Josie Rudolphi of the University of Illinois was just the expert to help farmers deal with everything that’s happening. She’s an Assistant Professor in the Agricultural and Biological Engineering Department at the campus in Champaign, Illinois. Rudolphi has developed the HERD Stress Management Strategy and spends a lot of time speaking about it throughout rural America.

“Producers are experiencing more farm stress than we’ve seen over the previous five years, which no one thought was possible,” she said. “We’re getting further into spring, which is already a stressful period, and now we’re compounding that with COVID-19, which is a double-edged sword.

“Not only does it create health concerns,” Rudolphi added, “it also creates big concerns about what we see happening in the markets right now. Traditional markets aren’t available for a lot of their products right now, so people have to find a non-traditional way to move some of their products, or they have to dispose of them entirely. That’s an enormous stressor, so it’s a really challenging spring.”

Here’s some highlights of a breakout session that Dr. Rudolphi gave on stress management at the 2019 National Farm and Ranch Conference.

HERD Stress Management

HERD is an acronym that describes what she calls “positive ways of coping with stress.” She tried to keep it as general as possible just because people experience and handle stress in different ways. The goal of the strategy is to keep people as healthy as possible through a stressful period.

HERD stands for Hobbies, Exercise, Relaxation, and Diversion. Rudolphi calls them “evidence-based ways of positively coping with stress,” with positively being the key word in the sentence.

Hobbies – “There’s a lot of scientific evidence that doing something purely for pleasure, even two hours a week, can have a tremendous impact on mental health,” she said. “What separates a hobby from a job is it’s a creative outlet. We’re talking about things like art, gardening, and woodworking.

“We do know woodworking is a big one on a lot of farms across America,” Dr. Rudolphi said. “So is working with metal, as well as restoring old farm equipment. Hobbies are something different from our jobs and something we want to do for ourselves. It’s a great way to shift yourself out of a stressful mindset, so find something to do that you truly enjoy.”

Exercise – “We all know exercise is good for us,” Rudolphi said. “Exercise has huge physical benefits, but it also has tremendous mental benefits as well. And you only need to do a minimum of 20 minutes a day, it doesn’t have to be arduous or intense. It just means getting your heart rate above resting. A brisk walk is certainly a way to start reaping some of the physical and mental benefits.

Relaxation – “It might be a no-brainer to some, but this is all about finding ways to decompress,” she said. “You know how life on the farm can be. It’s challenging and there’s always something to do and be worrying about.

“it could be something as simple as a nap,” Rudolphi said. “It’s often hard to find the time or even the justification for a quick nap. Getting the rest and relaxation that we need is a vital piece of maintaining our physical and mental health.”

Diversion – “It’s always fun to talk about diversions,” she said with a smile I could almost see over the phone. “It’s a way of distracting your brain and stopping something like negative self-talk or possibly a thought spiral.

“For example, if you find yourself getting really overwhelmed thinking about things like farm finances, farm succession planning, I always recommend you take 20 minutes and do something else. Change the task in front of you by maybe taking a drive to another farm for a visit. It could be a 20-minute YouTube video about something purely for entertainment or a laugh. It’s trying to divert our attention away from something bringing a tremendous amount of stress.”

Signs of serious farm stress

There are signs of extreme stress (what she calls “distress” that friends and family should be watching out for. You want to watch for physical, behavioral, and emotional changes in your friend or family member out on a farm.

“Watching out for signs is very important because we often have trouble admitting to ourselves that we’ve changed, especially if it’s not a positive change,” she said. “It’s easier to observe changes in others and bring it up to them if that should become necessary.”

Physical – “Are they sleeping a lot more,” Rudolphi said, “or have they gone the other way and don’t sleep much at all? Are they eating a lot more or a lot less? Are they experiencing some kind of chronic pain, such as a backache or headache? Is their heart racing or are they experiencing nausea?

Behavioral – “These are changes in our day-to-day patterns,” she said. “The changes could be in how much we eat, drink, or sleep. Changes could show up in what we’re interested in. They could also include work changes, especially if someone starts neglecting the things they’re supposed to do. Distressed people also could manifest changes how they care for themselves.”

Emotional – “These are the easiest changes to spot,” Rudolphi said. “Depression shows up as people not interested in the things they used to enjoy. They could also become easily agitated, irritable, or angry. A blowup at a family member is an obvious sign that there’s too much stress.”

Stress Management Resources

She says there are several national and regional stress lines that farmers can call to talk to someone about what’s happening on their farm. Iowa has the Iowa Concerned Hotline. Minnesota has several farm hotlines that producers can access. But, there’s nothing wrong with looking for professional help if you feel it’s gone that far.

“A really good place to start toward achieving that objective is to talk to your primary care provider,” she says. “They’ll be able to help you triage the situation and help you navigate the resources available in your insurance system.”

Farmers are known as independent folks who prefer to handle things themselves. Rudolphi says it’s vital to remember that asking for help does not make you weak or mean something is seriously wrong with you.

“No,” she said emphatically. “Absolutely not. If you have livestock and something is wrong with them, you wouldn’t hesitate to ask for help. Give yourself that same level of care, for both your sake and for the people around you.”

March 10, 2020March 10, 2020

Coronavirus headlines disrupt commodities

Here’s the complete conversation with Arlan Suderman of INTL FCStone on the commodity markets reaction to the coronavirus outbreak.

Coronavirus headlines and the commodity markets. It’s been a while since we’ve seen the commodity markets this reactive to news headlines on an almost daily basis. While it’s not unheard of, one commodity expert says it’s been over a decade since the markets have been hit this hard by the news. Arlan Suderman is the Chief Commodities Analyst for INTL FCStone, talks about why the news coronavirus headlines seem to be playing havoc in the commodity markets.

“I think that’s a question a lot of people have these days,” Suderman says. “It’s a valid point to discuss.

“I was initially downplaying the market reaction in January,” he recalled, “before doing some research at the end of that month. This is the type of virus that’s going to trigger a lot of fear in people. When you have that much fear, the fear of the coronavirus headlines will be worse than the threat of the virus itself.”

He points out that when people get afraid, they stay home, they don’t travel, and they don’t go out in public as much. That’s been the case in China as everywhere the disease has hotspot outbreaks, everybody stays home.

“Shanghai, a city of millions of people, is now a ghost town,” Suderman said. “Now we’re seeing pictures of that in lots of other places, including Italy.

“When people stay home and don’t go out, they tend to consume less food,” he added. “That includes consuming less meat and a lot more starches. Overall, it does tend to change consumption patterns a lot.”

People also consume less energy in these situations as they aren’t driving a lot while airlines are also canceling flights as people don’t want to travel. Less consumption in the energy markets hurts the biofuels markets as well.

Even things like shipping commodities get much more complicated as people are staying home, thanks to the coronavirus headlines. That’s been the case in China and is becoming prevalent in other countries too.

“People didn’t show up to work,” he said. “Ports become congested, ships don’t get unloaded, and shipping slows way down. That’s lost demand you likely don’t get back. You may get some of it back, but not all.

August 8, 2019August 8, 2019

Markets Expert Talks Trade War, USDA reports

Markets occasionally confuse me. However, one part of a career in journalism/broadcasting that I really enjoy is calling people who can educate me on things I really don’t have much expertise in. The older I get, the more fun it is to learn (and try) new things, but I digress. I was working on an assignment with the National Association of Farm Broadcasting the other day and had to find out how the trade dispute between the U.S. and China is affecting commodity markets.

Well, here’s the thing. Commodity markets are not my area of expertise, so I called up Mike Zuzolo of Global Commodity Analytics and Consulting in Atchison, Kansas. He’s been in the markets for 2.5 decades so if you have a question, he’s the guy that can answer it.

As a farm broadcaster/editor, I was curious about how the China announcement that they wouldn’t be buying any American farm products right now was affecting the markets. Obviously, the effect wouldn’t be a positive one. However, as you’ll hear in the conversation, it could have been even worse.

And believe me, before we progress any further I need to stress that no one is saying things aren’t bad right now in the agricultural sector. I wanted to find out what the market reaction was to the announcement from China. Mike said the key reaction market reaction took place in the currency and stock markets.

“Quite frankly, Chad, I think this is maybe one of the few glimmers of good news, or potentially supportive news, for the commodity markets,” he said. “I think we’ve done a fairly good job in the markets of pricing in a good portion of the end result of these trade frictions turning into the beginnings of a trade war. It’s going to be playing out in the currency markets as we go forward.

“The net result is the commodity markets didn’t react as negatively as they could, simply because the strength of the U.S. dollar was dropping,” Zuzolo said. “When the dollar goes down, it makes our goods cheaper to export. At the same time when we had the news out of China, the gold market was making fresh, 6.5-year highs. That too is commodity supportive.”

Here’s the full conversation with Mike Zuzolo.