14 Oct 2021

After having reached record levels once again this week, oilseeds and grain prices dropped significantly. Is this sudden return of volatility a sign that season’s highs may have been achieved?

Trees do not climb to the sky, neither do commodity prices. Historically, price peaks have never lasted forlong as supplies normally increase along with high prices, triggering a restocking cycle. So, looking at prices through history, should definitively incline us to consider these prices as selling opportunities. However could this coming season be different?

Our prices climb for only two reasons. In the short-term, the objective is to ration demand. It is a fact that this has not yet happened, especially for rapeseed and milling wheat markets. For the longer term, the objective is to increase supplies. This will only happen if weather conditions remain friendly and if surging production costs do not impact too significantly upon farmers profitability.

In this context of the strong need for acreage and yields to be bumper in 2022, production costs may play a major role,  particularly on the fertilizer front.

Prices for natural gas, a key input for nitrogen-based fertilizers, have risen sharply around the globe against a backdrop of post-pandemic demand increases, low inventories and tighter than usual gas supplies from Russia.

Surging prices and tight supply of fertilizer have swollen farmers’ costs and could prompt some to switch to less fertilizer-reliant crops. Furthermore, the real worry is availability. There are already some supply problems and, whatever the price, there is no guarantee that this will be resolved come spring. Rapeseed sowing is over, and it would be too late for farmers to change their mind on winter grains, but there could be an issue with spring crops, especially corn.

A risk management approach should lead to action on current prices. However, we will favour the building of  a step-by-step position as current circumstances could lead to unprecedented events.

Sébastien MALLET