Since 2020, agricultural markets have entered a very volatile cycle. Volatility occurs when a market becomes unbalanced. This is currently the case for all major commodities: wheat, corn, soya, rapeseed and palm oil. Stock levels are historically low, demand is very strong and adverse weather events seem to have become the rule rather than the exception.
Commodity prices now stand at the season’s high and for most, have broken their historical record. Prices climb for only 2 reasons. The first being to ration demand. The second is to encourage farmers to produce more. Once these objectives are achieved, prices fall to their natural levels. Usually, some 20 to 30% lower.
The situation today is simple: old crop markets are on fire and new crop prices are following in sympathy. Farmers all around the globe will consider these high prices as an incentive to produce more crop even in the face of higher costs. New crop production margins are already very profitable. Restocking is therefore on its way. Weather conditions are globally favorable in South America, US and Europe. Only the Black Sea is having a pre-winter drought.
Markets will consider this restocking situation later during the season. Probably between January and April 2022. For the moment traders and prices are focusing only on the old crop historical tightness.
In ODA, our job is to predict markets and allow farmers to improve revenues while lowering your risk exposure to market volatility. At time of writing, we are facing a risk management case study: new crop prices are at record levels and farmers margins are very decent.
As a result we will shortly continue to sell forward some additional new crop volumes, step by step, to secure your margins within a high-cost environment. It would be a risk management nonsense to not consider acting on current prices.