Decision-making amid price volatility

July 19, 2022
Inflation and market volatility are impacting purchasing and marketing opportunities for farmers and ranchers. Nelson Neale, vice president of CHS global research, offers insights and strategies for coping with price swings. 

Volatility in ag markets

Midway through the growing season, all eyes are typically focused on the weather to gauge how it will impact crop production. Analysts begin to make assumptions about yield and commodity markets following harvest. This season, though, Neale says there is more driving market movement.

“We’re talking about supply chain issues. We’re looking at labor shortages. We’re wondering whether we will have corn and wheat exports from Ukraine. But we’re also talking about broader market forces, including higher interest rates and the potential for a U.S. recession,” explains Neale. “All that uncertainty creates a risk-off setting that manifests itself in equities, markets and stocks. Commodities are not immune to the impact of broader market forces, which creates significant market volatility for corn, soybeans and wheat.”

Market conditions impact buying and selling decisions

Neale says dynamic market conditions are adjusting how farmers and ranchers approach everyday purchases and sale decisions. “Since late 2019, the price of urea is up 182% and diesel fuel prices are up 81%. Similarly, corn is up 105% and soybeans are up 77%. Inflationary forces and market volatility appear on both sides of the equation.”

Neale says farmers and ranchers should pay close attention to margins and work with trusted consultants and advisors to understand the landed prices for the crops they plan to market.

“Farmers and ranchers need to understand pricing opportunities for their crops and opportunities to lock in futures prices and basis prices. The key is to pay attention to the profit margin and each of those components helped to drive that margin. In this environment, where we’ve seen significant market volatility, farmers and ranchers need to focus on managing each of the components.”. To learn more about price volatility and risk protection, CHS is hosting an Around the Table Live online event Aug. 4, 2022, at noon Central time. Join the virtual event to hear a panel of experts explain what all this means for your operation. Register at chsinc.com/markets. A recording will be available to registrants following the event.