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UMBRELLA OF UNCERTAINTY

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Market Insights- Umbrella Jan 6
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Market Thoughts

2023 is not even a week old, yet a solid theme has already taken hold. The umbrella of uncertainty has certainly already cast its shadow upon the marketing landscape. As we collectively navigate 2023, we need to draw a hypothesis. In my opinion the market will primarily be driven by outside forces. Traditional supply and demand metrics are going to be a secondary trigger to market dynamics. The primary drivers will be geo-political and financial. What this really means is that supply and demand will determine the direction of the market, and the primary factors will determine the magnitude. Basically, this is a hold on to your hat setup.

Why This Matters

This setup is considered the hardest of all marketing scenarios because its nature is uncertainty. This makes it hard to use traditional metrics to gauge pricing opportunities. When politics are dictating the narrative, it can give a false sense of reality or a reality that can change instantly. For example, what happens if the Ukraine war ends tomorrow? Does the wheat market collapse or is the damage too much for the wheat crop to recover? This simple scenario is the reality.

The number one thing to do this year is move from a place of speculation to a place of risk mitigation. This does not mean selling everything at today’s price, but rather evaluating the market for what it is. Then ask yourself the question: Is this enough? If not, then what is?

We know the risk to wait is much higher than ever before because the volatility of these markets can take the direction indicated by supply and demand and magnify it 10-fold. For example, if canola is trending down to a normalized level the political and economic factors could push the market down 3 dollars a bushel more than it would have under normal circumstances. This can turn a profitable crop into a money losing venture.

In 2023 the best way to market you grain will be the use of targets. Not, willy nilly targets but ones that make sense. Ones that have a high probability of triggering and generate profit.

Bulls and Bears

Canola

The most important thing to notice in the above charts is the percentage ratio between the ending stocks and production. It’s important to know if this ratio is increasing or decreasing because that tells you the real usage. Basically, is usage out pacing production? If that’s the case than demand is stronger than supply which is bullish.

Canola is at 8.1% which is on the low side of things and should result in a favorable market, which we have.


Barley

It’s obvious that ending stock of barley has been steadily decreasing for some time now. At 12%, barley really can’t afford to lose acres and hence production. This low ending stock ratio could be one reason why barley has stayed so strong this year. Unlike, wheat and canola the price of barley is almost as high as it was during last year’s drought.This is actually significant, as it implies that barley has found a new trading range. The current price is close to $9 delivered Lethbridge.


Wheat

It is obvious to see that the ratio between ending stocks and production has steadily been decreasing in recent years. As we approach these lower levels the market becomes very sensitive to any production problems. This sensitivity is what gives us the extreme volatility where the market can easily rally up 2 or 3 dollars a bushel in a very short time.



Best Regards,


Greg




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