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Volatility expected as prices stay at historic highs

Volatility expected as prices stay at historic highs

MOney over grain

Big price swings have started to become the norm in grain markets.

In recent months, many of those swings were positive as the grain markets jumped up to prices not seen since the early 2010s. However, when the pendulum swings the other way, it can be jarring.

On Friday, Jan. 22, a price drop came, with corn falling nearly 24 cents and soybean contracts losing nearly 60 cents. Jack Scoville, an analyst for the Price Futures Group, said this was simply a correction in the market and doesn’t foretell of a darker picture.

“The selling was long liquidation in the funds, and it looks like they got done on (Jan. 22),” Scoville said. “We should see some sideways to higher markets after that. The demand still remains very, very positive.”

Scoville said with prices hovering around the $14 level for soybeans and $5 for corn, seeing this kind of volatility isn’t necessarily a surprise. Higher prices can make for more movement, and farmers should be prepared for that, he said.

“I think there’s a chance we’ll see it again,” Scoville said. “Prices are pretty high and to see the same percentage moves at $14, it means prices will move more than they do at $8. We are going to see bigger swings.”

While demand stays strong, eyes are focusing on the early harvest scene in South America, Scoville said. The harvest window will be spread out after a long planting season in Brazil and Argentina, and he noted it may take a few weeks before the market has a true idea of what that crop will look like overall.

As COVID-19 vaccines roll out, the long-term expectation is for more ethanol demand as the population returns to normal travel levels. Scoville said with the slower vaccine rollout, corn hasn’t seen any noticeable domestic demand increase quite yet, and that may take a few months to see.

Seeing demand stay steady or increase is going to be the key to maintaining these higher prices in the next couple of months.

“We need to see how the demand holds up,” Scoville said. “If it’s really strong, we are still going to move up. That’s the key.”

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