The strong volatility that we have experienced in the markets in recent times is no secret to anyone, and the price of grains has not been the exception, which has had a significant impact on the inflationary pressures that have been felt, and although many they think that the volatility has been a reflection of fundamental reasons, that is, supply and demand, the reality is that there are several more that have been present and that have kept the grains in a constant ups and downs, and that consequently it is more difficult to predict its behavior going forward.
one.- Situation of the global economy and financial markets: Given the constant concerns of a possible global recession, inflationary pressures and the change in the monetary policy of the main Central Banks raising interest rates, we have seen the stock markets fall with strength in different sessions, and several wondered what the stock markets have to do with the price of grains? It has to do with the money flows of investment funds and where they place their money depending on the risk they perceive. .
Given a greater aversion to risk and the possibility that the central banks will reduce the flows of money that allow them to speculate in the market, the funds leave their positions, including those that they have bought in grains, as we saw in the past Monday, where we witnessed strong declines in stock markets and grains listed on the Chicago Stock Exchange also went hand in hand.
Additionally, given a rise in interest rates in the United States, the dollar strengthens, which automatically implies that North American products become more expensive to be imported by other countries, and since the United States is the main producer of grains worldwide, movements in your currency automatically impact the price of these.
two.- Energy prices: Given the sharp rise in the price of oil and natural gas, and consequently of diesel and gasoline, the production costs of grains have also risen substantially. The increase in natural gas causes increases in the price of fertilizers, while the increase in diesel and gasoline has a negative impact on transportation costs, which automatically become more expensive and these have to be added to the price of grains.
3.- The climate: The climate is undoubtedly a fundamental factor in the production of grains and at this time in the United States the climate has presented cool and rainy temperatures in the zone of the corn belt, where corn and soybeans are planted, which which has caused a significant delay in planting these products.
To give you an idea, as of Monday of last week only 22% of the area was planted with corn versus 50% in the average of the last five years, a situation that if it continues like this, it has been speculated that corn producers they could be changed to plant soybeans, which have a shorter cycle.
For its part, wheat has suffered from lack of water, not only in the United States, but also in India, which has threatened to close exports, which has resulted in strong increases in the market.
4.- War between Ukraine and Russia: It has generated uncertainty in relation to the supply of corn and wheat by these two nations, pushing up prices.
Finally and to complement the above, the USDA published last Thursday its report on supply and demand for the month of May, in which there were no major surprises in the case of corn and soybeans; however, it made sharp cuts to estimates of Final Wheat Inventories, which meant that after almost a week of declines in Chicago, wheat rose sharply and corn and soybeans followed suit.
As you can see, there are many factors involved in grain prices and today the only constant will continue to be volatility. Hence the importance of managing risks.