Despite temporary dips, the forecast for commodity prices remains positive

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Although we’ve experienced dips in market pricing, there are good reasons to be cautiously optimistic about commodity prices where they are for now, unless we see some significant changes in the local and global landscape.

There are many factors that are currently affecting commodity markets. First and foremost is the ever-unfolding situation between Russia and Ukraine. Neil Townsend with FarmLink Marketing Solutions and GrainFox, in the interview below, says the price dip on May 25th was in large part due to Russia saying it would consider and entertain a humanitarian corridor, which would allow shipments of grain and oilseeds from Ukraine.

Albeit, if Russia and Ukraine were to come to some sort of peaceful agreement ending the war altogether or just simply one that would allow for better flow of goods, that would have a fairly immediate impact on the markets. However, Townsend suggests the latest announcement from Russia about allowing exports from Ukraine in exchange for reduced sanctions was the equivalent of getting dressed to run a marathon — they aren’t even at the starting line yet. We do not know what Russia’s stipulations would be on such a corridor, there have been mention of some sanctions being lifted among other requirements, but at this point in time, it is nothing more than a nod in the right direction and until formidable action is taken, namely by Russia, we aren’t likely to see anything permanent happen within the market, he says.

Another highlight worth noting and mentioned by Townsend, is the endings of war usually come about when the cost of doing war becomes so large, one — or both — parties, succumb to the demands or reach some sort of agreement. If the corridor agreement is reached and grain is able to be moved out of Ukraine, it may in fact prolong the war in general, as the impact is lessened by the implementation of the corridor agreement.

On top of the uncertainty that stems from the Russia and Ukraine war, we are seeing questionable circumstances in North America’s wheat crop, which isn’t helping close the gap on supply. This is being felt in Manitoba, North Dakota, and other locations where they are yet to get a crop in the ground due to weather blow after weather blow this spring.

An area that isn’t being talked about a lot, that is also creating an impact on the wheat market is France, he notes.

“The French wheat is in some state of duress, and the forecast for the first two weeks is for minimal rain, and maintaining temperatures that are seasonal or warmer than seasonal, so that that could go further back and cause a ripple effect as well.”

We’ve also seen numbers adjusted in a downwards trend when predicting total exports to China which could end up being an under-promise-over-deliver type situation which could lead to greater demand on a global market that doesn’t hold a lot of export surplus. Townsend says this could be in the range of six to  10 million tonnes.

Supply issues also reign in the corn and soybean markets as well, as we still see shortages coming out of South America.

An important point to keep in mind as we are seeing demand build up against the current export surplus, Townsend reminds us that we haven’t hit the crucial time where weather can either make or break crops. This being the June through August weather market period, depending on which crop we are talking about, but what Mother Nature decides to do in those three months, again, could make or break crops, which would also have a direct impact on markets.

Given all of the aforementioned factors, Townsend shares a piece of advice for everyone watching the turbulence unfold on the world stage.

“Everybody should expect a significant continuation of uncertainty and volatility and nervousness, there’s no crystal ball to tell you how this is all going to unfold. What’s next? We don’t know. Except to say that we can add up how much import demand there is and how much exportable surplus there is and that’s where we see a gap. We see the potential for there being import demand that has to either look for other things, or just simply go without, and that typically benefits prices.”

Listen to the full conversation between RealAg Radio host Shaun Haney, and Neil Townsend, below.

 

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