War and OPEC creating more market volatility, analyst says

The war in Ukraine has escalated in the past week. OPEC has decided to cut production by two million barrels a day, the biggest cut since the pandemic began. Both events rocked the market. Crude oil futures added nearly $10.00 a barrel.

Wheat prices rose 60¢ a bushel. Equities continued their downtrend, adding to concerns that higher energy prices would result in lower profits for companies. There is a growing perception that the world is headed for a recession. The news is grim and it’s hard to find anything positive. Ultimately, the big picture might look more encouraging than what happened last week.

NATO allies unite and fight back against Russian aggression. Reports suggest that Russia is spending too much money and resources to (which it seems) have no net gains. Despite short-term escalation, it is possible that the war is about to end. At least that is the positive view. As for Ukrainian agriculture, if the war continues, things will not go on as before. Even if the war ended in short order, reports indicate that it will take up to a year or more to restore pre-war manufacturing and export capacities.

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Expect potential price hike for US producers. At the same time, realize that the war is not new news. If there are price peaks, these could be limited. Consider taking advantage of selling. Commodities can reach levels where high prices will reduce demand. In addition, the US dollar is at its highest level in over two decades and importing countries are likely to buy less. Expect South America to try to ramp up production.

Conclusion: Sustaining price rallies can be difficult.

The energy complex is at a crossroads. It doesn’t appear that the current government is having much luck encouraging domestic or foreign production. Inflation and economic worries can limit demand, but demand is not slacking. As with the world grain supply, there is no room for error in energy production. A drop in US strategic reserves as winter approaches is worrying. More energy should support the ethanol and biofuel industries, but it costs more to produce crops. Have discussions with your provider. Consider cutting your needs in half by spring. At the moment there seems little reason to expect falling energy prices.

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Realize that the more things change, the more they stay the same. Marketing is always a challenge. With prices at elevated levels, now is not the time to ignore the markets. Perhaps more than ever, seizing opportunities and managing risk will require constant vigilance. Have conscious conversations with your advisor to discuss strategies that best suit your operation.

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Editor’s note: If you have any questions about this perspective, please contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

Futures trading is not for everyone. The risk of loss in trading is significant. Therefore, consider carefully whether such trading is suitable for you given your financial situation. Past performance is not necessarily indicative of future results.

About the author: With the wisdom of 30 years at Total Farm Marketing and a following throughout the grain belt, Bryan Doherty is deeply passionate about his customers, their success and long-term, fruitful relationships. As senior market consultant and vice president of brokerage solutions, Doherty lives and breathes agricultural marketing. He has a deep understanding of the tools and markets, listening and communicating with intent and clarity to ensure clients are happy with the decisions.

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