MarketsFarm – A pair of announcements affected the Chicago Board of Trade by different magnitudes on Nov. 2.
Four days after Russian officials said the country was pulling out of an agreement to allow Ukrainian grain shipments on the Black Sea, the Russian government announced on Nov. 2 it changed its mind and will re-enter the agreement after talks with Turkish President Recep Tayyip Erdogan.
Last weekend’s announcement caused a sharp rally in both corn and wheat markets, but more significantly for the latter on Oct. 31. But Russia’s about-face on Nov. 2 has caused a price collapse back towards levels from the previous week.
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“Flip a coin,” Scott Capinegro of Barrington Commodities in Barrington, Ill. said. “It’s pretty hard to digest, but I still say Russia needs money. They don’t want to stop any grain shipments that they can… If it wasn’t for the Russia-Ukraine news out there, (the corn and wheat) markets never would have spiked up like they did this week.”
The sharp price swings in the wheat market due to the Russia-Ukraine conflict might persuade people to keep funds away, according to Capinegro.
“You always hear that funds love volatility. The small grain traders, spec traders, they do not. (Volatility) disrupts the market action and trends,” he said. “I believe wheat is still trying to find a bottom…and I still believe wheat still needs to be a leader in the grain complex.”
Later on Wednesday, the United States Federal Reserve announced it raised its policy interest rate by 75 basis points, in line with the predictions of most observers. While grain prices received a small boost after the announcement, it was not enough to erase the day’s losses. Capinegro said traders have already priced in the hike.
“(The rate hike) is not an unknown commodity. The stock market could rally, but it’s expected,” he said before the announcement.
Corn and soybean prices were also affected by events in Brazil, where large crops for both could reduce demand for crops in the United States and pressure the markets at the end of the calendar year.
“We’re lacking demand and sooner or later, that demand is going to affect our market,” Capinegro said. “If you have no demand, (production and carryout) mean nothing and you have to break the market to get demand back into it.”
Brazil’s election of Luiz Inácio Lula da Silva to the presidency in a narrow result on Oct. 30 caused supporters of incumbent Jair Bolsonaro to set up more than 300 road blockades. They are still ongoing after Bolsonaro reportedly told the country’s Supreme Court that the election “was over.”
Capinegro believes another political event could affect markets as mid-term Congressional elections in the U.S. take place on Nov. 8.
“How are the markets going to react if the ‘red wave’ does hit and the Republicans win (the House) and win the Senate? Do grains break? Because (people) think the stock market might rally and the Republicans would tell the Democrats, ‘Hey, this spending is stopping. It’s causing all the inflation,’” he said.
