Strong recommendation for Mastering Grain Markets[0] if the discussion in this thread around why spring wheat is up interests you. Global ag commodities like this are keyed off of so many events, it’s really interesting to dive into the history and mechanisms that exist in the space to deal with volatility. I read this book when interviewing with a geospatial intelligence company in this space and I learned way more than I expected (having some previous mix of academic training in the Midwest that frequently touched on ag).
Also the podcast Escaping 1980[1] if you want an example of a global event that drastically altered US ag production, leading to a decline/crisis that plenty of farmers still have as a pivotal event in their memory.
Wheat prices were up because of the Ukraine war so farmers planted more wheat and less corn. But wheat prices have already returned to pre-war levels, and this report will depress them even further.
OTOH, fertilizer prices at the time of planting were crazy high.
Expenses up, revenue down. Farmers are going to be in a world of hurt this year.
If farming worked like this comment presumes, the simple fact that growing things takes time would be a road to financial ruin and nobody could feasibly earn a living doing it. Since there exist both farmers and food, one can conclude that this isn't how things work.
Instead, rather than planting today and selling "here's X bushels of wheat I've harvested" months in the future and hoping for the best, farmers sell futures (that is: "in <growing time> months, I shall deliver X bushels of wheat") for most of their expected yield.
Lo' and behold, here's what the futures prices looked like around planting time [1: look at YTD]: high due to demand from those that had expected to have Ukrainian wheat to buy after the harvest, and then back down when that price signal resulted in sufficient wheat being planted to satisfy demand and thus an increased supply of farmers writing futures on it.
Edit: damnit, it's subscriber only; here's an excerpt
My cryopod popped open,
revealing a man in a silver
jumpsuit. "Welcome to the
future! Here's your onion."
[...]
The brain's first strike had
decimated the human populace. A
few survivors, remembering the
AI's blind spot, had made it to
the onion capital of the world
- Vidalia, Georgia. There a
biohacker had used the last
working CRISPR systems to
create a strain of colossal
onions, hundreds of feet in
diameter. The remnants of
humanity huddled inside their
onion domes, ignored by the
triumphant machines.
The next steps required the
ability to move freely, outside
the domes. In the dying years
of the human economy, people
had experimented with
tokenization of regulated
products. Casinos had tried to
argue that their customers
weren't gambling with money,
they were merely gambling with
tokens that could be trivially
exchanged for money.
Decentralized financial markets
insisted that sure, you had to
have a license to trade stocks,
but they were just trading
tokens that could be trivially
exchanged for stocks. The
government hadn't bought it:
any token representing an
object is legally equivalent to
the object. So the huddled
remnants of humanity set out
turning people into a token
representing onions.
That’s why you hedge though. Quite a lot of exposure should already be handled well before we get to this point in the season. Ag commodities can be brutal and few people know that more personally than farmers.
It’s not about high or low to lock in profits, they sell futures well in advance to eliminate uncertainty and hedge their naturally positive position. The speculator buying the future takes on that risk.
Generally you hedge only about 70% of the expected crop, and then place insurance on that 70%. In a bad year you break even, and you get all the excess in a good year.. also the hedging is not all at once. Farmers are already selling contracts for their 2023 corn crop, but typically only 10% right now. They will contract more and more out over time has harvest grows closer. You have a good idea what you harvest for your 2022 crop by now, so you can contract closer to 100% if you can find a buyer.
Onions are effectively a monopoly, the company that packages them contracts the growers before the season so while there isn't a futures market to trade there is the same. (I don't know how effective the monopoly is, could be a number of different companies that compete, but farmers don't plant onions without a contract, and even if they did there is no market if you don't have a contract so the crop is worthless.
Potatoes don't have a future market, and they are still planted. Though I believe even then big names like McDonald's contract all their potatoes in advance.
I have the right to maximize my short-term gains, but if the consequences catch up to me, I will demand subsidies and bailouts from the same society I totally don't participate in.
No, government payments and the ridiculously generous crop insurance will "insure" they won't. You ready have to be a poor operator in this day and age to go broke farming.
My farmer buddy (who was an ag banker also and is now a real estate agent) is constantly getting checks from the govt "for some reason." His mom is getting a random payment because she's a single female (widow) so qualifies for some random program. The government programs are really crazy and no one really seems to care anymore. In the 80s, 90s even 2000s the ag bill was always a big deal.
Now it's maybe just peanuts compared to the rest of the budget. Who knows, but American farmers do quite well these days.
I used to get annoyed at this, but as I learned more I realized: Food is not optional - if we need to waste money to make sure we have food during the bad years, then it's worth it.
Is it not the case that wheat requires less chemical inputs than competing crops like corn? I would have expected farmers to see what was happening in Ukraine early on and nope out of input-heavy crops?
You get a lot less yield though. There are very few farmers who would make more switching from corn to wheat if corn is an option. Farmers grow wheat where corn isn't an option for some climate reason. Sure your inputs are less for wheat, but a good corn farmer will still make a lot more money on corn than wheat in most cases.
There is a government insurance program, but the general consensus is it breaks even.
There are also conservation programs where the government takes a multi year contract on marginal land, but you will earn more money farming the land in most cases, unless it is a swamp or something.
Winter wheat was planted last fall and should be close to fully harvested by now.
Spring wheat was planted after the Russian invasion of Ukraine, and will be harvested starting shortly. That is really what is notable here - American farmers have done this in response to geopolitical events.
As for corn, the forecast has been pretty terrible given drought, heat and fertilizer shortages. All in all, I'd say that farm output in the US is far better than was predicted earlier this year.
Not really? They're different things, for wildly different markets. The vast majority (as in, around 90%) of corn is not for human consumption but is used for farm feed and ethanol production.
Ya but you have to remember most of the corn produced in the US is inedible for humans, with much of it being feed corn and the abomination that is Ethonal fuel.
Actual food corn I'm willing to bet is unlikely to face any real impact.
It looks like an increase from 330 million bushels "other spring wheat" in 2021 to 511 million bushels in 2022. This is out of a total of 1.65 billion bushels in 2021 and 1.78 billion bushels in 2022.
for comparison, Ukraine exports about 900 million bushels per year and Russia exports about 1.5 billion bushels per year.
If wheat production is up due to over planting, and that drives the price down, is that actually going to end up hurting Ukraine because now they can't export their wheat at the same price as before?
Ukraine exports mostly to the Middle East and other nearby Asian/African countries. I don’t know if the US has plans to divert our wheat to those places.
The optics of the war seem a little staged. Gas prices down, wheat exports … up? It almost makes sense for Russia to dig in and prolong the war beyond a year to show that such optics are not sustainable by the US.
Strategically, if I were Russia, I wouldn’t even consider a ceasefire until winter passes and Europe gets hit with heating costs, just to make my point. It’s the only point of leverage left.
>Ukraine exports mostly to the Middle East and other nearby Asian/African countries.
In normal times. But now most of Ukrainian wheat exported by sea and probably almost all exported by ground gets hoarded by Europe without getting to the most vulnerable African countries.
Or Europe will import less grain by sea and boats from the US will go to other ports. Fuel is being stockpiled by Europe, but not other commodities right now.
Good times for said countries to start weaning themselves off imported cereals and go back to their own traditional crops. I can understand how Egypt got into the mess of being so dependent on cheap foreign wheat, but Nigeria and Indonesia?
I'm amused that there is so much Ukraine talk, and no weather talk. Last year harvest was way below normal because if drought, so of course this year harvest is way up.
Live here know several potato farmers. They're worried about the snowfall last year, mostly that which didn't fall, and although we've been getting more rain their still nervous.
Our big mighty tech utopia metropolis sometimes seem a lot like the tower of Babel where we've convinced ourselves we've beaten and overcome nature and we are masters of the environment. Well God comes along and gives us a dry year or two and suddenly we start remembering how completely out of our control most of our existence is. If you're the religious sort praying for some rain for the potato farmers in ID be mighty appreciated.
yeah I much prefer having both numbers "% over running average over _ years" and "% over last year" both are important and most likely available to whomever is writing the article, but we get a clickbait title :)
Most of it is because last year the major wheat areas were in a severe drought and had a bad harvest. Farmers did plant a bit more wheat because of the war, but not near enough to explain the increase
"The president made a work visit to a wheat field to congratulate the farmers. Pictures of the best Farmers appered on the front page of Washington Post". /s
Some things never die.
I like the nicely formated txt file, but why is it in a txt file?
Could use a nice warez .nfo header... wonder if there's an official gov ASCII file header.
I'd be willing to bet it's because some trader's tooling written 20 years ago broke after a format change so they successfully raised hell to make sure it would stay the same format forever. Probably perl.
According to the archive [1] this is a similar format to the (printed? faxed?) reports as far back as 1964. The annual version [2] goes back to 1941 and uses a similar format. Talk about backwards compatibility!
Soybeans, or Monsanto soy? Because just because Bayer bought Monsanto doesn't mean they stopped their underhanded ways to force farmers to either buy into Monsanto, or not grow soy at all.
Also the podcast Escaping 1980[1] if you want an example of a global event that drastically altered US ag production, leading to a decline/crisis that plenty of farmers still have as a pivotal event in their memory.
[0] https://www.goodreads.com/en/book/show/15891377-mastering-th...
[1] https://aei.ag/escaping1980/ (not that AEI)