After an extended period of historically low volatility the agricultural futures markets have sprung back to life. They have been driven by what we call The Two W’s, weather and Washington. Late spring and summer weather in the northern hemisphere is always important for our markets, but the severe problems in Brazil and Argentina have raised the stakes considerably. The world corn carryout:use ratio for 2018-19 is the lowest in 45 years and the soybean ratio will be the tightest in five years. Weather reduced South American corn and soybean production by 20 million metric tons (MMT) each from last year, and it is now creating problems in five of the eight major wheat exporters: U.S.; Canada; Australia; Russia and Ukraine.

At the same time, the people in Washington are dealing with a laundry list of issues which will have an important impact on our markets: NAFTA; China Trade War; RFS waivers and amendments; North Korean disarmament; steel and aluminum tariffs; and the Farm Bill. None of these issues is following a straight path. In fact, “roller coaster” seems to be our new normal as good news follows bad and vice versa.

The third major driver of our markets could also be given a “w” label: wealth. Several leading investment banks have been making the case for an increased allocation into the commodity space. That call has been generally correct for the first five months of 2018 and by all appearances many are following that advice. Crude oil was the first commodity to capture the imagination of the “macro” crowd and that market quickly set an all-time record for open interest. Now the agricultural markets are in vogue and our open interest is up a half million contracts in May alone. Our total open interest is now more than a million contracts We Know Agriculture ™ higher than a year ago. We are also seeing evidence of this broader financial participation in the size of our inter- and intra-day price moves. Soybeans have made a 70 cent round turn in the last eight trading days. Chicago Wheat had a 10% rally and a 7% break in six sessions. We believe we are much closer to the beginning of these out-sized moves than we are to the end. Should a legitimate production issue develop we would expect record open interest and significant flat price moves.

As we consider what price movement might look like in our markets this summer we believe that the size of the physical markets that underlie these futures contracts is an important factor. We saw that demonstrated in May where the larger markets, corn and soybeans, had 4-6% trading ranges; and the smaller markets, wheat and soybean meal had 12.7% and 8.5% trading ranges, respectively. The size of producer and consumer hedging has a lot to do with how far the financial players will need to move a market in order to enter or exit a significant position. An apparently random $8 rally and break in soybean meal in just a few hours on Tuesday is an excellent example of what we are expecting.

A final and very difficult to quantify element is the growing unrest and frustration that is surfacing in some key countries. The two most recent examples are the truckers’ strike in Brazil and the political crisis in Italy. The truckers strike was the most debilitating we’ve ever seen, and it arose with very little notice. It shut down every soy processing plant in the country, it ran several major ports out of grain and the poultry industry is on the verge of culling millions of birds. The most concerning part was the inability of the supposed leadership to get the truckers to comply once all their demands had been met. In much the same way the general public in Italy seems to be giving voice to a long festering frustration with the status quo and the old order. Now the Petrobras workers are following the truckers in Brazil and the Spanish We Know Agriculture ™ voters are following the Italians in Europe. The Mexican voters prefer the populist candidate and the Brazilian voters prefer a convicted criminal. If this is to become a more global version of the Arab Spring, then market disruptions will be more the norm than the exception. Volatility might be the safest thing to own