Volatility: A New Normal?

Commodities markets sprang to life this year, with unprecedented moves in crude oil, precious metals, lumber, and livestock prices. Although most of the initial volatility was directly related to coronavirus shutdowns, markets have continued wild action as global economies grapple with climate and political turbulence.

Supply shortages this year are forcing leaders to question global supply chains that prioritized efficiency over redundancy. Nowadays, it is common for raw materials to be produced in one country, processed in another, forged into basic components in a third country, and then assembled in a fourth location, only to be sold in a final fifth market. Automobiles, appliances, electronics, and clothing can have webs of supplies that cross borders dozens of times.

After seeing the COVID-related border closures and repeated trade disputes, nations may prioritize having domestically sourced goods, medicines, and food, which will force shakeups around the world.

As markets adjust to new demand patterns, prices could see increased volatility as new policies result in gluts and shortages.

For producers and consumers, the best way to navigate the volatility may be to lock in prices ahead of time wherever possible and to remain nimble, shifting to new products when opportunities arise.

On Friday, the year’s biggest movers were all trading near recent highs. October crude oil was worth $42 per barrel, October gold fetched $1940 per ounce, October cattle traded for $1.09 per pound, and November lumber reached an all-time high over $730 per thousand board feet.

**Soybean Market Uneasy

Soybean prices neared the highest level of the year this week, trading Wednesday near $9.20 per bushel.

The crop is generally looking great but needs rain to keep its yields high; forecasts are dry for much of the Midwest for the coming week. Meanwhile, the impact of last week’s massive windstorm, the so-called derecho, is still being evaluated.

On the demand side, China has been buying soybeans aggressively and is continuing to expand its hog herds after the African swine fever ravaged their pork supplies. If a new trade dispute can be avoided, Chinese demand could keep soybean prices elevated.

For market watchers, news that the Chicago Board of Trade was launching a new soybean futures contract tied to Brazilian export prices created waves. Brazil is the biggest competitor to American soybean farmers, and watching their prices directly will give global consumers a new tool to manage risk.