Simultaneous, intense logistical snarls in both ocean-going shipments and North American rail transportation made for divergence between cash grain values and underlying futures contracts during the month. Part of what we do is forecasting how futures will act to realign regional imbalances, but this proved largely impossible as “uneconomic” dislocations abounded as never before:
- Cancellation of excess soybean purchases by China occurred at such an awkward time that U.S. was simultaneously loading soybeans and soymeal for export, and offloading imports of the same commodities from South America. This left the managers with insufficient understanding of whether U.S. supplies were growing or shrinking, and by how much.
- Railroad delays, on account of prolonged severe weather, made for serious shipping backlogs and price dislocation of everything under our purview. Almost none of Canada’s wheat, canola, or oats could cross the U.S. border to satisfy demand. Ethanol, which consumes over one-third of U.S. corn production, doubled in price and then collapsed as not enough could be shipped from distilleries to fuel blenders. Wheat delivered to Texas ports was priced far above the freight rate from origins in Kansas, the rail connection insufficient. In short, cash values on almost all bulk goods were worth vastly more at destination than origin, and futures prices lurched in attempting to either relate or forecast normalization. It remains unclear how rapidly railroads can rectify these so as to end extreme price moves generated by artificial shortages.
The geopolitical situation in a number of nations crucial to grain markets was also not clarified, driving more business to the U.S. as a financial and contractual haven rather than lowest-cost supplier. After last year’s logistical disaster which steered the world to U.S. soybeans, Brazil loading is keeping pace but only at the expense of other commodities not being handled; also, S&P reduced its credit rating. Russia’s annexation of Crimea accelerated capital outflow, removing the “R” from the BRIC acronym denoting fastest-growing economies. Argentine currency devaluation continues to stymie export commerce.
With the context for world price determination this confused and further subject to uneconomic factors, we sought out ways to “counter-punch” price trends judged to be excessive. This approach avoided numerous landmines and made a few bucks trading soybeans and soybean spreads, with most other trades scratching. New developments we expect in April include a turn to tightening in corn supply and lower wheat and soy protein prices.