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5 Factors of Grain Market Analysis

| March 8, 2024 | By

Ag futures products offer participants an environment rich in both opportunity and utility. Whether your purpose in the markets is active hedging or speculation, ag futures offer a flexibility rarely seen in finance. From preserving wealth in the face of currency inflation to locking in profit on the annual harvest, the agricultural commodity markets offer a broad spectrum of possibilities.

Grains and oilseeds are among the most frequently targeted ag commodities. Driven by timely fundamentals and pertinent technicals, the dynamic facing these markets is sophisticated. If you’re going to achieve your goals in grains and oilseeds, it’s important to address five primary factors in your grain market analysis.

#1 Geopolitics

As 2018 showed us, global trade is an ever-evolving atmosphere. The U.S.-China trade war dominated headlines for months as a tit-for-tat exchange of tariffs sent ag commodities reeling. As the new import/export barriers destabilized existing trade relationships, pork and soybean producers were hit particularly hard. Fallout from the U.S.-China standoff drove soybean futures sharply lower because the leading consumer of U.S. supply was taken out of the market. Staying abreast of changes in global politics is a critical aspect of any grain market analysis.

#2 Strength of the Dollar

The almighty dollar plays a pivotal role in the trade of all commodities, not just grains. In the event that inflation spikes and the USD backpedals against major global currencies, many investors choose to go long on commodities. Historically, commodity prices outperform other assets in keeping up with inflation. As a result, institutional capital has a tendency to implement hedging strategies incorporating ag products. If the greenback is under inflationary pressure, the grain markets are in a position to post gains.

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#3 Energy Policies

No grain market analysis is complete without addressing current government energy policies, specifically toward the use of ethanol. A prime example of this market driver came in 2018 due to the Trump administration’s promotion of year-round E-15 integration. The long-term impact on corn demand stemming from increased ethanol production remains to be seen. However, the adoption of the aggressive ethanol policy boosted 2019’s planted corn acreage and regional purchases on spot markets.

#4 Global Supply and Demand

Perhaps the most elementary factor of grain market analysis is the age-old relationship between supply and demand. In fact, all of the factors on this list have at least a perceivable impact on one of the two. However, the reality is that many events can destabilize the supply-demand curve and pricing equilibrium. Because the grain and oilseed markets are truly global in nature, monitoring the current WASDE reports for domestic and global supply/demand information is a must.

#5 Weather

In close relation to global supply and demand is the impact of weather on the grain markets. Unexpectedly harsh atmospheric conditions, or a prolonged pattern such as El Niño, can significantly affect production and consumption levels. Although the weather is impossible to predict with 100% accuracy, evaluating macro environmental stimuli is an essential aspect of trading grains competently.

Take Your Grain Market Analysis to the Next Level

Whether you’re an ag producer or an active trader, grain and oilseed futures provide you with a variety of advantages. However, ag markets are complex and include many unique underpinnings — in addition to the five factors mentioned above.

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