Free Commentary

By: Dan Hueber –

While we have not really witnessed a significant improvement in grain/soy prices this week, at least on a closing basis, there has been a marked and long overdue increase in the volatility.  We often think of the word volatility as something that is bad.  In fact, the definition reads “liability to change rapidly and unpredictably, especially for the worse” but realistically when it comes to markets, when there is little to no volatility, it is often accompanied by little to no opportunity. I fully recognize that had I chosen an occupation that contained less volatility I might still have a few follicles on the top of my head but regardless, such is the plight of those involved with commodities.

It is interesting to note that when we look at the commodity markets as an aggregate, the world still does not look all that volatile.  Since poking in a higher shortly after the beginning of this year, the Goldman Sachs Commodity Index turned south and closed lower four months in a row and even this month, is just fractionally higher.  Keep in mind this index is heavily weighted towards energies, and especially crude oil, which has created a big drag on values, but those markets have returned to major support and appear poised to begin tracking higher once again.

Even the ag sector as a whole appears rather benign.  After dipping into new lows briefly in June, prices snapped up rather quickly riding on the backs of the roaring bull market in the livestock sector, but that group has cooled off as the grains have begun to heat up.

So, does this suggest that the glass is half full or half empty?  I continue to reside in the camp that believes it is half full as we should have a major cycle low in place for the commodity sector and the recent uptick in price and volatility should be just a foretaste of what is to come. Over the next 12 to 24 months, the path of least resistance should be positive.  No, that does not mean a return to the heyday prices of 2008 and 2011/2012, but it would suggest there will be greater marketing opportunities ahead for those prepared to take advantage of them.