SPENCER — Four factors are driving today’s grain markets, according to Matt Campbell, risk management consultant with StoneX Financial, Inc.

Those factors include inflation, the supply chain, geopolitics and money flow.

“The definition of inflation is too much money chasing after too few of goods — that’s where we are right now,” he said, adding that the government launched an aggressive campaign to pump more money into the economy to get it going in the months following the COVID-19 outbreak.

Campbell said ethanol is the best example of that concept, with product in stock and an inability to move it. He said the markets will be dealing with that problem for “some time.”

He said labor plays a role in how the markets react, with the Baby Boomer generation now retiring, and a younger, smaller, more expensive labor force replacing people who have years of experience.

Campbell explained that the markets have more managed money (speculator money) lost in the corn market, and that almost zero people are short in terms of placing spec money.

“This is a real concern because of the impact money flow has on the market’s day-to-day price. The ‘boat’ might be larger, but there’s a lot of people on one side of it right now, and it will have some short-term impacts as that money comes and goes,” Campbell said.

He said October 2020 was the last time the funds were long. Since then the market never had a bearish situation in soybeans from October to June because the spec position got smaller and people started to build an actual small short position. This was due to Hurricane Ida, a slow export system and no serious growing season issues in Brazil.

Campbell said every time spec money comes into the market, prices go up accordingly. He said it’s good when prices are going up, but risky when the “boat” is one-sided.

“Soybeans have had an 80-cent trade range since last Thursday; think of the volatility in this market, and be curious what would happen if you saw any upscale liquidation from this spec opposition,” said Campbell.

He said when corn prices, for example, hit the $6/bushel mark, the supply side is rewarded and the demand side is punished.

Campbell said the world market shows one of the lowest stocks/use ratios in history for corn, soybeans and wheat. He said it’s nothing new, but transportation issues have created the price reactions the world is seeing today.

The blockage of product through the Black Sea has the markets paying attention, he said, as it does anytime there is a “hiccup” on transportation of large amounts of grains and oilseeds. When Ukraine and Russia account for the top 30 percent of wheat exports, and Ukraine is among the top four corn exporters in the world, he said the market is sensitive.

Other points he made included:

• Wheat and corn have a larger overlap than corn and soybeans do, not because of where they are grown, but because of where and why they are fed. If corn is too expensive, wheat can often be fed, and vice versa — locking them in a wide market range.

• China will most likely incentivize its corn growers by offering input cost financing, helping them develop multi-year, better-sustained production metrics. China also wants its soybean acreage to increase, but also wants its corn yields to increase.

• China’s crush industry market is seeing negative numbers, resulting in both supply and demand being taken off of the market.

• Nearly all of South America’s production creates a longer window of growing season risk–from three to four months on just one of their crop seasons. They typically have two growing seasons per year, with the second crop being somewhat smaller.

• La Nina weather conditions always have an impact on Argentine and Brazilian crop production, but has almost no effect on U.S. crops.

• Motto Grosso, Brazil, alone is working on heavy expansion of crop lands, and by comparison, covers an equivalent U.S. land mass as Iowa, Minnesota, Illinois and Indiana combined.

• Brazilians want a strong U.S. dollar relative to their own currency because as grain is priced as “dollars per bushel,” they are getting more of their own currency (reals) per bushel. Campbell said it’s a primary reason the world sees cropland expansion in South America.

• Last year Brazil, Argentina and Paraguay combined produced almost 195 million tons of soybeans, and the mid-December U.S. crop report said they had produced more than 200 million tons.

“It is so rare to see this kind of production loss this late in the season unrecognized by most traders until we got into the fields,” said Campbell, adding the market still thinks there are cuts coming.

• By Sept. 1 (pre-U.S. bean harvest), an ample supply situation will most likely turn into a “tight” situation by the time the Iowa soybean harvest time arrives.

• Midwest ethanol stocks have been at record levels because of logistics issues. Ethanol crush was at record levels at Thanksgiving time, and has fallen $1.50/gallon since then, leveling out at break-even, and slightly “red.”

• He sees tight soybean stocks heading into the growing season, and that the markets need to prioritize to ensure beans are profitable for 2023.

• There is no incentive to hold onto old crop grains.

• Producers should get new crop expenses covered and not worry about “cents per bushel” but focus on “dollars per acre” investments and returns instead.

• Producers should pay close attention to seasonal markets.

Campbell made his comments at the annual Northwest Iowa Ag Outlook event in Spencer on Feb. 15.