The world we operate in is clearly complex, with rapid changes. Before diving into the analysis of wheat specifically, we will provide a theoretical section on two key topics that contribute to understanding the markets: trend and volatility.
Let’s look at the response from Google’s AI:
- Trend: The direction in which an asset moves.
- Volatility: The variation in the price of an asset over time.
Volatility is a statistical measure used to calculate the risk of an asset, as a volatile asset is riskier and can experience significant price changes over a short period. It is calculated as the standard deviation of the asset’s return relative to its average. Volatility can be expressed in annualized terms and is commonly shown as an absolute value or a total annualized value.
Volatility can be caused by many factors, such as changes in economic policies, geopolitical factors, climate, etc.
To define trends in the wheat market—and similarly for other products—we can analyze the fundamentals of the market, such as whether we will have a year with higher or lower production and what the demand will be. The first look is always based on reports released by the USDA monthly. Let’s see the October 2024 data for the cereal.
In this case, for the fourth consecutive campaign, consumption is expected to grow, surpassing supply. While this is encouraging for prices, it is not reflected in the downward trend since 2022/2023—which we have been mentioning up until now, mainly because it is a market that depends on variables like recovery opportunities due to the number of countries that produce it. In data terms, the global market is forecast to close at 794 thousand tons, which is 45 thousand tons more than last year, but with a total consumption of 801 thousand tons, surpassing the 797 thousand tons of the previous year.
Volatility
In the short term, this market has experienced changes, which we call volatility. Let’s analyze the factors behind this. First, the climate, both in the Northern and Southern Hemispheres, impacted the major exporters in terms of production volumes. Then, the announcement of a decrease in interest rates in the U.S. impacted the behavior of speculative funds, leading them to drastically reduce their short positions, which caused prices to rise.
Argentina
Bringing it down to Argentina, we are in a campaign with volume estimates according to the BCR of 19.50 million tons, with 6.72 million hectares planted and an average yield of 30 quintals per hectare. The volume was adjusted from initial estimates, mainly due to adverse weather conditions at the critical time for yield definition, raising expectations about what might happen in the near future. As shown in the graphs, the forecasts are not optimistic, but we will see how the situation unfolds.
Finally, an important point is how much of the product has been sold in advance. We see that the figure is almost half of the average from previous years—only 18% of the future production has been priced or committed. This is interesting for building a hypothesis about what could happen in terms of prices. When we consider financial needs, the wheat/corn ratio, and limited sales, seasonality will be decisive, and the price at harvest time could reach levels that would not benefit the producer.
The conclusion is that understanding volatility is crucial for making decisions based on the opportunities it creates.
