This past year has been one that nobody will forget anytime soon. It is the ones that we will someday tell our grandkids about… at nauseum. It is a year that threw predictability out the window and was a testament to Murphy’s Law. It was not just that way for the producers and retailers in the agriculture industry, it also defied the trends we were used to seeing in the markets as well.
Audio: Full interview with Tim Andriesen of CME Group
We have all heard the grousing over the markets not behaving the way we think that they should. All of that aside, this year has really been a challenge to the markets. In a year that has been anything but predictable, we should not be shocked to see that the markets are trying to adapt as well. Tim Andriesen is the Managing Director of Ag Products for the CME Group. He says a year ago, nobody would have predicted a pandemic, a derecho, and high export demand for the markets. He says it has been a poster child year highlighting the need for risk management.
Andriesen added that many students of the market are trying to find years to compare 2020 to. He has often heard the similarities between this year and years like 1983 or 1996, but he thinks that 2020 is an unprecedented year that nothing could have prepared us for.
What has really been strange is the number of times the markets have done the opposite of what we would have normally expected them to do. Back in August, marketing strategists were hinting that producers should not get greedy and take advantage of the $10 soybeans. Now, we are looking at beans which have touched $12 a few times, even when the news has not supported a further climb. Andriesen says that from their standpoint, they encourage producers to talk with risk managers to come up with a plan to be ready to take advantage of the current situation and still benefit if the markets continue to climb with call options.
On November 9th, CME Group introduced the pork cutout futures market. Andriesen says the focus has evolved from negotiated trade to a formula trade. He explains how the cutout markets work for producers.
Andriesen says that the new pork cutout futures are still in their infancy. It is going to take some time to build that market up. He hopes that in a year, we will see how producers have been using that market to their benefit.
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