Active growth is possible in the grain and oilseed markets

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Upward pressure for the agricultural sector
Soybeans are traded above $15
Bull trend for corn
Wheat is traded at about $8
Four factors for an explosive rally in 2022
Each new year is different for commodity prices. The path of least resistance is largely determined by weather conditions. Droughts and floods cause shortages of crops that feed the world.

With 2022 agricultural season approaching, prices are being influenced by a number of factors other than the weather, due to which major volatility in the markets will be possible in the coming months. In 2021, corn, soybeans and wheat prices rose to the highest since 2012.

Farmers witness an increase in production costs due to inflation, which has reached its highest rate in last 40 years. Rising costs for fertilizers, energy, equipment, transportation, labor and land mean farmers have to raise prices of their products to keep up with inflation.

Meanwhile, the world's population is growing by approximately 20 million people every quarter, and the demand for food products in 2022 will be higher than in 2021. Moreover, the shift in US energy policy away from fossil fuels to alternative and renewable energy sources has boosted the demand for corn-derived ethanol and soy-based bio diesel.

While the US is the world leading producer and exporter of corn and soybeans, Russia is the largest wheat exporter. The wheat market in 2022 may experience supply problems due to tensions between the US and Russia over Ukraine. So fasten your seat belts and get ready for a very volatile year for agricultural commodities that provide us with nutrients and energy.

Upward pressure for the agricultural sector
In 2021, inflation became the major factor affecting the American economy, with consumer and manufacturer price indices rising to their highest levels in four decades. The US central bank has been blaming increased inflationary pressure on "bottle necks" in supply chains throughout the year, calling it "temporary." The FRS, however, did not mention unprecedented liquidity and stimulating levels as a root cause of this economic phenomenon.

In late 2021, data showed FRS economists that inflation was more structural than temporary, and the central bank is now planning to tighten lending terms. Meanwhile, agricultural manufacturers since long ago have been under the inflation impact: prices for energy, agricultural equipment, fertilizers, land, etc. have been steadily increasing throughout the second half of 2020 and throughout 2021. At the same time, the wages of agricultural sector workers have also increased due to labor shortages.

With an overall increase in production costs, selling prices are also on the rise. Otherwise, production becomes economically unfeasible. Prices for the key agricultural commodities have risen steadily over the last year, and with the agriculture season approaching in the US and other Northern Hemisphere countries, the prices are now well above February 2021 levels.

Soybeans are traded above $15
Near term soybean SWOT futures hit $15.92 per bushel on Wednesday, February 9th.

Soybean futures Soybean futures
Source: CQG

As seen from the monthly diagram, the February 9 high was 10.3% higher than the February 2021 high of $14.43 per bushel. Soybeans are traded above $15 even before the start of the sowing period, and every day prices are getting closer to the 2021 high of $16.7725. The record high was recorded in 2012 at $17.9475.

Bull trend for corn
Near term corn SWOT futures hit $6.4425 per bushel on Feb. 9.

Corn futures Corn futures
Source: CQG

 In February 2021, near term corn futures peaked at $5.7425 per bushel, 10.9% lower than the February 9 high. The 2021 record high was $7.75, while the all-time high was reached in 2012 at $8.4375.

Wheat is traded at about $8
March wheat futures peaked at $7.8775 on February 9, which was below a recent high of over $8.30 per bushel.

Wheat futures Wheat futures
Source: CQG

The monthly diagram shows that the February 2021 high of $6.8350 was 13.2% lower than the February 9 high.

Thus, before the beginning of a new agricultural season, prices for these three major grain and oilseed crops are significantly higher than the last year levels. Prices rose to multi-year highs last year.

Four factors for an explosive rally in 2022
Existing prices for soybeans, corn and wheat suggest that 2022 could turn even better for them than 2021. In addition to inflation, the following four factors also point to new highs in the coming months:

1. At the beginning of the season, uncertainty exists about weather conditions, while the harvest will be dependent on the weather. Drought or floods can limit supply, resulting in shortages and explosive price growth.

2. The demand for agricultural food raw materials grows along with the Earth's population, which is growing by approximately 20 million people every quarter. Farmers will have to feed 80 million more people in 2022 than in 2021. This means an increase in agricultural products demand.

3. Corn and soybeans are key ingredients of ethanol and bio diesel. The US and the rest of the world are addressing climate change with grains and oilseeds used as energy source. Additional upward pressure on them is exerted by rising oil and gasoline prices, which have neared their highs since 2014.

4. Russia is the world's leading wheat producer. Tensions around Ukraine and the threat of military actions may result in a shortage of wheat supplies to the global market. Wheat is the main ingredient of bread, and Russia could resort to blockades and embargoes, causing prices to skyrocket.

Prices for agricultural products keep rising under the influence of inflationary pressure. Markets of the raw materials that feed and power the world may experience an explosive growth in 2022, driven by seasonal and weather factors, rising food demand, energy market trends and geopolitical tensions.
Source: investing.com
Image source: photogenica.ru