Mecardo Analysis - Wheat: Turn the volume up
- By: "Farm Tender" News
- Cattle News
- Jan 24, 2019
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By Andrew Whitelaw | Source: CME.
The first month of the year is nearly over. It has been a month of new experiences for the world. The government shutdown in the US has led to a reduction in data with no releases by the USDA. This will change soon as the USDA reopens on Thursday. In this article we look at volume and volatility of trading on the Chicago wheat contract.
The wheat contract has risen 3% since the start of the year. The driver of prices has been the ‘will they, won’t they’ situation regarding export restrictions in Russia. Typically, this time of year experiences less movement in price as the trade looks towards the coming season.
In figure 1, the traded volume of the Chicago soft red winter wheat contract (spot) is shown from 2010 to present. The chart shows the seasonality of volume, and we can clearly see spikes in volume throughout the year which correspond with the expiry of contracts. Volume has dropped off as we start 2019 with levels at the bottom of the expected range.
In figure 2, the volatility of the Chicago contract is shown. The chart measures the price moment in a given month. As expected the greatest volatility tends to occur in the middle of the year. This is due to production issues provoking the market. So far this month volatility has been considerably below the expected range.
Key points
* Volume and volatility are typically low at the start of the year.
* 2019 is experience lower than typical levels of volume and volatility.
* The most volatile period in the wheat market is during the middle of the year as potential supply shocks provoke the market.
What does this mean?
Volume and volatility are generally low at this point of the year, however 2019 has so far seen both at the bottom end of the range.
This could be down to lack of data releases from the USDA, but does it point towards a greater move in volatility when fresh data is released?
The greatest point of volatility is during the middle of the year. This may make it advisable for consumers to consider hedging prior to this window in order to avoid decision making during an extremely volatile period of the year.
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