Ukrainian unrest!

3/04/14 — Unrest in Ukraine has propelled grains to new highs or back to recent highs this week, with wheat rallying the most as Ukraine is a breadbasket for this part of the world. Any unrest in the Crimean region is bound to result in a price rally, as if fighting breaks out between the Russian and Ukrainian forces this will be a big story for grains.

Russian President Putin considers this a humanitarian mission for his government as he claims Russia took action in response to a request by the elected President of Ukraine, whom was deposed last week in Ukraine and who has fled to Russia. Russian forces have moved into the Crimea and have implied that Ukrainian forces must give up the Crimea to Russia. It will be difficult for the US to take any action against Russia in what used to be their territory, yet the West seems to suggest this is an invasion of an otherwise autonomous country. Russia, however, doesn’t seem to forget that all of Ukraine was a part of the FSU, which was dominated by Russia.

Meanwhile, in South America there is a difficult harvest occurring in Brazil, with soggy soils and roads hindering harvest of soybeans across central and northern Brazil. More rains are forecast across the northern 2/3’s of the country of Brazil, with the next 7 days wet again for this region. Southern SAM is forecast to be relatively dry, which is also not a good forecast for this region.

While all the news seems bullish for now, it is difficult to forget that USDA has forecast a relatively low price level for 2014 crops at $3.90 corn, $9.65 soybeans, and $5.30 wheat – prices that are much lower than current price levels. So there is a premium in place for wheat, corn, and soybeans for the SAM weather problem and the unrest in Ukraine.

Markets are trending higher now, though, and have been since early January. Once trend turns momentum to the upside, it sometimes takes extraordinary circumstances to turn the market lower. So far, that has not occurred, so the market is free to rally for now, with the Ukrainian story unfolding in front of us as soldiers on both sides take positions. This could end tragically for the Ukrainian country, and warfare there could propel the market higher yet.

So the situation has changed with the Ukraine unrest, with more upside potential in the near term, especially if unrest breaks out and disrupts Black Sea ports from shipping grain out of Russia and Ukraine. That would leave the US a provider of exports to the world, with the unrest a half globe across the world away. That is an advantage to US shipping concerns as the world might view US origin shipping as a safe haven for now.

As we move into spring, we have a perfect storm situation that is propelling grains higher for now, with the South American harvest woes along with the Ukrainian unrest pushing grains higher for now. The trick will be forecasting a time when it will be right to sell. Perhaps the easy way to trade this thing is to let the market tell you technically when this rally is over. That means giving up at least 7% of the recent rally to time when momentum shifts to the downside. For now, that might be the best we can do given a volatile situation in Ukraine, and all the uncertainty that a conflict can bring in another part of the world.