Food prices have been on top of mind for all traders and all consumers for the better part of two years now. There is probably not a person you speak to that has not made some sort of reference to their “basket of goods” having gone up in price since Covid-19. In fact, the UN Food Price Index hit an all-time high in March of 2022.

However, since that peak, prices have been descending for a year now. In fact, on February 3, the UN published a story commenting on how much the food price index has fallen:

“The FAO food price index fell 17.9 per cent below its all-time peak, reached in March 2022 following Russia’s full-scale invasion of Ukraine.

The downward pricing trend was helped in part by a pivotal agreement signed in July to unblock Ukraine grain exports amid the ongoing war.”

https://news.un.org/en/story/2023/02/1133152

Image 1: UN Food Price Index vs. an average of corn, soybeans, and wheat

Image 1: UN Food Price Index vs. an average of corn, soybeans, and wheat
Source: Bloomberg

If I take the chart above and add the year-over-year change in CPI, you can see a big driver of the CPI over this same period has come from the move in the food price index. Thus, this falling price does have implications for not just consumer and agricultural traders, but also central bank officials and rates traders. One might surmise that the upcoming planting intentions report at the end of March will have eyes from many markets across the globe glued to it.

Image 2: UN Food, Ag futures, and CPI

Image 2: UN Food, Ag futures, and CPI
Source: Bloomberg

When I think of the drivers for this planting intentions report, I first think about the weather.

The chart below shows the total precipitation across the U.S. in the last week of February. We can see on the left-hand side of the chart the high levels of precipitation in California, however we can also see that in parts of Illinois, Indiana, and Wisconsin there has been precipitation present too.

Image 3: Total precipitation in the U.S. the last week of February

Image 3:	Total precipitation in the U.S. the last week of February
Source: USDA

However, the USDA also puts out the monthly drought outlook. In spite of the precipitation that we have received in the last week of February, drought still persists in many parts of the country. Fortunately, in the Midwest it looks like there is no drought at all, which will likely impact corn and soybeans intentions.

Image 4: Monthly drought monitor

Image 4:	Monthly drought monitor
Source: USDA

Image 5: Temperature anomalies

Image 6: Corn futures 2021 and 2022

Image 7: May-December Corn future spread in 2023 and 2022

Image 8: Corn May-Dec spread in Ichimoku Chart

Image 9: Weekly option straddle run for various Ag options

Image 10: Short a ZC5H3 615 put vs. Long 2x a CN5H3 590 call

Image 11: Option Greeks for the short put long 2 call spread

Image 12: Scenario analysis of spread