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Corn, Soybeans and Wheat Face the Perfect Storm

August 6, 2010

 We have a good crop in the United States, says Jerry Gulke, of the Gulke Group. The wheat harvest has gone well and there is a huge supply of wheat in this country. While there remain some questions about the stateside corn and soybean crops, what’s happening overseas and on the technical charts are combining to build a perfect storm that should lead to higher commodity prices for some time to come. 

A little more than a month ago, $3.50/bu. for corn looked like a party. Now he says corn buyers around the world are now starting to look at $4.00/bu. corn as a gift.

"It starts in Russia with the heat and the destruction of their crops. It’s the worst drought in 123 years, and it’s reminiscent of 1973-74 when the communist controlled country came in and bought all of our wheat," Gulke says.

"Fortunately worldwide we had a lot of wheat stocks and all we heard two or three months ago was they’d by a billion bushels further on out. What has happened is that source of feed wheat in Eastern Europe has been sharply curtailed."

The drought has now turned so severe that is appears the Eastern European states may now have to imports as much as two- to three-million metric tons of feed grains. Gulke believes that likely will not be feed wheat, but it does mean corn comes into play.

Drought impacts spread beyond the wheat and corn markets, as well, he says. "They also grow sunflowers, corn, barley, and all those crops are severely down. And they have no forage. You’ve got disappearing as well, so how do you keep the dairy and livestock production alive. This is not a small item, it’s the biggest thing out of Russia since 1973-74." 

(To receive Gulke's analysis and charts, click here, or visit www.GulkeGroup.com.)

One of the biggest concerns on Gulke’s mind is the export infrastructure in the U.S. With the prospect for record exports in our country, that is a huge question.

Technically, the market has been positioning for a while to move higher. "When you start to look markets trading or closing above the previous week’s high, especially when you had a crop report, it’s telling me the market is digesting everything to that point and new fundamentals are entering. The criteria has changed."

This shows when it happens in one month. The situation now is the markets are on a roll.

"When you can take out the monthly highs in April, May and June, and do it in July, then August again, that’s pretty positive. All those things were happening two weeks and I said then that I’ve never seen all the grains and oil seeds turning positive at the same time."

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