Markets cycle and looking forward, Jerry Gulke says grain prices are on the downward slope. It’s time to focus on profit potential, over price.
Grain farmers have had some good times in the last few years and unfortunately that party may be coming to an end.
"All markets go in cycles," says Jerry Gulke, president of the Gulke Group. "When there is an oversupply, prices will get long enough, causing more to be used. Conversely, in times of short supply, prices will rise, incentivizing a supply increase."
Hear Gulke's full audio analysis:
For example, when the ethanol industry started to grow, the market asked farmers to grow more corn to meet the new demand. "We responded with a 15-million increase in corn acres," Gulke says.
While negative weather events curtailed production capabilities, U.S. farmers still continued to expand acreage. "Now we are in full production," he says. "We did what the market system told us to do, but now that production has expanded in other parts of the world, we have to think about what can come and eat up our extra production."
With an average yield, Gulke says 92 million acres meets our corn needs – not 99 or 100 million acres. "At a reasonable good yield, you can supply ethanol, livestock and exports," he says.
Basically, there’s just too much corn. He says that the droughts of 2011 and 2012 just stalled the price reaction to too many acres.
In looking at a monthly corn price chart, Gulke says we may be sitting at a new plateau. "We may not see $1.80 and $2 corn again, but it is highly feasible that we could go back to where we started and that’s about $3.33 to $3.65."
For farmers who were able to sell corn above $6 and $7 in the past few years, that’s a pretty dismal outlook. According to the current AgWeb poll, more than 70% of the more than 470 votes say their 2014 breakeven corn price is above $4.