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This Demand Is Real

January 29, 2011
Rumors of corn and wheat sales to China were mostly ignored in Friday's WASDE report from USDA.
  
America was caught sleeping when it comes to the current world demand for commodity prices. It just didn’t happen in one night of sleep, however, said Jerry Gulke, president of the Gulke.
 

Gulke Group Inc.

www.GulkeGroup.com
707-365-0601

Speaking at the 2011 Top Producer Seminar, Gulke pointed out that for nearly two decades, the United States has granted China most favored nation trading status, allowing them to build up their supplies and standard of living. Meanwhile, the U.S. was busy ignoring its own food needs.
 
“We have no strategic reserves ourselves and China was building a demand base with a population that has as many people in the middle class as we do in the entire population. That isn’t going to go away anytime soon. Now we have food inflation and we see an explosion in prices. We may think on the surface this may be a shot in the dark, but we have to be careful not to underestimate how big this demand is too.”
 
We have to understand how the costs of raw materials cycles through. We pay maybe 12% of our income for food. In China it’s 48%. If you raise the price of food over there, now they have no money left to do anything else.
 
Now there is civil unrest in the Middle East that developed late this week that will further spread market volatility. Rumors Friday morning at the Chicago Board of Trade spread that Lloyds of London would no longer insure ships traversing the Suez Canal. This will particularly impact the wheat market, if true, in the coming day.
 

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COMMENTS (4 Comments)

WILLIAM - MEDIAPOLIS, IA
Are you for real? Do you have any idea how much byproduct from this 40% is utilized back into livestock feed in the form of DDG's?
Are you suggesting farmers throw the towel in on ethanol production so we can go back to being totally dependant on government (higher taxes) farm subsidies?
Why do I not feel a great deal of comfort in that?
7:46 PM Jan 30th
 
Tim Gieseke - MN
Too bad America wasn't just caught sleeping, at least we would be rested. We are so busy with our representative democracy spinning policy that sleeping or not, we are never going to see any big picture coming at us. In our next agricultural dream, we will imagine how much money we are all going to make by sending our raw commodities overseas. With the robust ag economy we should be able to push that through at all costs. Think about it, the Top Producer award goes to someone that grows 7500 acres of corn and soy, has no livestock and 5 hired hands. That is the American ag story that China loves to see.
3:57 PM Jan 29th
 
PullMyFinger - Chappell, NE
Since grain has been priced cheap enough to burn for the past 60 years, why should the farmer continue to be the only ones that must produce for less than the cost of production? Ours would still be the greatest nation on Earth if we hadn't sold out our agriculture at fire sale prices for so long. And now that we finally wake up and use a small percentage of our surplus for fuel, who's brilliant idea was it to let the oil companies set the price of ethanol blended fuel? Of course ethanol is not going to sell if it is priced only a couple of pennies less than non- blended fuel. And E-85 needs to cost a couple of dollars less than regular. It would suddenly become the only fuel anyone would buy. Let's let the farmers set the price of ethanol blended fuel - after all they have a long, long history of selling for less than the cost of production while the oil companies have never sold anything for less than a vast profit.
11:40 AM Jan 29th
 
Little Gary - IN
I am sorry, but this article misses the mark. The run up in commodity prices worldwide is almost entirely driven by corn ethanol. When you take 40 percent of all the corn and light it on fire - well guess what the price goes up and people plant more of it at the expense of other crops. If we just stop making ethanol from corn this entire problem could be solved. Oh, but then what would we use to "buy off" farm state votes?
10:15 AM Jan 29th
 



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