The last time the market sustained high prices for a considerable length of time was 1996. With months of high commodity prices, market demand shifted and foreign customers found a new supplier overseas, says Jerry Gulke, president of The Gulke Group
This week’s drop in the grain markets, which took the corn market out of the 30-cent trading range for the past month and half, is eerily familiar to 1996, he says.
"I’m not surprised at all because anything that I saw of the desire or the ability to want to fix things in Europe or the United States. There is nothing that smacks of we’re going to spend more. It’s austerity, austerity, austerity, no matter where it is.
"The best the world can come up with is a plan that will maybe stabilize things. There is nothing in the whole thing that says you’ll increase demand going forward in a market where we’ve been increasing production overseas in wheat and corn. There is nothing out there that says China is going to increase demand an extra 5%. It looks like we can get by with what we’ve got this year, Gulke says."
Japan is the most recent issue of concern to Gulke. He says the market has been watching and waiting for China to enter the market for U.S. corn. Meanwhile, Japan, the biggest historic customer of U.S. corn, has begun buying corn from Ukraine.
In 1996, Guke saw export markets devastated by increased competition and high domestic prices.
The saving grace in this is the current tight basis because farmers continue to hold prices.
Adding to this bearish tone in the market is the outlook for next year. Speaking from his home state of North Dakota, Gulke sees a lot of farm ground that didn’t produce a crop in 2011. These prevent planting acres will be planted to something next year, and right now, that looks like it will be corn.
In addition to the idled acreage, additional land looks to be coming on the market in new corn production areas, as well. Many landowners in the Dakotas, Gulke says, are converting alfalfa fields and cattle pasture to corn production. "They can get a lease that pays them more money than it does by running cattle on it. You’re looking at pretty cheap land that will produce 100 bu./acre. It doesn’t work at $2.00/bu., but it works really well at $6.00/bu."