Jerry Gulke says he wouldn’t be surprised if farmers put their harvest in new grain bins and waited for prices to rise.
American farmers added as much as 2.5 billion bushels in grain storage capacity in the last five years, thanks to strong earnings. The way corn prices are trending, they may fill every square inch of them, says Jerry Gulke, president of the Gulke Group.
Gulke compares current market conditions to a giant cat-and-mouse game. Many grain end-users, presumably the cats, bought short, "and they are as greedy as we are in farming. We want to get the highest price and they want to get the cheapest price."
But the new wrinkle in the game is that farmers, the mice, have added a huge amount of storage capacity, "and our bins are empty. We can put away a lot of corn really fast."
"The market, the speculator, and the end user are all saying we believe that farmers will cave in just like they always have," and sell their grain for a low price. "But we have not been in this situation before, where we have got some money left over and we’ve insurance that may pay us."
The stand-off raises several interesting scenarios that Gulke and his traders have been mulling. A negative one is that China could flood the market with higher production than anyone thought. On the other hand, more buyers may show up for U.S. corn now that prices are lower. The wild card is how individual farmers will react to market conditions.
Listen in to Gulke's full audio analysis:
Farmers are in a better position to control their destiny than at any time in the last five years. "We haven’t had the ability to lock the door and put it in the bin. Now we have the ability to do that. And I’m not so sure that we won’t," says Gulke.
Gulke wasn’t surprised by USDA’s September corn forecast. USDA now forecasts U.S. average yield at 155.3 bu., up from August’s 154.4 bu. forecast. He thought they might have raised it even more.
"They did not touch the planted acres or the harvest acres yet, even though they had some hints from the FSA—they could have done something. That will probably come in the October report. They didn’t change corn or soybeans at all in harvest or planted."
USDA’s optimism, Gulke says, was based on a higher high percentage of planted corn with good ears. That corresponds with what the market trader hears from his clients, who, when moisture conditions are correct, can get a 95% productivity rate on ears.
"They raised ear count...and they raised the yield a little bit. I think they’re a little nervous about raising it too much more because we don’t know about Iowa yet. We know there isn’t going to be any killing frost, and if there is one within two weeks, nobody cares anyway anymore."
Gulke recently made a field trip to a hilltop near Freeport, Ill., where the corn was completely brown. When he inspected the ears he was surprised by how many kernels it contained. Even corn that died prematurely, he says, may still have a relatively high kernel count because of a short maturation cycle.
"You really have to get out there and look at it," he says, adding that most fields he’s visited have achieved trend-line yield. "Walk through out there, look at those crops, and then report back what you see."
"We’re running out of time to kill this market," Gulke adds. "The point has always been production, not yield, or acres, or the combination. What are we going to produce?"
Have a question for Jerry? Contact him at 815-721-4705 or email@example.com.