A Risk Off Week Ends in Midst of Acreage Survey

 
A Risk Off Week Ends in Midst of Acreage Survey

On Friday the 13th, though no black cats are traded, it seemed like there was one on the trading floor, says Jerry Gulke, president of the Gulke Group. “Everything ended the week down hard as traders took a risk-off attitude toward market positions. Even wheat had losses despite concern about the winter crop breaking dormancy and opening it to the possibility of winterkill if it turns cold again.” 

Part of the reason was the dollar’s rally, which has gotten a lot of press this week. “This rally has now gained back almost 60% of the losses from 2000 to the recent lows,” says Gulke. “I would stay it’s probably strengthened about 15% against other currencies. One thing that the uptrend may be running out of steam is the fact that Brazil [whose currency has weakened considerably] is rumored to have sold two cargoes of corn for October-November delivery, when the 2015 corn crop should be in the pipeline. The only reason to buy would be if you think current prices are too good to be true.” Even traditionally more expensive French corn is competitive with U.S. corn now, he points out. 

As the crop insurance signup period draws to an end and USDA is doing its survey, little more is known about what farmers will plant. Fertilizer and seed sales are slow. “We just don’t see enough concern among farmers to switch in a big way. The general feeling is caution and nervousness about smaller margins but that a lot of things can happen between now and fall,” Gulke says. “It doesn’t take a rocket scientist – or a professor - to figure out there will be less corn,” says Gulke. “There likely will be more beans. The question is how much. 

?When I look at crop insurance and assess how much I want to buy, I look at 80% or 85% and I see I can pay $11 to buy about a $30 increase in coverage for corn – about three to one – and there’s good odds we’ll go back to last fall’s $3.18 low, we will get a payment based on price, not the weather. If we keep losing 30 cents a week, it doesn’t’ take long to get down to $8 beans pretty quick. That changes things during planting. I think the last 20% of acreage won’t be decided until much later than the plantings intention report.”

Listen to Gulke's full analysis:

 

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