Continued interest from China in U.S. corn is providing much needed support to the CBOT corn market. Despite other negative fundamentals, the feeling at the Chicago Board of Trade (CBOT) is that we haven't seen anything yet from China.
This week's trade closed out with corn prices taking a slight hit, says Jerry Gulke, CEO of the Gulke Group and Top Producer market analyst. Soybeans took a pounding with the July contract closing down $0.39 and new crop November falling $0.41 ½ lower.
"When they came in it was at a price that we had just fallen greatly right after we just set a record almost twice of what we'd ever done in planting performance. Where they bought it was almost like a boxing glove coming out of the television and telling me, ‘Well Jerry, if you don't want to feed it, burn ethanol with it or export it, we'll buy it. I think that's raised the bar for how low we can go.'”
Conventional wisdom on the trading floor is that the majority of China's buying is from millers and processors. They are choosing U.S. corn because the transportation costs moving from northern China to southern China are too great, he says. With the Chinese government releasing stocks from it's reserves, he believes the big story is to come through the summer.
"Now if the government of China comes in and buys corn, it has much more psychological impact than if some miller comes in and buys grain. That's what we're looking at. I think that could come about, but it takes some time to get that through the government. If we see that we'll see it sometime this spring.”
The Oil Spill
The massive oil slick in the Gulf of Mexico
may also be lending some support to the markets, he says. The ethanol industry had timed an advertising blitz for now as EPA nears the decision time for increased blend rates. The decision, which is due in June from EPA, could be impacted by the negative media coverage the oil industry is suffering due to the massive slick and the perceived slow response to clean it up.
"It couldn't have come at a better time for us. Now it's at the expense of somebody else, but if we can't get EPA to increase the blend rates now, I'm not sure we'll ever be able to do that.”
The DOW Plunge
Thursday's trading on the New York Stock Exchange and in NASDAQ also created interest from Gulke this week. The DJIA took a 1,000 point plunge in mid-day trading. The building credit crisis in Europe had a lot to do with this fall as Greece is on the brink
of bankruptcy, with other European nearing the same fate. Many have blamed the biggest drop on an errant trade
, but Gulke isn't convinced there won't be more to that story.
"However they want to explain it away—maybe there was a glitch or a fat finger—that doesn't explain why during the same time bonds were up significantly. That suggests you don't dare raise interest rates around the world because we've got trouble that's still surfacing. If you paid attention, soybeans were also down 25 cents/bu. long before the stock market crashed. In fact the Board of Trade closed at 1:15 and three to four minutes after that, the stock market fell. I don't know if it's related or not, but it does show there was money looking for someplace else to be.”
To get Gulke's charts, or to learn more about the Gulke Group, e-mail Ashley@GulkeGroup.com