Tuesday’s USDA Crop Production report solidified, at least for the time being, the supply on hand for corn and soybeans in the coming year, says Jerry Gulke, president of The Gulke Group. With that in mind, it appears the market reacted to curb demand in the short term, and it will wait to see how the supply situation takes shape later into the marketing year.
End users knowing that supply is likely what took grain prices lower for the week.
"I would interpret it as saying ‘why would I want to pay $7.00/bu. now for the rest of the corn that’s going to be used from here to June 30, when we really find out what’s left for three more months? Or would I rather pay $7.50 or $8.00/bu. for the last 150 million bushels that I need now to fill up the void from the time I know we’re going to run out of grain?’"
The sharp move down in Thursday’s overnight trading and a limit-move drop in Friday’s trading, turned technical factors weak for corn and wheat. Soybeans were not affected as much, says Gulke, but they did follow other commodities lower.
Click here to hear Gulke's audio commentary.
There were daily reversals on the report day and that is not good news, he says. Then the lower close to the week means it’s a weekly reversal, because corn and wheat prices closed below last week’s lows. "It’s not good on high volume. It also happened at a time when everybody was getting bullish after watching this thing since July 1st."
Many traders feel, Gulke says, that China may be trying to manipulate the market by paying more for commodities now to drive the price lower for future supplies. "I’ve been through this once where they bought a lot of soybean oil and then they dumped it on their own market. They’re saying ‘I’m going to pay a lot of money up front now for soybean and maybe some oil, then I’m going to dump it on the market. I will lose money on 5% of what I need now so I can buy the other 85% to 95% for less.’"
At the same time, this has enabled producers to make some good money in the meantime. "As a soybean producer here, I don’t like being at the mercy of China. But I have to credit them for getting me $2.00 more a bushel for my soybeans than I thought I was going to get two months ago."