When Jerry Gulke looks at the current strength of the soybean market, he sees fundamentals at work.
With crop shortfalls expected in South America and ongoing demand for beans, “this is pure fundamental supply and demand,” said Gulke, president of the Gulke Group in Chicago and a farmer in Illinois. “These are underlying fundamentals that (most analysts) missed because they have been so focused on the fact that the U.S. was doing to have a 400-million-bushel carryover.”
Those widespread bearish expectations, of course, were sharply adjusted in May when USDA released a new-crop carryover estimate of just 305 million bushels.
In addition, uncooperative weather in South America has negatively affected crop production and crop quality, forcing many analysts to recalculate their forecasts. “People have been so fixated on the fact that we were going to get big crops out of South American forever,” Gulke said. “Now here we are,” with July soybean futures ending the week at $11.32 and December corn at $4.19.
Could this be the top? Gulke doubts it. “Today was a typical day where we opened up higher and down we went and then we rallied back up where we closed higher on corn and beans both,” he said of Friday’s market movements. “That is typical of people wanting a second chance to buy their grain to fill their needs.”
That could continue to be a factor in the months to come.
Gulke, like others, is already looking ahead to USDA’s June Acreage report and production estimates.
“If we only get a million more acres of beans and the crop comes in a bushel or so less, (end users) will have a problem as far as supply. They’ll have a problem way into 2017,” he said. “The only place to buy beans this fall will be the U.S. producer. South America and Argentina probably won’t have any soybeans to move. Brazil won’t have any corn.”
It could be good news for U.S. farmers eager for a profitable crop.
End users “are going to need the best producer in the world to supply them with grain this this fall, which is hard to do at harvest, when farmers have a tendency to hold,” Gulke noted. “Things could be very exciting this fall.”
Listen to his full comments here:
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