New-crop corn futures for December 2017 continued their advance toward $4 this week. The move extends an uptrend and comes in spite of disputes over possible changes to EPA’s ethanol-blending requirements, notes Jerry Gulke, president of the Gulke Group.
“We made some weekly key reversals higher in corn, old crop and new crop, and almost in wheat, and a big one in soybean oil. Soybeans have held their own,” says Gulke in an interview with “Weekend Market Report” guest host Nate Birt for an episode airing Saturday, March 4, 2017. “What corn did here is tested last week’s low and last week’s high, and closed above last week’s high. In December corn, it’s kind of significant because we closed near $4, and $4 was supposed to be the ceiling, so to speak—that there was going to be a lot of selling there at $4 futures.”
New-crop corn closed 8 cents higher, and old-crop corn closed 10 cents higher, Gulke says. Although rumored changes to ethanol-blending rules didn’t materialize, additional activity surrounding biofuels this week suggests bullish news could be in store for grain producers in the months ahead.
“I’m sure when Trump heard about this, he had a fit: We’re basically subsidizing importing of Argentine soybean oil to use in our biodiesel to get that $1-per-gallon credit,” Gulke explains. “I wondered for years who designed this plan that benefits from imported oil. It looks like that’s going to get cut off by its knees. That was an important aspect. If we could go to E15 nationwide, that’s a 50% increase over E10. The ideological part of me says given enough time, that means a 50% increase in the crush for corn for the new demand for ethanol that could come. Maybe it’s five years, maybe it’s 10 years. It certainly isn’t something that’s not going to reduce (demand).”
The market saw that potential this week and figured that a 50% increase could translate to a 2-billion-bushel increase in corn crush into ethanol over time. “They kind of got ahead of themselves,” Gulke acknowledges. “But the good news is that we didn’t crash and burn. Corn closed 10 (cents) higher in spite of all the negative hype. There are some underpinnings that are going on really in an uptrend that we’ve had in grains for quite a while, and this just added to it at a good time.”
He continues: “Now the free market is going to have to do the work of buying more acres back from soybeans, if that is going to be the case. And of course in soybeans, if you’re going to use more soybean oil, you can probably say, ‘I’m going to crush more soybeans. I can’t afford to lose any of these acres that already are going to soybeans this year.’ Beyond the wildest imagination of a lot of bears out there, we probably could get into a bidding war for acres out here if we aren’t careful.