Gulke: Kill-Shot Misses Crops Again

September 5, 2015 06:00 AM
corn field blue sky

Farmers who expected Informa Economics to challenge USDA’s assertion of a sizeable corn and soybean crop faced disappointment this week, says President Jerry Gulke of The Gulke Group. What could have been a kill-shot to overall crop strength actually bolstered USDA’s August reports

“They didn’t do us any favors,” Gulke tells “Weekend Market Report” radio host Pam Fretwell. “They actually increased the soybean yield a little bit, even though they lowered some of the acres, and they think there’s going to be even less acres out there, they’re pretty optimistic about the corn yield. They have a lot of respect in the business. They confirmed kind of what USDA is saying. I would have liked them to come out and say, ‘Boy, USDA missed it. Here’s what we see, and it’s 4 bushels less,’ or something. They didn’t do that. It’s kind of like taking the wind out of my sails.”

Reducing the odds of a supply scare further is the fact that a major frost event isn't likely.

“We’re hearing there’s no killing frost in the next two weeks, and even if it did come, you’re not going to kill many bushels of beans,” Gulke says. “Now we run out of time to kill the crop, so to speak, so what else could go wrong? Some places got rain, and where it’s bad, we know it’s bad. Where it’s good, there at the beginning, a little better especially in the soybeans. That scared me for a long time. We are going to have to deal with what we have, and now it’s going to be up to the demand side of the equation.”

Review Marketing Strategy. For farmers wondering what to do next about their crop marketing plan, Gulke suggests looking into tools such as calls.

“If you say to yourself, ‘Doggone it, I missed $3.80 or $3.90,’ well, look at how much they would pay you for a $3.80 or $3.90 call,” he says. “That’s the option for someone else to own your crop, and they’ll pay you maybe 10 or 15 cents for the right to own your crop, 25 or 30 cents higher. If you’re right, keep the 15 cents; if it doesn’t go up, you keep that premium. If you’re wrong and corn goes up over $4, that just means you’ve got a second chance to sell corn at a profit, and that’s better than selling it down in a hole.”

Yet many farmers don’t use futures and options, instead choosing to sell out of the field as they did two years ago amid higher commodity prices.

“It was the degree of how much profit you were going to make when you sold the grain,” Gulke says. “Now it’s the degree of how much you’re going to lose selling it against how much you made in your paper profits by hedging it off at $4 or $3.90 or $4.50 or whatever. Some people who have sold corn, they tell me they have averages of close to $5 because they sold it two years out. They looked ahead and called their elevator and said, ‘I’ve got to book some corn, 20% at that level, because I can make money there,’ and they managed the farm as a business. I think this is what’s going to come out as to how many guys did that, who’s selling at the bottom and who’s going to make a profit yet this year.”

On-farm storage should continue to be a consideration, as well, Gulke says.

“Act like a mini-elevator,” he says. “Usually you can make in bad times where there’s too much, and they pay you to carry it, you can hedge your corn off and a basis gain and a carry in the market, if you can hold it until next July or next May or June, you can make from 40 to 50 to 60 cents a bushel, depending on where you’re at. That has served a lot of people well. The easy money’s gone. It’s all about nickels and dimes now and not about quarters and half-dollars.

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Spell Check

Mark C. Daggy
Humboldt, IA
9/5/2015 11:07 AM

  The markets are what they are because farmers "blink" when marketing their grain. If we had someone on the National Corn Board that used the bully pulpit to encourage no corn sales by all farmers to hold corn until it reached $6...then begin selling until it dropped under $5 and at that point shut-off all corn sales until it rose above $6. Repeating this cycle until grain buyers realized the price of corn ranged from $6 to $5. Even if 25% of each farmers corn rots in the bin and must be spread like manure, the farmer makes more money over time. We do not need another government program, we just need to take control of the markets by refusing to sell unless the prices are profitable. Are farmers aware that an 11 billion bushel crop will give them $8 corn and a 15 billion bushel crop will give them $3 corn. For those independent farmers who refuse to control production, put them on the outside of the markets, leaving them without a way to sell their grain. This is a good time to shut off the use of high priced seed and massive uses of fertilizer. Thus decreasing the input costs.

Rockford, IL
9/6/2015 09:17 PM

  To gkj (and others). Your math works. Last week a $4.00 March call was sold for approximately 20 cents. Corn would have to rally to $4.20 before any post-harvest rally is capped. That is a 35 cent rally from Friday’s close. Such a close at any time before the call expires about Feb 21, would mean corn futures closing 8 cents above the high posted in August. The question one has to ask himself at any point in the marketing year whether you want to assume risk or pass it off based on the fundamental/technical aspects of the corn market or any market. I find it concerning that some producers still think there is scheme and device on the part of Informa and USDA to say whatever they want to say about the crop, because it means that after writing for over 25 years there is still such a miss-understanding of price discovery process. That same system took corn to price levels that were not sustainable and encouraged production expansion globally that we are now stuck with competing with today. Corn exceeded $7 in 2008, 2011, 2012 and 2013 staying above $6 for 2 ½ years during the latter period of that time, caused for the most part by drought induced reduction in production. I don’t think Informa or USDA or my analysis can be blamed for those rallies? Simple math says a lot of money (net profit) was made those years. I still farm and gross income during some those years exceeded what I paid for the land a few decades prior. Taking profits, paying income taxes and paying off debt reduced cost per bushel to levels still profitable now. Choices were made by some to expand, buy or rent expensive land, buy machinery and take the large write-off to save on taxes and use that savings to leverage into more of the same. Now we expect the market to rise to the cost of production and pay a profit? Whose cost of production; mine, yours, a farmer in S America or Ukraine? The market doesn’t care about our cost of production.

RL Falls, MN
9/5/2015 07:44 AM

  Not sure how Jerry's math works. You sell call on corn, but then have chance to sell if corn moves higher? My math computes that if you sell call at 3.90 for .10 then you only get 4.00 even if corn goes to 4.50 and maybe less as you would need to repurchase to sell the corn.


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