Traders might return from the Thanksgiving break with a more bullish perspective on corn and soybeans. At least, that's what Jerry Gulke hopes.
In years past, traders often used the Thanksgiving holiday to rethink their market strategy. Jerry Gulke, president of the Gulke Group, says he hopes they will return from the break this time around and bolster prices, or at least "stop the slide. Maybe we’ll just grind sideways into the New Year."
That would be good news for farmers, considering that the industry will carry over into 2013-2014 with close to 2 billion bushels in surplus corn, according to the latest USDA estimates. Gulke is confident that there will be plenty of corn to meet world demand for the first half of the year. "It’s that last half of our marketing year that has me concerned--for both corn and beans," he says.
Listen to Gulke's full audio analysis:
Given low corn prices, Gulke fully expects farmers to plant more beans in lieu of corn next year. "Everyone who runs the numbers says that’s going to happen," he says. "We have talked to our clients who have said, ‘I’m going to switch over next year. I need some rotation anyway. And it’s a little bit easier for me to break even or make money on beans.’"
But soybeans aren’t a slam dunk either. Soy prices might have climbed back over $13 a bu. in the short run, but they are lower for delivery next fall and on into the future. "The market is betting on a big crop coming from South America," Gulke explains.
Unless prices recover, farmers could face a built-in loss when they plant corn next year. If future prices are at $4.75, which translates into a cash price of about $4.30 on Gulke’s farm, "that’s getting awfully close to break-even for most people. But not bad enough that I won’t look at it and say that hopefully, insurance will be high enough that all we can do is lose a little rather than lose a lot."
While Gulke believes more bean acres will be planted, he notes that "we also have a lot of acres to plant. A record amount of acres were brought into production [in recent years]. So we’ve got a lot of acres to come down from. History has shown that farmers haven’t just set aside land because prices are cheap. We’ve had to have some kind of a program to do that to save us from ourselves, so to speak."
Meanwhile, farmers will be watching their cash flow carefully in 2014. They might decide to grow less expensive crops to produce. They might do more double-cropping. "We could see quite a bit of winter wheat planted this fall; a lot of that going to beans next summer," Gulke says.
The industry is in a good cash position due to several years of strong earnings, says Gulke, adding that "a lot of corn that will be sold in 2014 has already been expensed." The market analyst believes the industry is at least a year away from bankers asking farmers to accept smaller credit lines.
Farmers in the toughest position will be the ones who used tax savings from equipment purchases to buy land. Banks might have required that farmers use their own equity to make 40% to 50% of the purchase. The farmers who did this "may be cash flow-poor and equity-rich."
Gulke believes the situation is different than it was in the early 1980s. Land prices, Gulke says, have stabilized and interest rates are lower than they were back then. "That got a lot of people in trouble. I don't think we're in that kind of trouble yet," he says.