Jerry Gulke: A Perfect Storm May Be Brewing?

March 15, 2019 02:50 PM
 
 

We at Gulke Group, Inc are in the process of finalizing our annual crop survey for 2019 planting intentions.  Last year was a bit of an anomaly in that we saw a “net reduction” in both corn and soybean planted acres in the US, in part, reflecting the diminishing profitability in our mainstay row crops.    Agriculture products were thrown into a world of trade uncertainty in 2018, and decreasing eco in Ag and that environment continues heading into the 2019 planting season, albeit somewhat muted by success in tariff talks.

A lot could change at the drop of a hat thanks to the current “tweet/news” of the day, and the 24 hr news cycle environment we are in.  The trade war situation is still tenuous enough that a major break-through could cause at a minimum a possible spike in prices (and change in farmer mindset going into planting), while a major break-down could bring downward pressure on grain prices (and a corresponding reaction by producers).  A signed agreement having material merit and long term verifiable commitments, could very well put significant support under market prices that correspond to lows thus far under more negatively fundamental situations.  This would set a new line in the sand and give the agricultural economic community something from which to build a more longer term economic forecast moving forward and put us back on a track reflecting a more normal S/D price discovery scenario and back to the more longer term multi-decade focus of increasing food supply for an ever increasing global population and hopefully better economic climate. For sure the recent major purchases of pork, under a big tariff, suggests that more Chinese will experience quality in their diet of USDA inspected meat, a good thing. 

The limited fall field work that got done in 2018 and the current lingering winter weather combines to makes this year’s acres estimate one of the more difficult we’ve had to deal with in the last 15 years.  With that uncertainty as the backdrop, it seems rational to assume expansion of corn acres throughout the Midwest, an increase in wheat acres in some states, and a more widespread reduction in soybean acreage for 2019; pretty much in line with conventional thinking currently.   The shift to more corn could be even bigger in the “northern” belt states of ND, SD and MN where bean acres had been expanding over the last 5 years and there are other “alternative” crop options. 

In addition there is the looming PP (prevent planting issue).  Last year PP was something less than 2 mil-ac.  It is possible PP could be twice that this year.  The attractiveness of PP in this potentially zero-net profitability for some producers and may be a  better economic option.

Bottom line, if there were/are working capital issues and economic difficulties existing, last year’s and this year’s acreage mix don’t necessarily show that and a “good deal” tariff wise may stop the bleeding.  In the meantime, the next 3-6-12-18 months no doubt will provide a lot of variability in prices meaning price volatility which is good for both the producer and the end-user.  Focusing on bottom line P/L while not leaving profit potential on the table will be important.   I have endevored to present the technical picture as an important part of any market outlook that for the most part is ignored in the public domain but I feel a necessary part of overall decision making.  Knowing when to hold’em and when to fold’em is not isolated to Kenny Rogers.  In our farmer-speak language it is better said perhaps of one of knowing when to pass off price-risk (hedge) and when to accept price risk that is the key.  Many have tried to make marketing a simple task of selling something at break even or sell and defend with long expensive calls or merely to pay a broker a high commission price to buy a put and then roll up until the risk management budget is broke.  Both perhaps have their place but not often in my mindset of the past decades of marketing successes.  Let’s hope first that the tariff situation is resolved in a way that is beneficial for US agriculture!  Secondly I hope taking the time to present an alternative look through the technical picture has been beneficial.   Being forewarned is being prepared!

Given the market action in the past week and the reaction at former support levels posting weekly key reversals in some a commodities and plain reversals in others as well as hogs which reacted favorably to the export sales report of nearly 24,000 lbs. with rumors of 200,000 possible. The negative rhetoric on commodities in the media reached the depths of despair recently however, the technical price action suggested otherwise. We at Gulke Group use other technical tools to signal buy or sell signals on a short or long term situation and work well as confirmation of changes in trends or low risk opportunities to enter or exit a hedge position. 

We will be conducting an introduction to technical analysis during a half-day seminar on March 28, in conjunction with our spring commodity outlook conference on March 28-29. Our conference will include Drew Lerner speaking on spring/summer global and U.S. weather outlook, as well as a European analyst with views on ASF implications on global protein demand and global demand for commodities in general.  Livestock analysts as well as Gulke Group speaker complete the agenda.  Contact info@gulkegroup.com and request more information.

 

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Comments

 
Spell Check

Mark Olson
Malmo , NE
3/17/2019 06:01 PM
 

  Keep me informed and on daily emails

 
 
Dave
Auburn, IN
3/17/2019 08:12 AM
 

  Not sure whate all you trump haters are worring about, your muslim lawmakers who love illegals, hate america, hate christians, hate jews, hate white peopke, hate white old men, hate pigs, hate cows, hate police, hate Ice, hate our military, love to take your hard earned money and give it to the illegals , boarder security haters, love to have drugs coming into the country, don't give a rats ass about all the people dying on drugs,or being Killed by Illegals, 70% tax rate idiot's, going to take your guns, should say they can try, do away with you cars , tractors, trucks. Planes. tear down your energy inefficient homes , probably take your horses, I'm sure they fart to, maybe you too if you fart to much, build trains, not sure how good they will travel over water, while your good congress people live the high life on their fancy yacht, build their walls to protect themselfs, fly on their private planes laughing at you walking to your little train to go to the store, besides, before this all can be done, we will all be dead in 12 years according to AOC and her wacko friends, oh I forgot , you can't have any more baby's do to this disaster coming on, you probably require them to be all aborted anyhow, sorry, I will stick with trump , the demorats have nothing to vote for anymore.

 
 
Robert Thompson
Nelson , MO
3/17/2019 06:17 AM
 

  No Comment

 
 

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