Jerry Gulke: Are Markets, COVID-19 Forcing Acreage Changes?

01:58PM Apr 24, 2020
Jerry Gulke WMR
With all the price and demand uncertainty, Jerry Gulke says farmers may make more last-minute acreage shifts that ever before. 
( AgWeb )

Corn prices slid down to around $3 earlier this week. The last time the front month corn contract traded that low was during the recession—more than a decade ago.

Good demand news pulled prices up, but prices still closed lower for the week. July corn was down 6¢ and July soybeans dropped 4¢ for the week ending April 24. July wheat declined 2¢.

“China made some good news this week when they said they're going to buy 370 million bushels of soybeans and 800 million bushels of corn, which would certainly help us,” says Jerry Gulke, president of the Gulke Group.

The purchase from China, according to Reuters, is to build stockpiles to help protect itself from supply chain disruptions caused by the coronavirus pandemic and make good on pledges to buy more U.S. crops

The key question, Gulke says, if these purchases can compensate for the demand destruction in ethanol due to COVID-19. Based on the price movement this week, the corn market doesn’t think so.

“About two-thirds of our ethanol plants are either shut down or have greatly reduced production,” says Geoff Cooper, president and CEO of Renewable Fuels Association. “We’re seeing a real crisis emerging in the ethanol industry.” 

With the current economic picture, Gulke says its doubtful some of those ethanol plants will open again.

“We may be seeing a paradigm shift in ethanol, where plant become more of a protein or a DDG-maker and ethanol is a byproduct,” he says. “That’s is a total shift in what we started out with back in 2005.”

With all the price and demand uncertainty, Gulke says farmers may make more last-minute acreage shifts that ever before. 

“Some people are switching a pivot from corn to alfalfa,” he says. “Some are going into specialty crops, non-GMO or expanding organic production. I just switched some more corn ground to bean ground. Why would I plant corn now when I know it is a negative result?”

Gulke urges any farmers with time to carefully analyze the profit potential for the crops they plan to plant—don’t just follow your standard rotation.

“People like to say for the long term, they don’t change because of rotation,” he says. “In the long term, we're all going to be dead. In the short term, we want to make money, so we don't have to sell the farm. Now is when being flexible and using futures and options can help you make good decisions quickly.”

Manage your short-term risk and key your eye on the big picture, Gulke says. 

“We have a long road ahead of us in mitigating the problems that are affecting agriculture,” he says. “It may take years of work our way out of this.”
 


Find more written and audio commentary from Gulke at AgWeb.com/Gulke

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Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.