Jerry Gulke: Government Intervention Back In Vogue

May 10, 2019 04:20 PM

A trifecta of factors sent the grain markets lower this week. A series of tweets from President Donald Trump about imposing tariffs on China, poor export sales data and a bearish USDA report all drove prices lower. For the week ending May 10, December corn was down around 16¢, November soybeans were down 31¢ and July wheat was down 14¢.

“The most negative of the three forces was the tweets from the President,” says Jerry Gulke, president of the Gulke Group. “Happy anniversary, as it was nearly a year ago China imposed retaliatory tariffs.”

In the latest move, President Trump has enacted $325 billion additional tariffs on Chinese goods as of 12:01 a.m. Friday, May 10. Also on Twitter, Trump said the U.S. will use its money from the tariffs to buy American agricultural products “in larger amounts than China ever did” and send it to “poor & starving countries” for humanitarian aid. The president indicated potential purchases of $15 billion from farmers. 

“Now China is saying there may be repercussions,” Gulke says. “Well, what more can they do to us? We have the price of corn down low and soybean prices down to below 10-year levels.”

Gulke was around when Nixon embargoed soybeans to U.S.-ally Japan and started the rush to open up Brazil’s ability to plant soybeans. He also saw Carter embargo grain to Russia and understood well the implications of removing Russia from most-favored-nation status.

“I used the FOR (farmer owned storage) as a profit center to stay afloat, while we tried to regain market share in that failed embargo which was passed by a unanimous vote by both political parties but later blamed for Agriculture’s problems for years,” Gulke says. “I managed then, and quite well in fact, the challenges politicians placed before us, thanks to government programs that helped mitigate the crisis.”

To add insult to injury, Gulke says, the latest export sales data show the U.S. is not competitive in the world for selling grain.

With the tariff news and poor export sales data, USDA’s World Agricultural Supply and Demand Estimates (WASDE) report on May 10 didn’t do significant damage, Gulke says.

“It mostly confirmed what we thought was going to happen,” he says. “The market probably had a lot of this discounted already.”

USDA didn’t change the 2019 corn yield expectation. USDA pegs the U.S. corn crop at 15.0 billion bu., with a national average yield of 176.0 bu. per acre. But that is based on a weather-adjusted trend assuming normal planting progress and summer growing season weather, estimated using the 1988-2018 time period.

“It looks like USDA kicked the can down the road because they don't even know what Trump's going to do tonight or China will do over the weekend,” Gulke says. “I think they're waiting to see if we’ll get a weather break and we'll get the crop in on time or if we’ll get another rain.”

The six- to 10-day forecast shows some farmers, particularly in the eastern Corn Belt, could finally see a break in the wet weather. 

6-10-day precip map
Farmers need that shift in the weather pattern. In traveling northern Illinois this week, Gulke says he’s never seen so many wet fields with corn stalks waiting to dry out and be tilled. 

“This is the most I’ve seen in during the last 40 years of living in Illinois,” he says. “It’s bad. You have to think that with one more rain that will increase the odds of prevent planting. Although, the payments aren’t so great. But sometimes it’s not how much you make but how little you lose.”

Gulke recommends farmers to review the full WASDE report

“We closed the week terribly, but hot as bad as it could have been with the report that came out today,” he says.

Listen to the full audio report to hear Gulke’s take on on-farm storage, President Trump’s latest moves and more. 

Read More

Jerry Gulke: Where Is the Bottom To Our Markets?

Jerry Gulke: Has Reality Turned Into Fear?

Are the Grain Markets Facing Reality?

Grain Markets: The Calm Before the Storm

Jerry Gulke: Trade Deal or No Deal?

Check current market prices in AgWeb's Commodity Markets Center.

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Spell Check

Western, NE
5/11/2019 08:15 AM

  Why did the USDA kick the can down the road? Could it be because the Trump administration is retaliating against negative reports towards the ag community that you read about currently? That aside, who or what part of the export chain is pricing us out of the market? For example, wheat is 45¢ under the current KC Wheat futures in my area, yet Pacific Northwest basis bids today are $1.80 over nearby KC Wheat futures creating a bid of $5.67 per bushel. This is before the exporter has added his profits and the shipping company has added their freight. So, I ask who is pricing us out of the world market? It certainly is not the farmer. Is it the railroads? the exporter? or the overseas freight company? Or, a combination of them all? As an example, railroads have advertised that it costs 1 1/2¢ to move a ton of freight one mile. I'm 1,000 miles from the Pacific Northwest. That equates to 45¢ per bushel for a unit car train from me. The serving railroad wants $1.85 a bushel according to my local elevator. And my local elevator is set up to handle unit car trains. Railroads seem to be part of the problem. You need to start letting farmers know who it is that's pricing us out of the market. Maybe we can focus our energy on solving that issue.

Greensburg, IN
5/12/2019 09:55 AM

  No part of the US export chain is pricing us out of the market. Free Market Forces and Competition (to the extent that is exists) plus government interference sets the price for all commodities. Buyers search the world over for the lowest cost product, delivered to their doorstep (all factors considered) and nearly always buy from the lowest cost supplier.

Greensburg, IN
5/12/2019 11:40 AM

  Allow me summarize Trumps trade strategy. Trump decides people that run American companies are getting taken advantage of by China and others (as if these business were forced to do business in or with China). Trump decides to punish China and others by taxing the American consumer (tariffs) for the items that they purchase from China and others. China decides to buy almost all of their ag commodities from other countries instead of US. Trump gets worried he may lose votes of farmers. Trump decides to force US taxpayers to compensate farmers for the loss of revenue with Tariff Relief Payments for certain commodities (buy farmers votes back with US consumers money). Trump tries to re-negotiate trade with China but fails badly. Trump decides to spend more of US citizens money in desperate attempt to buy the farmers votes in upcoming 2020 election. In addition, Trump announces he will take some of the money he has received in tariff taxes from the US consumer (NOT CHINA) and use it to purchase the farm commodities that China no longer buys from US and then give it to countries whos dictators will keep it and use it to improve their own financial well being as they see fit. Yeah, that's a good plan. Way to go POTUS. Unfortunately this is how government works in modern times in the US.


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