Jerry Gulke: Time is Running Out for Patience

03:07PM May 15, 2020
Jerry Gulke WMR
USDA reports, supply chain disruptions and tensions between the U.S. and China all weighed on the grain markets this week. July corn was flat for the week and July soybeans were down 13¢ for the week ending May 15. Chicago July wheat down 22¢
( AgWeb )

USDA reports, supply chain disruptions and tensions between the U.S. and China all weighed on the grain markets this week. July corn was flat for the week and July soybeans were down 13¢ for the week ending May 15. Chicago July wheat down 22¢

The May 12, World Agricultural Supply and Demand Estimates (WASDE) reports show increased supplies and some increasing demand.

  • Corn: The corn crop is projected at a record 16.0 billion bushels. Total corn supplies are forecast record high at 18.1 billion bushels. With total U.S. corn supply rising more than use, 2020/21 U.S. ending stocks are up 1.2 billion bushels from last year and if realized would be the highest since 1987/88.
  • Soybeans: The soybean crop is projected at 4.125 billion bushels, up 568 million from last year. Despite lower beginning stocks, soybean supplies are projected up 5% from 2019/20 to 4.720 billion bushels. U.S. soybean exports are forecast at 2.050 billion bushels. U.S. ending stocks for 2020/21 are projected at 405 million bushels, down 175 million from the revised 2019/20 forecast.

Read More: USDA Reports Show Glimmers of Hope and Challenges

Luckily, the report provided some optimistic outlooks, says Jerry Gulke, president of the Gulke Group. USDA tried to paint a strong demand picture for soybeans. 

“But I think some of the traders saw through it and we had that negative move in soybeans,” he says. “What they did in soybeans was basically rolled about 100 million bushels of exports from old crop the new crop. We knew that might be coming because China is pretty much full on beans.”

From a high level, he says, China would need to buy a massive amount of soybeans or the U.S. will need to have a disaster of a soybean crop to get carryover down.

For corn, USDA estimates ending stocks could top 3.3 billion bushels on that expected record crop, even with projected demand increases.

“The estimates ahead of the report called for 3.8 billion in corn ending stocks,” Gulke says. “So, 3.3 billion should have been pretty positive for corn. But we had an unchanged week.”

The livestock markets posted another volatile week, with feeder cattle prices down, live cattle higher and hogs down.

Gulke says the proposed “Fed Cattle Set-Aside Program” and President Donald Trump’s request for the Justice Department to look into allegations that U.S. meat packers broke antitrust law are weighing on prices. 

“In addition, we continue to euthanize hogs,” he says. “The market is behind in slaughter across the board. The big question now is if we can get slaughter plants back going again, when will we be back to 100%? A lot of people think it is going to take quite a while to get there.”

For beef, Gulke says, Mexico is stepping in as a key supplier. 

Sales of beef into the U.S. were already enjoying double-digit growth. Already this month, sales of beef have jumped another 10% versus last year. Mexico has traditionally been the third-largest supplier of beef into the U.S. and may surpass Canada this year, reports Dan Hueber, general manager of The Hueber Report.

“That seems kind of crazy because here we are killing hogs and cutting back on feeding of cattle, so they don't gain so fast, and here we're talking about importing meat from another country,” Gulke says. “But it shows our food chain is broken. We weren't geared to flip our food chain around, and that's why we have shortages in the food market. I think everybody's learning an awful lot from the situation.”

For several weeks, Gulke has been recommending farmers remain patient with their grain marketing plans. With all of the turmoil caused by COVID-19 and supply chain disruptions, now is not the time to take wild chances.

Gulke says that strategy is still vital, especially as continued tension with key U.S. trading partners can dramatically move the markets.  On Fox Business Network this week, President Trump said, "We could cut off the whole relationship with China."… "saying You’d save $500 billion if you cut off the whole relationship."… 

Referring to Chinese President Xi Jinping, Trump said he has “a very good relationship” but "right now I just don't want to speak to him.” 

“You know you try to outsmart or outwit the other guy,” Gulke says. “Maybe we are at a point where China cannot stand any more economic reduction, regardless of how quick they turn their virus around. So, we will see. That's what got the market nervous – the stock market and the ag markets. So, patience is a virtue here.”


Read More

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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.