Jerry Gulke: USDA Report Needs to Shock the Market

01:25PM Jun 26, 2020
Jerry Gulke WMR 640x500
The markets showed red this week. December corn prices dropped 21.25¢ and November soybean prices dropped 19.25¢ for the week ending June 26. September wheat prices declined 9.5¢.
( AgWeb )

The markets showed red this week. December corn prices dropped 21.25¢ and November soybean prices dropped 19.25¢ for the week ending June 26. September wheat prices declined 9.5¢.

What’s behind these negative moves? The weather, says Jerry Gulke, president of the Gulke Group

“We weren't supposed to get much rain at all and here it suddenly comes,” he says. “My analogy is when it rains, even though it may not rain on your farm, the dry spots get smaller and the and the good spots get bigger. It looks like any Fourth of July weather scare is behind us.”

The favorable weather will likely continue to support the high crop condition scores. As of June 21, and 72% of the U.S. corn crop and 70% of the U.S. soybean crop is rated good or excellent.

“The weather is probably 75% of what happened in prices,” Gulke says. “The other 25% is the continued high numbers of COVID-19. Maybe it's not as bad this time because we’ve had less deaths per 1,000 people tested, but people are still dying, people are still nervous, and some states are starting to close back down again.”

Pork Prices Face Challenges

In the June USDA Quarterly Hogs and Pigs Report, the total inventory for all hogs and pigs on June 1 was a record-large 79.6 million head, which was up 5% from a year ago and up 3% from Dec. 1.

The market hog inventory on June 1 was 73.3 million, up 6% from 2019 and up 3% from the previous quarter.

“Hog prices have stayed sideways since about April and now we’ve gapped lower,” Gulke says. “It’s going to be hard for hog producers to cut back if corn is as cheap as it appears it’s going to be, but demand just hasn’t come back yet.” 

Pre-Report Take on Acreage, Grain Stocks Reports

The next mark-moving round of USDA reports will be here on Tuesday, June 30. USDA will release its annual Acreage and quarterly Grain Stocks reports on Tuesday, June 30 at 11 a.m. CDT.

It might be difficult to see a positive market reaction from these reports, Gulke says. 

“We may end up robbing Peter to pay Paul because if we cut the corn acres, they likely go to bean acres,” he says. “We almost need a radical move in corn acres. Instead of going down 1 million to 2 million, we need to see a 3-million or 4-million acre cut. I don’t think that’s going to happen. Hopefully producers are well hedged with a focus on protecting those profits.”


Technically Speaking by Jerry Gulke

Over the past six months readers have been able to view price charts and my technical analysis that has been basically biased negatively since Jan 2, 2020 when tops were put in place. Even the anniversary of last year’s price tops for grains (corn and beans especially) topped out again this year around June 18. The “weather premium” some thought was needed was in place but unrecognizable perhaps, but corn’s feeble rally from April 29 to June 18 area vanished pretty quickly once the weather changed. It changed emphatically on Friday. I hope producers were sufficiently forewarned to be  well hedged. So now what? 

Tuesday’s report will be important as it will reveal any adjustments to supplies due to the late harvest of corn in North Dakota and hopefully confirm prevent planted acres (PP) in the Northern Plains sufficient to surprise the trade. What we need is reduced corn acres more than trade guesses, and not much of an increase in bean acres. Weather has pretty much put to bed any yield reductions unless there is an abrupt massive dome of heat in late July or in August; possible but not probable. 

On the flip side, soybeans have not been able to penetrate the long-standing support of $9 that is now resistance. In addition, corn has held the $3.00 level numerous times since rising above that level due to the ethanol mandate of years ago to use 5.0 + billion bushels of corn. Ethanol is contracting, and there isn’t another 5-billion-bushel demand shock waiting in the wings. So, there is yet a dilemma rising amongst the ashes that won’t go away by merely throwing money at the problem. 

With global GDP likely to be negative, we need a “production reduction to offset the demand destruction”. Market bottoms often occur when psychology is the most negative. So the next task is finding a bottom as obvious as the tops were Jan 2, Jan 15, and June 18.

December corn

November soybeans

 

December wheat

Live hogs

Good Marketing,
Jerry Gulke  www.gulkegroup.com or [email protected]  
 

Read More
Jerry Gulke: Is the Soybean Price Breakout For Real?

Jerry Gulke: Letting Time Pass May Pay Dividends

Jerry Gulke: Is Corn Building A Base or Pausing For Another Drop?

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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.