Rest of the Story: Capitulating Markets Continue

June 19, 2018 04:00 PM

The charts below of corn/soybean/wheat tell the story pretty well. The question now for producers, traders and exporters is whether we are witnessing a capitulating market or if we have shifted global perspectives on what will determine price discovery. Certainly, the collapse today (Tuesday) was likely capitulation than trying to discover a price commensurate to what appears to be demand destruction via tariffs and the childish tit-for-tat between China and U.S. (Check futures prices for commodities.)

I looked back at the beginnings of this column and the concerns I had. In particular the April 30 issue, I stated that it would be naïve to believe that “China has to buy from the U.S.” 

The results since than have been for an extreme drop in soybean prices of nearly $1.80/bu. means a drop of about $6 billion for the crop, or $90/acre for a producer if he did not heed the concerns. Corn dropped 50 cents or $100/ac and $7 billion of value of our U.S. crop. Wheat has not faired too badly but is getting hit as the trade seems to have gone from soybeans, to corn, and now including wheat in its capitulation.  

Interestingly hogs have risen $9 since the end of April when some popular university economist put out a very negative outlook on hogs. Often you don’t hear the rest of the story in the media! 

The manner of managing the downside market risk in soybeans especially I felt was coming was mainly due to most of the trade looking at merely extrapolating increases in demand for soybeans especially into a new year having missed it so badly in years past.

CORN concerned me three weeks ago when those in the media suddenly got religion and saw the chance for 1.6 billion bu carryout for 2018/19. 

It makes me nervous when those that are historically wrong short term (but can be correct in the longer term perhaps) miss the fact that our futures market discounts the future with current and anticipated facts and perceptions. The 1.6 carryover is predicted using a 174 bu national corn yield, not  the 178 to 180 some are suggesting now.  A 6 bu. increase in yield (seems extreme to me) means carryover rises to 2.1 bil-bu and we are right back where we were a year ago---see July chart below – perhaps fully discounting a mega crop with increased acreage ahead of the June 29th stocks and acres report and July/Aug the important yield determining months.   

Continuous Corn Chart

SOYBEANS have reacted more negatively than I anticipated but passions got heated as the US continues to reject overtures by China and now China has removed all former agreements making them null and void including the “framework agreement” of mid-May.  Soybeans have finally exhibited the fact that perhaps China doesn’t need as many soybeans from all sources including the US and may in fact be able to get along with less than 100 mmt next year, not the 108—110 some thought.  Ten mil-metric tonnes is 370 mil-bu!  Who do you think may hold the unneeded demand?   Also important is the silent concept of a mil-ac more soybeans to be reported by October along with a 52 bu yield not 48 which is 360 mil-bu more supply in a perceived demand reduction atmosphere.  

USDA already has increased expectations in soybean exports for 2018/19 in their June report and the market saw right through that.  With exports AND crush increasing, where do you think an increase in production will fall?  Likely to carryover.  Thus my most negative outlook since late 2017 for soybeans in my memory. 

July 2018 Soybean Chart

WHEAT: Wheat has acted differently from corn and beans except for the current liquidation but has global concerns in the Black Sea Region that needs to be monitored, but technically it looks very vulnerable if today’s (Tuesday) low does not hold going forward.  

July 2018 SRW Wheat Chart

UPSHOT FOR TODAY: When bad things happen to apparently good markets one has to re-examine what the market may be telling us versus what was and has been conventional wisdom.  Gulke Group does that well. We have discussed for month the irrational exuberance of Chinese demand in general and for U.S. beans in particular. That myth has been dispelled but yet there are still brokers/analyst/commercial firms talking about it…  

The same rationale Gulke Group used for its focus has not changed in beans except now the impetus for China is to make it as miserable as it can for the US farmer and thus Trumps base. 

If you were looking for a downside target for corn, July got close today to what appears to be an overdone situation.   However traders are still of the belief we have a million acres more corn than NASS thinks—another 80 mil-bu plus yield rising. 
It is impossible to know where price lands and firms as the rest of the trading world is still fixated on the bogus idea that we have China up against the wall. What happened was the China now can by soybeans $1.50 less from anyone! The danger lies that now that they have stocks to sell, a poor hog market (meal demand sucks) and the unrealized fact that China could cut soybean demand 5% (5 mmt) and end up using 10 mmt next year while supplies increase?   

There has been a lot of changes in trying to determine a value for the crops we are producing and likely more yet to come. My focus is to be in a position to be able to weather a price storm should it occur and that is where I am at this stage of the game with a long time till harvest and a long time yet to market any unsold grains.  

My most important objective was to be 90-100% covered in soybeans and that objective has been met.  If you were a trial subscriber and became a client---you are to be commended as the last five to six weeks couldn’t have been better timing.  Regarding any solution to the nasty tariff debate, one has to understand that this is more than an Ag issue. There are multiple issues that are expanding nearly daily that will need to be resolved including the more nasty intellectual property rights issue, all of which may take much longer to resolve than we anticipate.  

If so, we’ll be done harvesting the 2018 crop sooner!   

Good Marketing,

Jerry Gulke (
Read more from Jerry Gulke by visiting

Back to news


Spell Check

Kathleen Chenault
Rockville , MD
6/19/2018 06:13 PM

  Farmers and rural communities, like those where my family farms in Nebraska, deserve so much better. Reject the tunnel vision of administration cronies who like to play on your faith and patriotism. Demand an end to Trump's ruinous trade policies!

Culver, IN
6/19/2018 09:33 PM

  Not sure sympathy is apropos. Elections have consequences. What a sad mess they have created.

flying farmer
6/20/2018 10:39 AM

  bad trump bad trump blah blah blah. Stupid. Really stinking simple people, farmers raise to darn many crops and think the solution to a saturated market is to saturate the market even further with more crops. If you can't see that is the problem then your even stupider than I thought. It is just that simple and why people can't see that is beyond me.