Rest of the Story: Coming Full Circle

September 5, 2018 09:31 AM
 
This year is unlike the past few years but some prevailing trademarks did occur; however, Jerry Gulke reminds farmers not to overlook the technicals and don't trap yourself by relying solely on cycles.

While I am not a fan of cycles, as there always seems to be the excuse that a cycle low or high can fall within 10% of a target, I do respect habits of traders and the psychological aspect of trader’s actions.  Cyclists have little regard for fundamentals which can get them into huge trouble, especially given the eco/political world in which we are expected to risk today. When one considers a three, five or ten year cycle, a 10% error can be 3, 6, or 12 months out of whack and still fall within accepted parameters. 

A lot can happen in a year---we produce a corn and bean crop every year and our major competitors do as well with S American, six months from ours.  A lot can happen in six months.  While technical analysis usually leads markets in and out of a prevailing trend, I have found using technical analysis alone misses the big picture of fundamental outlook. A few years ago, my daughter turned a multitude of files that I had accumulated over the decades into a book entitled "Technical Analysis—Fundamentally Easy."  In my early days of farming and contemplating marketing, hardly a day went by that I didn’t spend the first hour overviewing the previous day’s price activities. I spend much more time nowadays for obvious reasons of the political climate of which we are expected to compete.

You likely didn’t read this anywhere earlier but it was on my mind as the market continued to digest one fundamentally price-negative piece of information after another. For the past few years, August 31 has marked a potential change in market price direction for corn and soybeans, likely because by that date any stored grain in elevators, especially on free DP (delayed pricing) had to be priced or minimum storage paid through February 1 of the following year.  There are some progressive elevators who allow day to day or month to month charges for a while but generally there is a deadline.  Buyers (commercial elevators)  love it especially when there is a huge carry to the next month or months.  We find ourselves once again in a similar situation.

This year for soybeans, there is one of the largest carries in futures that I have ever seen, thanks to the tariffs, lack of biz out of the PNW and a very large yielding record crop.  In addition to playing the money game by those in commercial storage business (pay me now or pay me later), the typical games are played with basis and market carry to where the cost to store is about the same as the carry in the market (corn/soybeans). Such a situation is why I have been a proponent of on-farm storage as a tool to control ones financial decisions. The ABCD’s of Agriculture has sighted increase control by farmers over their inventory as reasons they aren’t making the money they used to be. Years ago we were thought to be sitting ducks waiting for the proverbial harvest to be plucked.  Some analyst today make a living, or at least poke fun of farmers, who sell at the bottom one-third of the marketing range and buy at the top third. Ironic that farmers own the land and are in a vocation others would love to witness first hand. Whatever works I guess, makes the world go around.

Anyway, in case you didn’t notice, or weren’t forewarned, on Aug 8, 2017 corn and soybeans started the downward slide to the end of the month. Both commodities, posted lows on August 31st.  The same thing seemingly has happened this year. Corn rallied 11 cents last Friday as opposed to 12 cents one year ago.  Soybeans posted its low right on cue and rallied as well. Both commodities offered some obvious points to accept risk (take profits on hedges) after the long slide lower. If you hadn’t benefited from the downward biased markets since this column began, I probably wasn’t obvious enough in my outlook. 

While I find this year a lot different than the last three years, and wonder silently if the crowd mentality that finally recognizes that harvest lows have come early, are leaning the wrong way. It doesn’t matter what I think as the market will do what it does for reasons that are sometimes not so obvious to the casual observer.  Nevertheless the charts below should be of interest.

CORN: Notice in particular August 8th and August 31st dates on the charts and the corresponding action then and thereafter. Our proprietary buy/sell signals were in sink in 2017 and last week as well.

CornCBT-Dec2018--GulkeGroup

SOYBEANS: Soybeans showed similar time/price action last week as it did last year as well as reacting to the August USDA S/D Report with subsequent collapses in price.  This year, soybeans gave us an extra day before reacting to USDA’s action to finally posting a “7” in front of carryover. 

SoybeansCBT-Nov2018--GulkeGroup

Price Chart Comments: The charts show above have been depicted in this column many times before since last April, (similar charts for wheat, livestock available on request). If you hadn’t gleaned some dimes in corn and quarters in soybeans during the subsequent price debacles and hedging opportunities since last spring, then I didn’t do my job, but then again, my purposes was to make you think out of the box and to consider the “rest of the story” not found in the media. At a minimum there should be a greater appreciation for price analysis, both fundamental and technical, and their worth comparable to the equipment and time require to grow a crop.  I have stated for years that there should be a line-item in every producer’s budget for marketing or market outlook. 

Taking Leave: With the market seemingly at a crossroads, it is time for me to take an absence of leave. I don’t offer a free month of service, but if you think it worthwhile to receive my daily market analysis, outlook and individual recommendations in my absence I do offer a 30 day money back offer. It is not a trial as I believe if there is not skin in the game, information may be another avenue of entertainment, and this business is not entertainment. 

If interested, phone 480-285-4745  or 707-365-0601 and we’ll discuss it with you. 

Or go to www.info@gulkegroup.com, leave your phone number and someone will call you back promptly. 

Until October, after the USDA report, I wish you good marketing. 

 

Jerry Gulke

President Gulke Group.

 

Read more from Jerry by visiting AgWeb.com/Gulke

Read Jerry's latest column in Top Producer magazine, "A Look Ahead to 2019/20

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Comments

 
Spell Check

Kevin
Montfort, WI
9/5/2018 11:11 PM
 

  Jerry makes some good points however when looking at charts and the subsequent timing of lows, it must be taken into account the lack of exports as well as no resolution on the horizon with Trump's trade debacle, the calendar might not provide the same insight on the low in soybeans as years past. Trump has been bullying China for a year so don't think for a minute they will play nice and make concessions before the mid term elections. When they come to the bargaining table Trump may not even be president, the tarriffs go away and China gets cheap beans. Remember the Chinese buy bottoms, not tops. If this doesn't get settled, ending stocks will balloon and price discovery will be to the down side. Basis levels which are currently over a dollar will suck even more equity out of growers hands. In the end the government payout may only cover basis and demand destruction continues.

 
 
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