It has been a long while since the first issue of these columns, roughly a year ago in fact. The price charts I’ve included along the way have pretty much told the story or stories. In fact, each line with a high, low and close associated likely reflects a major fundamental fact or the continued reaction to a fundamental that changed perceptions of what price to discover that would reflect supply and demand. Looking back now it looks pretty easy.
The notes on the charts below for corn and soybeans are some indications as well as those areas where circles have been drawn. You can take the time and go back in time to verify for yourself what even coincides with the circled areas.
For starters, it is important to note that today April 22, 2019, December new crop corn closed below the level last seen in mid-July. You can determine if the state of affairs now are worse than those known back in mid-July and subsequent events and prices over nearly nine months of trade. Considering the hype in corn being the market that showed the most promise for demand, this has to be a major blow to those that have been hoping for that 40-cent rally that would hopefully result from making things nice again with China.
If the majority of 2018 and 2019 corn hasn’t been or isn’t protected from price erosion, the “hope” is likely turning to fear as planters hit the field. The key is to be on the right side of the trend, and one look at the charts says that if there isn’t a miracle that curbs U.S. production, the support just penetrated and will likely now become overhead resistance over time, perhaps beginning with the May USDA report that reflects the S/D situation for 2019/20 marketing year.
(click charts to enlarge)
In the case of soybeans, the picture is similar but surprisingly not yet at the July 2018 levels; odd considering everyone knows there will be 900 million bu. to 1.1 billion bu. of stocks come Sept 1, 2019. Soybeans look like they are finally becoming a realizing market where traders have come to realize the gravity of the situation.
I have discussed the situation in this column and others until I have writer’s cramps. I think there has been a period of unbelief of what happened and the fact we’ve not seen a billion bushels of soybeans available at the onset of another harvest, and most don’t know how to handle that situation and won’t voice a price level that it will take to clear the market of excess.
For those that understand what a bear flag means, the chart below has to be a wake-up call. Various methods are used to calculate a price objective and I’ll leave that you. But if you need assistance in further understanding, get in touch with me and I can steer you to some published information. Suffice to say that in marketing when there becomes too much of something, it goes on sale. During a trip through a shopping mall after Christmas or this time of the year, one can readily see what last season’s clothing is worth—usually a 40-60% discounted sale price is reflected.
Unless President Trump comes up with a “great” deal that somehow gets someone to buy a half of billion bushels of soybeans and feeds ocean fish with it, the excess stocks will end up somewhere looking for a home. Or our new competition stops planting beans. Odds are that won’t happen, so the next best solution is to grow demand such that in three to seven years, the excess will be gone, and we’ll look back at this event in our life as another hiccup.
The next question the market will ask itself is where all the acres will go that won’t be planted to beans next year. There is no good place, and putting stocks into a paid storage program only supports our competitors. The most rational to me is to re-institute a marketing loan, dump the stuff on the market where new users will come to the trough, and pay an emergency deficiency payment based on local prices so as to take into account basis variation.
A do-nothing situation is still a plan to do nothing and then it becomes a matter of reacting to a situation, which the government is good at. So, if you are thinking Trump will come through with a tariff payment again, you may be half right as he may not have much choice but to react to get farm states to vote. There is always weather, and that is always the case, whether it is in the U.S., South America, Russia, Ukraine or perhaps China. If you find yourself in a place where hope is turning to fear, you are probably not alone.
Contract me at firstname.lastname@example.org or call 480-285-4745 or 707-365-0601. Perhaps we can help?
Find more analysis from Gulke and listen to audio commentary at AgWeb.com/Gulke
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Grain Markets: The Calm Before the Storm
Jerry Gulke: Trade Deal or No Deal?
Jerry Gulke: USDA Shock and Awe
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