Technically Speaking: Volatile Markets As Harvest Wraps Up

November 13, 2018 01:54 PM
With the recent volatility and rhetoric affecting the markets, Jerry Gulke, president of the Gulke Group, picks up his column right where he left off.

It has been a while since I have stated views in this venue (note name change to better describe contents). Harvest was wrapped up 10 days or so ago just before a 3 inch rainfall blessed our ground in N IL again. No fall work has been accomplished yet as rains and then freezing temps have hindered. Harvest for soybeans was completed in my ND area of interest after the snowfall, but areas do remain due wet soybeans as delivery is hindered by restrictions on acceptability. Unlike Illinois where soybeans can be delivered at 16% or less, ND is not as agreeable requiring 13% or less. Corn harvest remains in a lot of areas.

Since the last column, markets have been volatile to say the least with still a lot of rhetoric both within and without the White House comments regarding tariffs and US/Chinese talks. Rumor is that U.S. Treasury Secretary Steven Mnuchin spoke with Chinese Vice Premier Liu He last Friday about ways to ease trade tensions ahead of a meeting between President Trump and President Xi, set for the end of the month at the Group of 20 nations summit in Buenos Aires. Larry Kudlow, whom I feel has little empathy towards farmers, said on CNBC this morning that talks with China have turned positive and that headway is being made with Japan and the EU on trade.

You will recall that back in May China proposed buying $60 billion in ethanol, soybeans, DDGs and Ngas as a framework for talks. Trump flat out rejected the offer stating we need a $300 billion plan. China since to that overture and any other item that smacked of negotiation off the table and the rest is history with soybeans dropping $2 with Ag Secretary then offering the $12 billion tariff relief fund, part of which is the $1.65 soybean payment. The collapse in soybeans and prospect of ending stocks exceeding 750 mil-bu was discussed in this column well in advance of actual occurrence.

I suspect if there is going to be anything positive for Ag coming out of back room talks and any new framework agreement with China, it will be from a piecemeal aspect segregating Ag, steel, other tariffed items and intellectual property rights as separate items for negotiations over time. Since China theoretically needs beans and maybe clean pork, those items may be part of an “agreement in principal” for China to by a specific amount over a specific period of time. China likely doesn’t need our soybeans but that does not mean they won’t buy 250 mil-bu for their “reserve”. Odds are they don’t need corn having found a doubling of stocks in their last 10 yr. reset on actual quantity in stock.

Oil prices continue to slide precipitously today. President Trump will likely be blamed for "demanding" the Saudi's hike production to overcome lost Iranian oil while on the other hand issuing waivers totally over a million barrels a day to 8 countries to continue to buy Iranian oil. That confusion and the full-on production by the US along with supply increases by Russia and other countries, stocks were actually growing to new high levels, something the market missed that resulted in a vacuum with little buying an now nearly three trading weeks of deteriorating prices. Combine this with fears of a global slowdown of economic growth and we have a classic collapsing market which will offer opportunities for cheaper gas, diesel and jet fuel down the line helping our economy, including Ag. The “big oil” got opportunities to hedge off production in the $70 range before rhetoric slammed the price, unlike soybeans which collapsed and have difficulty now overcoming ending stocks of a billion bushels with or without China.

The technical picture (price movement of grains/oilseeds) over the past weeks are shown below.

SOYBEANS: Hope still lives that a China deal will make everything go away and we’ll be back to normal before tariffs. Odds are that too much damage has been done to creditability but that does not mean China won’t buy beans whether they need them or not. The “talk” has reduced prices in Brazil and improved basis in the interior US. Cash contracts were met; some minor hedges remain with decent coverage for 2019 crop as higher prices yet in 2018 likely don’t reduce plantings sufficiently for 2019. Export loadings (soybeans leaving the US) are woefully behind yet and odds are won’t catch up and the USDA lowered exports significantly in the last report raising carryout closer to my now 1.0 bil-bu carryout.



CORN: Although the increase in Chinese stocks likely doesn’t mean much in the whole scheme of things, prices are staying within the report day wide trading range as traders sort things out. We don’t sell corn to China but they should be interested in our DDGs and other energy products/by-products. Actual export loadings (corn leaving the US) still looks very impressive. The question is whether it is front-end loading/buying or real long term demand.



LIVESTOCK: Feeder Cattle put in a reversal today of significance that I would like to see happen in grains and/or oilseeds. More on livestock next week but take note.


IN SUMMATION: A lot of opportunities both on the up side and downside in price movements in grains have been seen this year starting with the debacle in soybeans that began last spring and cumulated in a drop of nearly $8 billion in value for the soybean crop not to mention value in a particular farming enterprise. Same goes for wheat and to some extend corn as well. The marketing year 2018/19 began a couple months ago and is far from over. Opportunities for 2019 have also been evident.

Back a few months ago I offered a trial look at daily comments offered by Gulke Group, Inc. Questions have come from those who elected not to participate for various reasons, most of which seem to be coming from the belief that our administration has our back or that we had China up against the wall and that they had to buy from us and all would be resolved. Obviously so far that is not the case and it is a matter of conjecture today as it was then. The important thing is to be on the right side of developments that occur and that could have a significant influence on our bottom line. While one is always subject to the possibility of making mistakes, what is most important is that we not make big mistakes. Tight margins and the eco-political atmosphere that we are expected to manage our risk of managing market price risk all the more difficult . There is not much room for error!

For a limited time I am offering a 3-month subscription for the price of two months. There is no free lunch when it comes to marketing advice and this is no difference. Without a vested interest, reading free info on a web or chat room is merely entertainment. I am not in the entertainment business. If interested in subscribing to our daily advice and web access plus other advantages like our client only December 13-14 Chicago Conference or our Annual Palm Springs Commodity Outlook Conference in February 2019 please contact or and leave your phone and email address (contact info) and we will get back to you or merely phone 480-285-4745 or 707-365-0601 and speak to Jamie or Jeff directly for more info and details---perhaps we can help?

Best Regards, 

Jerry Gulke

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