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USDA Reports Provide A Dose of Reality

15:24PM Mar 08, 2019

USDA provided their monthly update to the supply-and-demand picture for ag commodities. The report had little good news for farmers, but it wasn’t completely bearish, says Jerry Gulke.( AgWeb )

USDA provided their monthly update to the supply-and-demand picture for agricultural commodities. The report had little good news for farmers, but it wasn’t completely bearish, says Jerry Gulke, president of the Gulke Group.

The corn outlook for USDA calls for lower corn used for ethanol, reduced exports and larger stocks. USDA reduced corn exports by 75 million bushels to 2.375 billion, reflecting diminished U.S. price competitiveness and expectations of increased exports for Brazil and Argentina.

“The one thing you don't want to see happening is demand start to wane,” Gulke says. “If you look at the export sales on a weekly basis, we are now behind last year. We've been ahead for quite a while. Last year, we moved a lot of corn, and this year we're slowing down a little bit. So that's not good.” 

The drop USDA made in exports could be a sign of more drops to come, Gulke says.

“We certainly don't want to see it in April and May, because that says the global competition had us for lunch again,” he says. “People buy from the cheapest seller, not from the cheapest producer. We’re not really competitive until you get out into next fall, when other countries run out and we have an abundance of supply.”

Even though the demand trends aren’t a good omen for the future of corn, Gulke says, prices didn’t drop significantly. 

The next big issue for the corn market is spring planting conditions. “We have wet conditions and snow at a magnitude that we haven't seen in years,” he says. “You’ve got to think it's going to be difficult to get that crop in the spring.”

For soybeans, USDA didn’t make any major changes to the balance sheet. For the week soybean prices were down around 15¢.

The soybean story continues to revolve around China. Per this report, Gulke says, USDA doesn’t see a lot of beans moving to China this marketing year. As a result, USDA left carryover unchanged at 900 million bushels.

Gulke says there has been some speculation that the USDA is overestimating carryover by as much as 50% but that doesn’t seem to be the case currently. 

“I think we're still stuck with a lot of stocks in soybeans and the market reflected that today,” he says. “Time is running out. You just don’t have 400- or 500-million-bushel hit somewhere that's going to lower our stocks to where we get beans to $10 again. China may be just shuffling the deck and buy beans for marketing year 2019/20 leaving us to hold a billion stocks for another year.”

Wheat prices were also down for the week. In the WASDE report, USDA forecast larger wheat supplies, lower exports, reduced domestic use and higher ending stocks. 

“I think the trade got snookered,” Gulke says. “Everybody was looking for Russia to have to stop selling wheat because they were selling so much, they couldn't possibly have that much wheat, nor could they possibly have the capability and logistics to export that much. They fooled everybody.”

Wheat prices have fallen precipitously in the last few months, Gulke says. “Wheat may have to be priced as a feedgrain to get it to move and that is not good for corn.”

Find more analysis from Gulke and listen to audio commentary at AgWeb.com/Gulke

 

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