Weather: The Final Determinant

August 1, 2013 04:24 AM

jerry gulke

USDA sent a shock wave through the corn market June 28 with planting intentions of 97.4 million acres. Based on the wet spring, estimates were for a 2-million-acre reduction for a total of 95.3 million acres. Corn prices crashed to $4.90 before rebounding on the throes of dry weather forecast for the Midwest.

The key word is "intentions" as most of those surveyed, other than North Dakota and parts of Minnesota, intended to complete planting.

Gulke Group’s client survey comes close to USDA’s numbers, sometimes less than 1% difference. This year, our survey had planting intentions at 99.1 million acres. In its report, USDA reduced planted acres of all crops by 2.6 million in North Dakota and Minnesota. If 66% of those acres were corn, another 1.7 million acres would have shown up, taking intended corn acres to 99.1 million acres—very close to our original estimate. 

USDA’s  July 11 Supply and Demand report had corn acres at 97.4 million with yield at 156.5 bu. per acre, for a total of 13.95 billion bushels—that is 2.7 billion bushels more than was used in 2012-13.

If demand can increase by 1.5 billion bushels in the 2012-13 marketing year, carryout is projected at 1.95 billion bushels. Demand could rebound if average farm prices are $4.50 per bushel, reports USDA.

This should not be a surprise, as my April column suggested we did not need all the acres or yields of 156 bu. Given the supply potential, we needed adverse weather to create a bullish scenario.

Nevertheless, with odds of ridge building increasing across the Corn Belt, weather supported corn prices enough to post reversals that would normally be bullish if it were not for reduced demand last year. Post-June report lows are now the drop-dead benchmark for corn, where a close below opens up the proverbial demand-building $4.50 corn target.

Uncertainty exists in soybeans. August weather can make or break soybean yields and final supply prospects. With so much volatility, the August Supply and Demand report is sure to influence the soybean outlook.

USDA expects a 44.5 bu. per acre yield on 76.9 million acres for a total of 3.4 billion bushels with a carry­over of 295 million bushels. Traders took issue with this optimistic outlook. USDA will revisit the number of soybean acres planted in their August Supply and Demand report.

"We needed a Goldilocks type of year in the U.S. to keep prices above cost of production."

Acreage Up for Debate. Harvested acres and yield are open to debate due to a few million acres in Iowa, Minnesota and South Dakota that were very late and are subject to a yield reduction. Furthermore, the delayed soft red wheat harvest in the southern Delta casts a shadow on double-crop acres getting planted. Each million acres lost is in theory 44.5 million bushels, and each 1 bu. per acre reduction in yield represents 77 million bushels. Production could easily drop 150 million bushels with a reduction in yield and/or harvested acres. 

South America will make plans for their 2014 crop about the time we harvest, so our production will influence planting decisions in the Southern Hemisphere. We need to send a signal to our competitors to refrain from expanding acreage and consider an alternative crop to corn and soybeans.

We needed a Goldilocks type year in the U.S., not too good and not too bad, to keep prices above cost of production. There is a story in soybeans that is yet to play out in August, but for corn, the odds seem slim that production will be low enough to support prices above $5.50 for long. We’ll need to reduce harvested acres and yield to put excitement back into prices, or it could be a buyer’s market in corn for months to come.

Jerry Gulke farms in Illinois and North Dakota and is president of Gulke Group Inc., a market advisory firm with offices at the Chicago Board of Trade. For information, send an e-mail to or call (707) 365-0601.

Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee that the advice we give will result in profitable trades.

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