USDA’s June supply and demand report “normally isn’t a big deal,” says Jerry Gulke, president of the Gulke Group. But this year is different, as the falling carryover and rising export numbers showed. “This is a demand-driven market, and people are finally coming to realize that we’ve talked about for months—that demand is the issue, not how many grain stocks we have in our backyard in the United States.”
That key trend—and other global weather concerns—asserted itself on Friday in the latest USDA numbers. For corn, the U.S. old-crop carryover was just trimmed, with a reduction of 95 million bushels. “We still have 1.7 billion bushels,” notes Gulke. “It’s hard to see any sort of demand shock that’s going to take another 300 million bushels, so we’ve got enough (corn) to get through the end of this marketing year and begin harvesting the 2016 crop.”
But South America does not. So, at the same time as demand is growing, end users are opting for U.S. grain, leading to a continued reduction in new-crop corn carryover as well, to 2 billion bushels. “We’re going in the right direction,” Gulke says. “We’re using more domestically because of the resurgence of the cattle and hog quantities that we’re feeding, but also in the export market, and much of that is because of what happened in Argentina and Brazil.”
The soybean market is even more affected by these trends. Exports are up for this year and next, crush is rising, and it’s slicing the new-crop soybean carryover down to an estimated 260 million bushels on the assumption of trendline yields. “When South America has problems, we gain,” Gulke says. “It’s good for us, and it makes things a lot tighter.”
And, depending on what happens with the weather in the coming weeks and updated soybean acreage numbers on June 30, that supply number could get even tighter. Even a small reduction in yield from trend could have a significant effect on production, pushing prices “high enough to ration demand,” Gulke says. “Don’t underestimate these markets.”
Could these factors come back to hurt U.S. farmers this harvest, when prices typically fall? Gulke doubts it.
“The important thing about all this is that the South American problems helped this, so they are not going to be a thorn in our side next fall, trying to get rid of their surpluses because they won’t have them,” he says. “Brazil has a 6- to 8-day supply of corn, so we will be needing to ship a lot of corn out of this country, and it will start at harvest.”
Listen to his full comments here:
AgWeb encourages lively, constructive discussion on our site, but ask that users remain civil when commenting. Comments insulting any person or groups of people are not permitted on this site and will be removed as they are discovered.