For the week December corn was down 18 ½ cents, March corn was 16 ¼ lower, November soybeans lost 4 ¾, January soybeans fell 7 ¼, December soybean meal was down $11.00, December soybean oil dropped 30-points, December soft red winter wheat sank 35 ½, December hard red winter wheat plunged 39 ½ and December hard red spring wheat was down 35.
Corn futures closed lower again this week with the December contract losing 18 ¼ cents and closing Friday below the August 6 low.
Jerry Gulke, president of The Gulke Group, says it is technically bearish to close below the lows the previous two months.
December corn has now lost nearly $1.00 from the contract high of $5.49 ¾ hit on September 2.He points out that prices have now dropped below some farmers cost of production, which is a lost opportunity for those that did not exercise good risk management through a marketing plan.
“We hear it from bankers, we hear it from everybody, you’ve got to know your cost of production. And when you can break even, you got to sell something,” he says.
Gulke explains that marketing is part of being a farmer and without a plan farmers can lose money and would be better off with an off-farm job where they can make a steady salary with health care and a retirement plan.
What’s the Lesson?
Gulke says the Board of Trade is a price discovery system he and other farmers have been using for years.He first started using futures for his farm in his 20s, “To anticipate what price was needed or reflected in the day-to-day price based upon the demand and the supply that we perceive that we have.”
He explains in June the markets and USDA projects they think the supply and demand is going to be. Now that the crop is being harvested the supply is nearly locked in.“We’re within 98%. You might lose something to wind or something, but it’s like spitting in the wind. You pretty much know what you got,” he says.
The market now needs to figure out the demand according to Gulke. For corn, USDA has increased demand 20% per year for three years.So, he says a lot of the media was expecting another 20% for this year, a record amount. “You think you’re going to do that again? You might do that at $3, but you’re not going to do that at $5. And the market reflected that.”
Lock in a Profit When You Can
When corn prices were at contract highs at nearly $5.50 on September 2, they could probably gross $200 an acre more than were current prices are.All the while farmers are complaining about the high price of diesel fuel, which only amounts to about $8 or $10 an acre. “We lost that much probably today. Four cents times 200 bushels is $8.”
Gulke blames the complacency on crop insurance for starters.“You can blame it on the fact that a bank will loan you money as long as you got your loan covered under crop insurance. They’ll finance you to high heaven whether you can afford to pay for it or not. And that’s a sad situation.”
He says he’s seen this evolve over the last 20 years and he doesn’t have a solution but advises producers to get street smart. Plus, they need to study the market for themselves and decide if they are going to be the chief executive officer or chief financial officer on their own farm.
Farmers can spend money and time on new products and technology to boost yields but if they are selling the last 10% or 20% of their crop below the cost of production, Gulke wants to know what they gained financially.
Light at the End of the Tunnel
As corn prices continue to look for a bottom they want to know if there is any light at the end of the tunnel?
Gulke thinks the best-case scenario is the market goes sideways. The last two years corn bottomed in August and rallied during harvest, but this year is different especially with the 2.7 bu. per acre yield increase USDA provided on corn in the October WASDE.
He in concerned that farmers without a marketing plan that were on the wrong side of the market will be hurt financially, even with record government assistance.“I fear that we’re going to be looking at bankruptcies coming down the road.”
For more information contact Jerry at info@gulkegroup.com.
