For the week December corn was up 3 cents, March corn was 2 higher, January soybeans gained 7 ½, March soybeans were up 10 ¼, December soybean meal was $5.40 higher, December bean oil gained 47-points, December hard red winter wheat fell 4, December soft red winter wheat eased ½ and December hard red spring wheat was up 7.
Grains ended lower on Friday in reaction to bearish numbers in the November crop production and WASDE reports.
USDA Report Takeaways
Jerry Gulke, president of the Gulke Group, says technically corn, soybeans and wheat all put in daily reversals on the charts on Friday after the USDA Reports. For soybeans the bearish reaction in the reports came from USDA lowering soybean exports 50 million bu. to 1.635 billion bu. while acknowledging China would be buying soybeans due to the trade framework.
Soybeans had rallied into the report and nearly $1.40 off the October lows as the market priced in additional China demand from the trade framework struck with the U.S. on October 30. So, Gulke wasn’t surprised with the reaction, as the best scenario was already priced into the soybean market. “The market’s job is one of price discovery. And we said, well, what if the Chinese or the USDA reflects that whole 12 million metric tons that they were going to buy or not? And I think I pointed out, what we did was rallied back up to where we were last May, I believe it was, when we thought China would be buying beans.”
Record Corn Yields in Many States
Despite disease and production issues during the growing season USDA only lowered corn yield by .7 bu. per acre, to 186 bu.That was a disappointment to the bulls and came from record yields in many states.Iowa came in at a record 216 bu. down just 3 bu. from September, Illinois was up 2 bu. to 221 bu., South Dakota was up 6 bu. to 173 bu.
Gulke says the record production in many states was a result of better-than-expected yields offsetting the poor areas. “So, we get all done, you know, you take 10 or 20 bu. out of Nebraska at about 8 million harvested acres, I think, roughly. That’s 160 million bu. That’s like spitting in the wind when you’re talking about a 16-billion-bu. crop. So, the odds of them lowering it to 184, or even a 182.That wasn’t in the cards.So, the odds of us getting a bullish report were slim and none.”
He also attributes the record yields to strong plant populations and heavy test weights. “If you get 58-pound corn that’s 5% more. So, 5% times 180 bushels an acre is another nine bushels.”
However, Gulke says with the high feed and residual in the report at 6.1 billion bu. and the 100 million bu. increase in corn exports, that still leaves USDA room to lower yield in the January report.
Did Farmers Miss Their Opportunity to Sell Soybeans?
Gulke says with the report not living up to expectations soybeans corrected Friday and could move lower without confirmation of Chinese purchases.Will soybeans go back to test or fill the gap area left after the trade framework was announced?He says sometimes after a sizeable rally a market will retrace 50% of the gains just to reach equilibrium.“So, you could take a look at where we were about $1.40 ago.We might retrace 50 or 70 cents from the highs of today. So, I can’t second guess with you where we’re going to go,” he adds. Gulke says the important thing is to be in the right position when that happens and to be proactive.
Proactive Marketing
Gulke says they had bought some cheap soybean options, going into the report just in case it was bearish and did more proactive marketing on Friday.“We actually bought puts today on some grain that we hadn’t sold but instead put in on farm storage. So, we bought $10.40 puts and sold the calls we had. So, we used the CME’s money to buy the puts on the downside and that worked very well,” he explains.
With global traders not interested in being involved in the grain markets Gulke says options were affordable.“They got as cheap as I can remember. I mean, when you can buy upside protection for a dime, there’s something crazy going on,” he adds.
Gulke says they did the same in the corn market. “Options were like five or six cents, so we bought upside calls.We paid a penny and a half for some two or three days ago as well.So, when do you get a chance like that you take it.Of course we made profits on them very quickly, some of those options doubled in price in just a couple of days,” he says.That is money that farmers can use this fall to buy fertilizer or other inputs.
For more information contact Jerry at info@gulkegroup.com.
