For the week September corn was up 16 ½ cents, December corn was 19 ½ higher, August soybeans soared 55 ½, November soybeans gained 43, August soybean meal was up $14.90, August soybean oil was 358 points higher, September soft red winter wheat was up 40 ½, September hard red winter wheat gained 37 ¾ and September hard red spring wheat tacked on 33 ¾.
Grain markets were higher on Friday and scored bullish higher weekly closes across the complex.
For Jerry Gulke, president of the Gulke Group, the action further confirmed the grain futures forged significant lows on June 30.
“Yeah, I’m even more convinced and I was looking for some supportive information from the marketplace and we’re starting to see that now.”
Gulke had lifted hedges when those technical signs were indicated on the weekly continuation chart.
Technical Action Confirms Lows in All the Grains
Last week Gulke pointed out that the bullish technicals in corn signaled a low and this week soybeans and wheat showed similar patterns.
That chart action was reinforced by fundamentals that included adverse weather, a friendly WASDE and China buying 32 million bu. of soybeans this week.
He says the only thing that could derail this trend is if China would reverse their buying pattern on U.S. soybeans due to prices getting to compared to South America.
“If the lows are coming early like last year, then there’s more behind this marketplace than what is in the WASDE report or some of the private supply and demand estimates,” he adds.
Corn Balance Sheet Tightening
USDA provided a friendly July WASDE with old crop ending stocks lowered by 125 million bu. to 2.02 billion bu., while new crop ending stocks were cut 170 million to just under 1.8 billion bu.
However, even before the confirmation of the lower U.S. and global ending stocks for corn in the WASDE Gulke said their analysis was indicating tighter supplies.
This leaves no room for error when it comes to a weather problem and the impact on yield.A one or two bu. per acre cut from 183 on corn will significantly cut stocks, the same is true for soybeans at 53 bu.
“So, yeah, I like where we’re at. You don’t have to be long because if you’re not hedged, you’re long in the field. And that’s working out well for us now,” he adds.
Price Targets
So, what are Gulke’s upside price targets?
He says the market already exceeded his initial objective. “The conventional wisdom would be they’ll be selling against the 50-day moving averages but soybeans blew right through that level before I even had the chance to sell more.Wheat made a heck of a move and corn, of course, is going higher,” he remarks.
Wheat is now following the Matif wheat futures in Europe which have literally exploded, and corn is getting some spillover strength as well.
“So, you’re not going to feed a lot of wheat, and that helps the corn demand. It’s going to be very hard for USDA to lower demand in the corn, and it may move higher as it is compounded 20% year after year and we’ve been seeing it for three years,” he adds.
So, he says there’s every reason to believe that could continue.
Six Week Rule
Gulke also uses a six-week rule for marketing which suggests when a market changed fundamentally it usually takes six weeks to work it all into the price.
“Price discovery discounts it. If you look back at May 13th when we put in the highs, June 30th is when we posted the lows on a lot of commodities and maybe in some cases double bottoms. That was nearly exactly six weeks. So, if you want to add six weeks to June 30th and say, whatever is out there, we’ll have it discounted by August 10th or 12th.”
He will be looking for some fundamental justification for the higher prices in the August WASDE regarding yield, especially if the heat is extended into August as it will impact both corn and soybeans.
Still More Time for Price Discovery
So, Gulke says there is time left in the season for price discovery, and it will also depend what USDA does with yield and certified acres from the Farm Service Agency.
“If they lower yield a bushel per acre in corn down to 182, that’s 80 million bushels less and if you extrapolate today’s numbers into supply and demand, that says carryover is not 1.8 it’s more like 1.72 billion, in that area. And you drop another bushel off of that and now you’re at 1.6,” he explains.
If demand doesn’t weaken, he thinks USDA has a problem because they have no way to reflect that in the balance sheet and not cause further food inflation.
“So, we’re in the catbird seat in agriculture finally. It could be a banner year with government payments and price of grain going higher,” he concludes.
For more information you can contact Jerry at info@gulkegroup.com.
