For the week December corn was up 28 cents, November soybeans gained 48 ½, December soybean meal soared $23.10, December soybean oil was up 148 points, December soft red winter wheat surged 84 ¾, December hard red winter wheat was 71 ¾ higher, December hard red spring wheat gained 44 ¾ and December cotton was up 303 points.
The Perfect Storm
Grain markets exploded higher for the week and made new contract and three-year highs across most of the complex. Massive fund buying ensued from the perfect fundamental storm converging in the grain markets. It includes the escalation of the Black Sea war and a severe cut in grain exports, the tightening U.S. and global balance sheets due to weather issues and strong underlying demand.
How Long Will the Rally Last?
Jerry Gulke, president of the Gulke Group, has been fielding questions from farmers wanting to know how long the explosive rally could last and how high prices could run?
He says the markets will continue to climb until the price reaches a level that rations demand. “That’s called the price discovery system, and we’re not used to that. In fact, many younger farmers haven’t experienced a price rationing situation.”
Gulke cautions producers that with prices for wheat and corn at three-year highs producers should be leery of selling prematurely because the market could continue to move higher on end user buying.
“I asked myself, why is the end user that didn’t buy the last three years suddenly thinking that $12 beans and $5.50 corn is a good buy? I think they’re really nervous about being able to get their hands on the physical commodity,” he explains.
Gulke says there are soybean processors that are currently offering attractive bids for old crop soybeans for August delivery 40 or 50 cents over the board.“Plus, the buyer is willing to sell them the right to stay open for pricing whenever they want for about 4 cents. So instead of bidding up the basis to try to get the beans, they’re trying to give an opportunity to farmers to continue to be long, because they need the beans.”That is a sign to him that the basis is really starting to squeeze.
Harvest Lows Are In
The last two seasons in August Gulke says the lows were forged in August.Many in the market were anticipating the collapse in August grain because the farmers got to sell it before delivery period and to make room for the new harvest.
“Well, now you can hold your grain and sell it to the same elevator that wanted to fleece you last year. You can sell it, pay for the storage, and actually make money holding the grain until March.So, this is a demand-driven bull market that I think few have yet to realize,” he adds.
The landscape is different than the last bull markets in grains according to Gulke because of the paradigm shift in global trade.President Trump has changed that with his agenda of using tariffs as leverage to get countries to buy more U.S. grain, including China.
Add on top of that weather problems like record heat and drought in Europe and it tightens global balance sheets quickly. On Friday morning USDA reported flash sales of 100,000 metric tons of soybean meal to both Germany and The Netherlands, which is evidence of the tight feed situation in Europe and the fear of El Nino’s negative impact on global weather patterns.
Currently, nearly every grain market is in an uptrend, a signal to the trend following funds to add to their long positions. Gulke says so far, they don’t have any sell signals or recommendations in place as they wait for even higher prices.
The Start of a Longer-Term Bull Market?
The last bull market in the grains started in 2020 coming out of COVID when bearish burdensome ending stocks in corn were chipped away through lower acres, the August derecho as well as the start of China’s U.S. corn buying spree in response to the rebuilding of their hog herd after African Swine Fever.
So, is this rally the start of the next long term bull market in grains?Gulke says it very well could be as the balance sheets are quickly tightening.For corn ending stocks in the 2025-26 marketing year are ample at 1.945 billion bu.However, plugging in a 173 bu. per acre corn yield and even stable demand puts ending stocks down to under 1.0 billion bu.
Corn exports could be even bigger in the 2026-27 marketing year according to Gulke. “So, all things being equal, the stocks in all positions is not high enough to keep the balance sheets satisfied.”
Gulke also believes national corn yield is likely closer to 178.5 bu. per acre but even under that scenario it puts ending stocks around 1.4 billion bu. “So, either way you look at it, there’s a price rationing situation that’s going to have to take place.”
That would put the carry in for the 2027-28 crop year roughly 500 million bushels less than this year, which Gulke cautions presents a problem.“So, you better not have a hiccup in Brazil, and you better see Ukraine shipping more grain than they’re supposed to. They’re already saying it’s going to be about a third less,” he explains.
Acreage Battle in a Bull Market
Once the market has a short supply, it can squeak by year one, but according to Gulke yield needs to rebound the following year. A 1.4 billion bu. corn carryout will also require additional acres.“We ran the scenario and to get carry out back to 1.5 to 1.7 billion the next year will take nearly 100 million acres of corn,” he adds.
If China buys all 25 million metric tons of soybeans this year that market will also need one or two more million acres.Otherwise, corn and soybeans will have to battle for acres through higher prices.
Plus, wheat had the lowest acreage in the U.S. in 149 years and with a drought reduced crop in Europe and exports shut off in the Black Sea, that market will also have to bid acres back from other crops through higher prices.
“So, end users suddenly start looking ahead and say I better buy grain now at $12 so I don’t have to pay $14 or $15 or $17 later on,” he says.
As a farmer himself, Gulke says it’s great to finally see end users recognize the real value of the grain U.S. farmers produce.
For more information contact Jerry at info@gulkegroup.com.
