After an Ugly Week are the Grain Markets Signaling a Major Price Reset Similar to 2013?
Grain markets collapsed this week posting lower weekly closes again on massive fund selling. July corn was down 30¢ with December losing more than 20¢. July soybeans slid 30¢ with November down 22¢. Wheat hit new contract lows in all three classes with July Kansas City wheat down 48¢, July Chicago 38¢ lower and September Minnesota wheat fell over 40¢.
Jerry Gulke, president of the Gulke Group, says the ugly week may be the first signal of a major reset in the market similar to 2013. It was also a hangover from the realization the U.S. is not globally competitive. That was solidified when China canceled nearly 24 million bushels of U.S. corn — and Gulke expects additional cancellations. He says lower prices and the record crop in Brazil continue to undercut the U.S. in the corn and soybean markets. In the wheat market its all about Russia.
“It’s as if the market is finally saying, well now we know what demand is out there. It's questionable. We probably are growing too much of everything,” Gulke says.
Additionally, new crop contracts are telling the market they are not concerned about U.S. farmers getting the crop planted, even spring wheat, according to Gulke. He says progress has been good so far. Even in North Dakota the snow is melting, and the extended forecast looks more favorable.
The big question is are the funds done selling, or how much more downside risk is there is the grain market? Gulke is bearish, especially as he looks at the July corn chart and the September Minnesota wheat charts, which both posted key monthly reversals, which are negative chart signals.
“That’s not a good deal, and it usually spells the end of a market,” Gulke explains.
Soybeans held up better technically with July soybeans holding chart support around the psychological $14 market and November above $12.50. How long will these areas hold, though?
“I think soybeans have a major problem with South America's crop probably bigger than what we think,” Gulke says. “It could be 3 to 4 million metric tons bigger than most people thought it would be.”
Gulke has talked to some large farmers in Brazil who warned him about the competition the U.S. will see in the export market moving forward.
“We're going to be in your space for a long time because we'll be selling beans when you're selling beans. We may very well have beans to sell to the world before we start to harvest a new crop in January or February next year,” said one farmer.
Gulke compares the selloff in grains to a fire sale at a clothing store where they’ve made money already and end up selling the last of the inventory at a much lower price.
“I’m concerned how low soybean prices could go by fall,” Gulke says.
The drop in grain prices has caught many farmers off guard as they never thought prices would get down to these levels for old-crop bushels because of the tight carryover and strong cash basis levels. However, he says there was serious money lost on unpriced or unsold bushels this week.
“I multiplied the numbers in my head and corn lost 20¢. At 200-bushel corn, I lost $40 an acre if I didn't have any sold, and it was the same thing for wheat. In beans, you lost $10 to $20 an acre perhaps.”
Bottomline, according to Gulke, is a lot of prospective income was lost on those bushels that were not covered in some way.
