For the week, March corn gained 2 cents, January soybeans lost 5½ cents, January soybean meal dropped $1.20 per short ton and January soybean oil fell 36 points. March hard red winter wheat gained 3¼ cents, March soft red winter wheat lost 5 cents and March hard red spring wheat was up 1½ cents.
Corn closed slightly higher on the week, still digesting the 200 million bushel drop in ending stocks delivered in USDA’s December Supply and Demand Report.
Jerry Gulke, president of the Gulke Group, says the large drop was a surprise to the market, especially coming during the December report, which is usually quite benign.
“That was a nearly 10% decrease in corn carryout, which is pretty big for a December report. That begs the question, if USDA made this large of a cut now, what is the agency trying to tell us?” he explains.
However, he says it should not have come as a surprise because of the strong demand signals in the market, including robust ethanol crush and a surge in export demand.
Export commitments are now running nearly 30% higher than a year ago as Gulke says customers around the world see U.S. corn as a value.
“What has made that surge in corn demand even more surprising is we did all that export business without China being involved,” he says.
However, Gulke still wonders if USDA is preparing the marketplace for more of the same in the final January report?
“We haven’t even talked about yield yet, and going into the report a lot of people still think the yield is less than what the government thinks. If you look at 1 bu. reduction that’s about 80 million bushels. You subtract that from the 1.738 billion bushels and we’re below 1.6 billion,” he says.
Gulke calls that a “paradigm shift” in the corn market, which leaves him pondering, “Is this just the beginning of what we might see?”
Farmers who used on-farm storage and refused to sell have already seen about a 50 cent appreciation in prices since harvest in corn.
Gulke says that level on the charts coincides with the 200-day moving average, which is a key technical signal used by many of the managed money traders.
That level might hold for a while as Gulke says the market continues to be cautious ahead of president-elect Trump’s threat of a possible increase in tariffs on several large agricultural trading partners on the first day of his new administration.
Gulke says the market will be more prepared for tariffs this time around because of the precedent set in 2018, so the reaction might be more muted.
“However, we are dependent on that export market to move the large crops we have, and it will make a big difference to farmers’ bottom line,” he says.
However, producers who are concerned about the downside risk can use option strategies to protect corn and even soybeans.
“You can buy some of the short dated options and use those for short-term protection to see how the market reacts to this news. I did this for my own farm going into the WASDE report. Some at the money calls cost me about 4 cents and now they’re worth 2 cents. That’s not a lot of price outlay to protect the downside risk,” he adds.
For more information, contact Jerry at info@Gulkegroup.com.
