Grains were mostly higher for the week. December corn closed up 2¼ cents, November soybeans gained 22 cents, December soybean meal was up $33.90 while December soybean oil lost 99 points. December Chicago wheat ended 6¼ cents higher, December Kansas City wheat was up 1 cent and December Minneapolis wheat was 8¾ higher.
While gaining on the week, December corn closed above the psychological $5 mark on Thursday only to close back below that level on Friday. Is that significant? Jerry Gulke, president of the Gulke Group, chalks it up to pre-weekend profit-taking and an increase in farmer selling or hedge pressure after a significant rally off the harvest and contract lows. At those levels there were sell orders waiting to be executed. December corn got as high as $5.09½ and ran up into chart resistance around the 100-day moving average, which triggered speculative traders to take money off the table.
Gulke doesn’t view this as a significant change in momentum or trend in corn. In fact, he thinks corn is down at levels that represent value for end users.
Looking forward, this is a rare opportunity somewhere along the line for some end user to buy corn that wasn’t expected to buy it,” Gulke says. That could include China as talk circulated throughout the week they were purchasing U.S. corn sourced off the Pacific Northwest.
Should farmers hold at these levels and wait for a more significant rally to sell more corn? Gulke says that’s a tough decision, especially if farmers have not made prior sales. He says farmers need to look at the carry in the market because it narrowed this week and determine if they can afford to pay commercial storage based on the current carry in the market.
“Should I pay them 20 cents to store it until February, or do I really think the market is going to rally? If you look at what March is trading, it’s at a carry. If you’re going to buy a call, you have to buy a March or May call and you’re going to pay a lot of money for that premium for that call option. Plus, you’re buying at a higher price than where you sold it. That market has almost got to go up 40 cents in corn to make it worthwhile,” Gulke explains.
For soybeans, the November contract was up 22 cents for the week and even with profit-taking on Friday held the $13 level, which again confirmed the harvest low is in. The supply situation is also very different for soybeans than for corn. While corn ending stocks are still above 2.1 billion bushels, soybeans are at only 220 million bushels. Gulke says even a half bushel drop in soybean yield could shave another 40 million bushels off and get ending stocks down to only 180 million bushels. That means if something goes wrong with the South American crop the supply situation could get tight in a hurry.
“If farmers understand that they want to sell more corn because corn doesn’t have that story.” Gulke advises.
The significant factors Gulke is watching long term in both the corn and soybean market are the weather and crop size in South America, particularly Brazil. He says USDA is estimating the corn crop at 129 million metric tons (mmt) and soybeans at 163 mmt next year. However, he says they have private firms telling them the soybean crop is probably more like 160 mmt.
“That is still a lot higher than last year, and Argentina will also see a rebound,” he says.
Gulke says with this set-up the soybean market needs to somehow pull four million acres from corn to have an adequate carryover next season. He says that will be difficult to do with current prices for corn and soybeans in relationship to input prices.
“I’ve been buying fertilizer, and my fertilizer costs, my input costs for corn have dropped nearly $100 an acre this year. That’s 50 cents a bushel at 200 bushel an acre. It’s very difficult for me right now to switch corn acres into soybean acres. How are we going to get that accomplished?
South America is going to have a whopper of a soybean crop or any shortfall in South America is going to get us concerned next spring. Those are the kind of things you need to think about going forward on whether you want to part company with your physical inventory or not,” Gulke says.
For more information you can contact Jerry at info@gulkegroup.com.
