Grain markets all ended lower for the week with March corn down 12½ cents and December down 9 ½ cents. March soybeans fell another 11¼ cents, November was 15¼ lower, with March soybean meal losing $1.20 per short ton and March bean oil was off 167 points. March Chicago wheat ended 34 ¼ lower, March Kansas City wheat fell 36 ¼ and March Minneapolis wheat lost 29 ¼. March cotton ended over 21 cents higher.
Jerry Gulke, president of the Gulke Group, says the USDA Ag Outlook numbers were bearish for the markets confirming growing supplies for the 2024 crop season. The news impacted price action with more new contract lows in corn and Minneapolis and Kansas City wheat on Friday. The new lows hit soybeans on Thursday.
How did he manage this type of week?
“We’ve been talking about capturing the carry in the market. The way to do that if you have grain sitting in the bin or in commercial storage is to sell the carry. Being short futures, whether it was March or July corn or beans, or selling calls works,” Gulke says.
The two objectives are to pay for the storage to maintain the grain and to restore some of the equity that was lost by holding unsold grain and not forward contracting or selling right out of the field.
However, Gulke says on Friday they lifted some of their hedges and took profits ahead of the three-day holiday and with the nine-day relative strength showing grain is oversold on a weekly basis.
“We broke that $4.40 level I was talking about in corn and $12 in soybeans I was watching,” Gulke says. “After USDA confirmed the bigger supplies, how much more negative news can we throw at the market?”
Gulke says these prices were justified even 18 months ago because grain had to get down to a level that would discourage South America from selling and discourage corn from being planted.
Gulke has heard the argument that the funds hold a near record short position in the grain and oilseed complex and will eventually need to exit those positions.
However, it’s not that simple he says. “The funds know farmers need to generate money to put in the crop by March or the bank may force them to do it. They kind of see it coming.”
The other problem is that to get out of or cover their short position they need someone to sell to them.
“Who is going to sell it to them? I’m not going to at these price levels,” Gulke says.
That creates a stalemate, which might be some of what is taking place in the market.
Meanwhile, Gulke says, when prices get this low, total acreage can fall 1.5 to 2 million acres, which might be the case this spring. Even the crop insurance price isn’t high enough to incentivize planting marginal acres.
“It doesn’t take a big move in acres to get things a little bit tighter,” Gulke explains.
Acreage changes and a spring weather problem might be the next best hope for a grain rally.
For more information contact Jerry at info@gulkegroup.com.
