Grains posted lower weekly closes, erasing all the gains of the previous week. The slide was a result of three days of fund liquidation to end the week. What triggered liquidation and what is it telling us about the market?
Jerry Gulke, president of the Gulke Group, says it was a combination of:
- risk off due to recessionary and geopolitical concerns
- strained trade relations with China
- the weather
- the U.S. not being competitive in the global market, for wheat and soybeans, in particular
The market is confident farmers are going to get the crop planted this spring, according to Gulke. In areas, such as Illinois, where some operations have already put away planters, above trendline yields are expected, which might make up for the planting delays or prevent plant acres in the Dakotas and Minnesota. However, the farmers Gulke has talked to are not concerned about the delays because they can quickly get the crop planted once the weather breaks.
Last week the hard red winter wheat and corn markets had built in a weather premium with predictions of a freeze/frost event in some areas of the Plains. However, this week the market did not seem concerned about damage to the crop and removed that premium, Gulke says. As a result, July Kansas City wheat lost 38¢ for the week.
The U.S. is not competitive in the global wheat market, Gulke says.
“The other problem is that globally we were overpriced by about two and a half dollars per bushel compared with Ukraine wheat and Russian wheat,” he adds. “As much as they talk about not getting it moved and so forth, they’ll get it moved somehow.”
With Brazil’s record soybean crop hitting the market, Gulke says cash basis there is $2 under the board price, which also weighed on the market.
“The realization has come forth that crop is big — it’s not 153 mmt but maybe 160 mmt when they get done. If that’s the case, they’re going to be in our back pockets all the way through harvest,” Gulke explains.
It’s still early, but he says Brazil’s corn crop could also be a record. He has the same concerns about the U.S. not being competitive in the world export market for corn. That will make recovery in the corn and soybean market difficult.
From a technical standpoint, he says new crop corn took out major chart support of $5.50 on Friday, while soybeans took out and closed below major support. That could lead to additional selling of 25¢ to 30¢ in corn, and prices could drop to the low-$5 market, especially if planting picks up steam. Gulke says they were 50% sold on new crop corn near $6 and sold 10% more on Friday at $5.50. They aren’t selling any more corn, but instead looking at selling calls. They are equally covered in soybeans and are even beginning to market 2024 soybeans. “The soybean market is telling us that the two-year bull market has run out of steam for now.”
