Jerry Gulke: Did EPA Give Us a Grain Price Wake-Up Call?

Government policy tends to result in winners and losers. It’s still too early to tell which side agriculture will ultimately come down on due to EPA’s proposal for renewable fuels, says Jerry Gulke. But the short-term effect was a price drop. 

March corn prices were down 24¢, with new-crop corn prices down 12¢ for the week ending Dec. 2. January soybean prices were up 3¢ and new-crop soybeans were down about a penny. Wheat prices were down, across the board, from 15¢ to 40¢.

Even though soybean prices were up slightly for the week, they posted a 40¢ drop in one day.

“Soybean oil totally collapsed,” says Gulke, president of Gulke Group. “The short-term effect was a reset in prices to accommodate what reality is and that affected soybean oil and, of course, soybeans. It certainly was a wakeup call for agriculture prices.”

EPA’s RFS proposals would bring major changes to the U.S. biofuel mandate, including a plan to encourage use of renewable natural gas to power electric vehicles. The proposals could prompt an overhaul that shifts the program's focus away from gasoline, diesel and other liquid fuels to a broader plan aimed at decarbonizing transportation. (Read the full summary courtesy of policy guru Jim Wiesemeyer.)

Of note from the proposal:

• EPA is projecting corn ethanol consumption of 14.455 billion gallons in 2023, 14.505 billion gallons in 2024, and 14.534 billion gallons in 2025, with an assumption of 110 million gallons of imported sugarcane ethanol and 25 million gallons of domestic advanced ethanol for each year.
• Regarding renewable diesel, EPA said: “In total over 5 billion gallons of new renewable diesel capacity has been announced, though it is likely that not all these announced projects will be completed, and not all of those that are completed will necessarily produce renewable diesel in the 2023–2025 timeframe addressed by this rule.”
• The Biden administration approved canola oil for use in making renewable diesel and other biofuels, qualifying fuels blended with the oilseed to meet federal standards, the EPA said on Thursday.

EPA said it will seek comment "on this new component of the RFS program that would tie electricity generation from renewable biomass into the program for the first time."

“We as producers paid the price for what appears to be a slowing in the mandate,” Gulke says. “We'll have to see how that plays out.”
The proposal, Gulke says, did blindside some folks.

“There were thousands of contracts long soybean oil that had to run for the door and oftentimes when fundamentals changed abruptly, the door isn't big enough let everybody out,” he says. 

Beyond the EPA proposal, Gulke says a few other interesting tidbits are worth pondering:

• Consumers are spending a lot more money on credit cards, as they cope with higher-priced food and other inflationary impacts.
• Some importers of U.S. grains are having difficulty great getting financing for importing grain.
• The U.S. is behind by about 50% in corn export sales. Can we really catch up?
• Should the crop in south America come through reasonably well, our total supply of soybeans will be up nearly 1 billion bushels over last year.

“There are a lot of headwinds that have come up in the last month or so,” Gulke says. “Right now, with what's happened to soybeans and corn, I don't know if we’ll have a bidding war for acres in 2023, because barring another crop problem, we’ll have too much of everything.”

GULKE GROUP WINTER CONFERENCE

The winter Gulke Group conference is set for Dec. 15 and Dec. 16 in Lombard, Ill., at the Embassy Suites. Speakers include Jerry Gulke, Drew Lerner, Michael Drury and Roger Wallace.

Learn more and sign up at GulkeGroup.com

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Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group Advisory Services. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.