Jerry Gulke: Did the Grain Stocks Report Put a Nail in Soybean Outlook Coffin?
The grain markets had another volatile week, highlighted by USDA’s Grain Stocks report.
December corn prices were up 1¢ and November soybeans down 61¢ for the week ending Sept. 30. Wheat prices were up 20¢ to nearly 40¢, depending on the contract.
USDA’s Grain Stocks report included:
- Corn: 1.377 billion bu.; trade expected 1.512 billion bu., which compares to 4.346 billion bu. on June 1; 1.235 billion bu. on Sept. 1, 2021
- Soybeans: 274 million bu., trade expected 242 million bu., which compares to 971 million bu. on June 1; 257 million bu. on Sept. 1, 2021
- Wheat: 1.776 billion bu.; trade expected 1.776 billion bu., which compares to 660 million bu. on June 1; 1.774 billion bu. on Sept. 1, 2021
The narrative ahead of the Grain Stocks report was around an obvious shortage of soybeans. However, the report showed more soybeans than the trade expected.
As a result, soybeans posted a key reversal down, says Jerry Gulke, president of Gulke Group.
“Soybeans closed at the lowest level since the first part of August,” he says. “What changed? We increased the stocks, which will increase the carry-in for next year. Those extra bushels get us out of a problem area, when we are still trying to figure out how much demand destruction has occurred.”
Friday’s close of $13.64 per bushel for soybeans, Gulke says, put the nail in the coffin basically for the soybean price outlook.
“But the good news is we're still trading over $13 on beans out of the field,” he says. “Even for 2023, there are over $13. I think the market still has some kind of a weather premium build in on a potential crop problem in Brazil again or what if we can’t grow enough soybeans in the U.S. again? The problem is now we’re in a position where we need to have a problem somewhere to see the light of day of $15 to $17 in beans again.”
Of the 274 million bushels of soybeans, 62.9 million bushels are stored on farm.
“We're holding expensive goods, expecting what? If end users don’t want to $14 or $15 now for soybeans, why would they want to pay $17 anytime soon? That helped accentuate the downside in the soybeans,” Gulke says.
In the Grain Stocks report, USDA released 1.377 billion bushels. The trade was expecting closer to 1.512 billion bushels. Of the total stocks, 510 million bushels are stored on farms, up 29% from a year earlier. Off-farm stocks, at 867 million bushels, are up 3% from a year ago.
The corn number was a bit of a surprise, Gulke says.
“I didn't think it would be initially that bullish,” he says. “Corn tried to rally back up to $7 again, but it closed 23¢ off the high. As history shows, there's nothing long term you can do with $7 corn, especially in our current inflationary environment."
Currently the corn market is inverted.
“They are not paying us a dime to hold $7 corn till next fall,” Gulke says. “So, the old crop will either get high enough here because there’s a little less corn on hand to where we reduce demand a little more. But what will demand look like next spring when we plant again?”
This is the process of price discovery, he says: “It’s complicated, but it works.”
If you’d like to see a price chart or other in-depth analysis from Gulke, contact him at info@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.
