Jerry Gulke: Good, Bad and Ugly from the USDA Report
The September USDA reports provided some shock and awe, especially for soybeans.
December corn prices were down 6¢ and November soybean prices were up 36¢ for the week ending Sept. 9. Wheat prices were mixed, with Chicago down 10¢ and Minneapolis up 11¢.
“The whole report for soybeans was interesting,” says Jerry Gulke, president of Gulke Group. “You don’t normally see them lower planted acres, harvested acres and yield.”
Technically Speaking by Jerry Gulke
Not only did the Sept. 12 report contain some supply shocks with the triple play of lowering planted and harvested acres for both corn and soybeans but also yields were lowered. The demand side of the supply/demand outlook caught my attention as well.
No matter how bullish the numbers, someone will have to do without. Price will dictate how high prices will need to be to insure there won’t be a zero balance.
Crush was lowered for soybeans and corn. For corn ethanol usage was lowered for both last year and the new marketing year. The flattening of the curve for miles driven implies less gasoline being used already this summer and forecast for next year. The lessening of activity in spite of lower gas prices recently supports also a slowing of the economy or at a minimum less activity by consumers.
The economic outlook got further concern by the CEO of FedEx that they may suffer a $500 million loss in revenue from their global operation: finally someone else expressing my sentiment for months. FedEx suffered the largest drop in price in their history. The caution was further expressed by FedEx today regarding China’s demand. Furthermore, the US $ is saying the same thing; U.S. is a concern, but foreign entities are worse---they are the ones who buy your exports!
It was the export demand outlook that may be of concern. A chart is available from WASDE Report reflecting in detail the revisions of how USDA sees export demand playing out for a number of commodities important to our bottom line. It is worth the time to get access to that chart.
We’ll get another report in October of better accuracy regarding the supply side, but the demand outlook perhaps has already been outlined and the sharp reduction in the stock market further suggests concerns that a recession of some magnitude is on the horizon. I’ve witnessed inflation fighting techniques before and the process isn’t pretty. But we are fortunate to be able to sell (capture profits) on a 100% of our production for not only this year but next with one phone call. Other industries would love that ability. Let’s not take our flexibility for granted.
The statement that “I don’t like futures and options” as I don’t want to send in margin money may prove significant as that statement may separate the men from the boys this year! Corn closed lower for the week on the back of a rather friendly report Monday and soybeans over a dollar off it’s high. Will there come a day that we wish we had margin calls on $7 corn and $15 soybeans hedges?
Harvest is upon us, stay safe,
Jerry Gulke 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.
