Jerry Gulke: Rain Makes Grain, But It Didn’t Rain Everywhere
Right now, the grain markets are focused on the haves and the have nots. That is those areas that have received rain and those who have not. You see it in the price action this week, says Jerry Gulke, president of the Gulke Group.
July corn up 1.25¢, while December corn prices were up 17.25¢. July soybean prices were down 74.5¢, while November soybean prices were up 3.75¢, for the week ending June 11. July wheat prices were down 7.25¢, and Minneapolis wheat prices were down 45¢.
In addition to weather, USDA’s June World Agricultural Supply and Demand Estimates (WASDE) out this week weighed on the markets.
“The report wasn't as bullish as everybody thought,” Gulke says. “We just relieved a lot of air out of those markets. In retrospect, each one of these reports seem to be just a relief mechanism for the longs who bought it cheap to sell it at a high price. December corn hit $6.28, then crashed and burned, what would have been a positive report. Same for soybeans.”
USDA’s corn outlook includes reduced beginning and ending stocks. Beginning stocks were lowered 150 million bushels reflecting higher corn used for ethanol and exports. With no use changes for 2021/22, ending stocks are lowered 150 million bushels.
In soybeans, USDA’s outlook calls for higher beginning and ending stocks. Higher beginning stocks reflect a lower crush forecast for 2020/21. With higher soybean beginning stocks and no use changes for 2021/22, ending stocks are projected at 155 million bushels, up 15 million from last month.
Gulke says the increase in carryout was kind of surprise. “It's a subtle indication that says something's going to happen with these high prices. We are either going to get people to cancel soybeans or it's going to rain or Brazil has got more beans to sell.”
USDA’s wheat outlook includes larger supplies, higher domestic use, unchanged exports and slightly lower stocks. All wheat production is projected at 1,898 million bushels, up 26 million from last month on increased Hard Red Winter and Soft Red Winter production more than offsetting lower White Winter production.
Wheat prices rallied to $7 to $8 per bushel because of the dry forecast and an anticipation of less supply, Gulke says. Now that areas received rain, traders sold off and the bottom fell out of Minneapolis wheat.
Gulke says the trade’s focus now will be on weather and the June 30 Acreage report. The big issues will be how many acres are found?
“There's hardly an acre that isn't planted,” Gulke says. “With $6 corn and $14 beans, you have an incentive to plant in the cracks of the sidewalk if you can. Your breakeven is such that even if you get half of a bean crop, you might make money on even poor land.”
But even if USDA increases acres, they could drop the national average yield because of drought concerns. So, the calculation of those two factors will determine if the report and outlook is bullish or bearish.
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Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group. 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.
