Jerry Gulke: USDA’s Supply-And-Demand Dilemma

March corn prices were up 1.25¢ and March soybean prices were down 2¢ for the week ending Feb. 5. March wheat prices were down 19.50¢.

But new-crop prices showed more life. December 2021 corn prices were up 6.5¢ and November 2021 soybeans were up 17.25¢

“The function of the market and price discovery is to raise the old-crop prices to curb demand,” says Jerry Gulke, president of the Gulke Group. “At the same time, it gives us the incentive to do the best job we can fertility-wise and efficiency-wise to maximize our crop. But it also tells you maybe old-crop demand is waning a little bit.” 

Ahead of next week’s USDA Crop Production and World Agricultural Supply and Demand Estimates reports, this price movement makes sense, Gulke says.

In the reports, Gulke says USDA won’t adjust the yield. The reports will be focused on supply and demand. 

“If you recall last January, they lowered the exports for corn for this year by about 100 million bushels,” he says. “But that was before China bought 5.6 million bushels of corn— a few days in a row.”

The question now is: Did USDA already know China was making those purchases? Or was that a surprise?

“Will they have the guts to increase exports and not do anything with anything else?  If you would increase the exports 150 million metric tons, are you going to reflect that in the bottom line? Or will you try to balance the sheet?” Gulke says. 

What would be interesting, he says, if USDA raised exports and kept the domestic demand side the same. 

“It's a real dilemma,” Gulke says. 

In soybeans, most of the trade is looking for lower stocks of soybeans. “It will be interesting to see if the government will lower soybean exports believing China will buy beans from South American instead,” he says.
 

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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.