Jerry Gulke: Will 2021 Grain Prices Curb Demand?

2021 has rolled out the red carpet for grain producers. March corn prices were up 12.5¢ and March soybean prices were up 66.25¢ for the week ending Jan. 8.

Old-crop soybean prices have climbed around $2.17 in the last month, says Jerry Gulke, president of the Gulke Group. “That’s about $120 an acre more for that crop in the bin than what it was worth a month ago.”

New-crop soybeans prices have jumped about $1 in the last month. That’s about a $60-per-acre gross income for soybeans, Gulke adds.

In corn, old-crop prices have risen over 70¢ in the last month. New-crop corn prices are up about 30¢.

“From an acreage debate standpoint, corn and soybeans are keeping relatively close together,” Gulke says. “It’s going to make it very difficult for somebody to decide what they’re going to plant because financially it’s pretty close. It is not a matter of which commodity makes more or less, it is now a matter that anything works.”

On Tuesday, Jan. 12, USDA will release its Annual Crop Production Report, which will close the books on the 2020 crops. Here are the average trade guesses ahead of the report:

• U.S. corn production: 14.47 billion bushels, based on 82.54 million acres and a yield of 175.3 bu. per acre. Projected carryout for corn: 1.599 billion bushels.
• U.S. soybean production: 4.158 billion, based on 82.3 million acres and a yield of 50.5 bu. per acre. Projected carryout for soybeans: 139 million bushels.

Gulke says this report will be important this year because for the first time in eight or nine years, global supply is less than global demand.

“That’s due to last year’s U.S. production, problems in South America – as well as yet to be determined production in the United States and Canada,” he says. “This is all happening while China just keeps on buying.”

About 60% of weekly soybean exports from the U.S. are headed to China.

“This report better be bullish or be as good as the markets expects it to be,” Gulke says. “What we don’t want to see is with all the bullish expectations is for USDA increases carryover.”

Gulke expects USDA to confirm corn and soybean stocks are tight. But, will they be tight enough to require further demand destruction?

“The function of the marketplace is to get prices to the point where we don’t run out of grain. Some will do without, but we’re not going to run out,” he says. “We’ve been a lot higher before, but mainly those were caused by U.S. droughts, not necessarily demand related. Now we have a demand-driven market that has yet to see the weather in the U.S. The USDA should give us guidance on whether prices have begun to affect demand domestically or not.

If prices continue higher, Gulke says, it begs the question: Have things changed so much on the global scale, $5 corn isn’t a big deal anymore?

“In the U.S., $5 is a big deal for livestock and ethanol producers,” he says. “We can curb demand domestically, but we really have to look beyond our shores because for now we’re the only exporter game in town, in the short run.”