A macro (big picture) outlook on commodities has proven beneficial for me to keep my year-ahead outlook in perspective using the futures markets as a precursor.
The two years ago, I focused on “the new price reality”. Last year, I felt we were in the throes of a new paradigm shift in global agriculture trade. Nothing has changed my macro view — it is the mechanism by which it is happening.We are in unchartered waters last seen 45 years ago in the Reagan Administration and the fall of communism.
At the time of writing (ahead of the Jan 12 WASDE report), examining a December-only corn futures price chart would provide some insights looking ahead. I have used it in the past in part to keep reality versus wishful thinking in check. I trust it will be useful in our current new paradigm of tariffs and economic and political resets.
December-Only Benefits
The December-only corn chart focuses solely on new-crop corn futures. When a current December contract goes off the board, next year’s December becomes the focus.
The chart shows the large speculator net position over time: blue being net positive and red being net negative. It reflects only the lead futures contract (March) — not December but no less important. The chart does not show an indicator I have used since first writing this column. It further distinguishes Gulke Group Consulting from the rest of the pack and helps keep emotions intact.
Three Market Phases
Price moves in basically three directions, up, down and sideways. After the rally from 2010 to 2012 to $8.00, the high price curbed demand and expanded production as Econ 101 would dictate.
Anyone can grow $8 corn. Price discovery dictates we won’t run out of a commodity. In the case of 2009 to 2012, price rationing of demand along with supply increasing resulted.
The oversupply reduced demand and resulted in a low price, sideways trading pattern where additional demand was discovered and/or production curbed over time. After seven years of base building (building demand), prices rallied during January to May 2012 to $7.50/bu. — sending a signal to producers via December 2012 futures to plant corn.
Last year’s incentive ended on February 21. This year the incentive isn’t there — yet.
The new paradigm shifts I’ve seen coming in the past 18 months is becoming more obvious but is yet to play out. Has this administration reset global ag economics such that the U.S. gets a bigger piece of global demand regardless of price? Or will the new economics play a role in finally leveling the playing field and thus competition?
The best result would be if a rising tide (U.S.) lifts all global economics consumption. Certainly, the action with Venezuela represents such potential and sends a signal old relationships are a thing of the past.
After the market digests and discounts the January WASDE report, the February USDA Annual Outlook in late-February will guide. Last year, a report out of the Office of Management and Budget, used as a guideline for USDA on February 21 put the top in grain and oilseed prices until well into harvest.
Until all that information is out, the data driven markets will use the baseline approach generated by USDA last month for marketing year 2026/25.
2026 Influencers
- A push to increase competition in seed, fertilizer and chemicals is evolving and much needed. It will be an influencer into Q2 2026. Energy, as viewed by heating oil futures (diesel fuel), is down 40¢/gal since November. Natural gas is down 30% as well. Both influence input prices.
- Bigger is better only if you get better before getting bigger. The profit discrepancies between the top 10% to 15% of producers and the bottom 25% is huge. The inefficient producer/marketer will not survive.
- Price volatility will continue requiring astuteness on a weekly and even daily basis. The December chart shows resistance and support over time and what happens when a breakout occurs. Price is now in a sideways, demand-building phase.
- Profit opportunities abound as any 10- to 20-year commodity price chart will show. The principles of cash flow and profitability haven’t changed. The choice of whether we chose to be a production CEO (bigger yields, costs be damned) or a CFO putting sights on the only green that is important is the profit left at the end of the year.
Money isn’t the only thing that measures success in life, but it is the only way we keep score in the global world in which we compete.
