Jerry Gulke: Did Grain Prices Fall Too Fast?
Corn and soybean prices have been on a steady and steep decline since early summer. Will these lower prices attract more demand?
December corn prices were down nearly 40¢, for the week ending July 22, while November soybean prices were down 30¢. All wheat prices were down 17¢ to $35¢ or more.
Russia and Ukraine signed separate agreements Friday with Turkey and the United Nations clearing the way for exporting millions of tons of desperately needed Ukrainian grain — as well as Russian grain and fertilizer — ending a wartime standoff that had threatened food security around the globe, NPR reports.
The deal will enable Ukraine to export 22 million metric tons (MMT) of grain and other agricultural products that have been stuck in Black Sea ports due to the war.
“You're putting a heck of a lot of grain on the market,” says Jerry Gulke, president of Gulke Group. “This is coming just as we finished our soft wheat and hard red winter harvest and going into our spring wheat harvest, and soon to be corn harvest.
“This has a psychological effect on the market,” he says, “even if they can't move very much the plan is to get it done.”
This added global competition in grain equals dropping prices. Crude oil, heating oil and unleaded gas prices have also all dropped precipitously in the last 30 days.
“That indicates there's more going on than just the commodities of agriculture that are in trouble,” Gulke says. “We closed on the low for the month so far in July in corn, soybeans and wheat — all three.”
This changing demand picture is coupled with the likelihood of a strong U.S. crop.
“We have a fairly decent crop in the United States, certainly not the disaster that we thought we were going to have because of late planting,” Gulke says. “We may even have a record crop in our backyard.”
Grain and Basis Price Outlook
So, what’s ahead for the grain markets?
“The much higher prices grains of earlier this year were not sustainable,” Gulke says. “But with where we are now, hopefully we've overshot the downside because $5 cash corn for 2023, for example, doesn’t work.”
Time will tell. In the meantime, Gulke encourages farmers to look at their local basis bids.
“The June 30 Grain Stocks report showed 20% more corn, soybeans and wheat are being stored on farm than the year before,” he says. “In other words, they said farmers were holding 20% more grain than last year.”
Yet, basis prices are historically high in some areas.
“If there were 20% more stocks in all positions, why are we having to pay so much money to get it out of the farmer's hands or out of the elevator's hands to meet the demand? That says that this is artificial and just a short-term issue, and then we go back to normal.”
As such, Gulke recommends talking to your grain buyers now to potentially lock in basis levels.
“If you don’t like the current cash prices, take a good look at fixing the basis because if the price of corn goes up $1 in the fall, this basis probably won’t be there.”
Check the latest market prices in AgWeb's Commodity Markets Center.
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.
