Following the bearish World Agricultural Supply and Demand Estimates (WASDE) on Wednesday, grain markets closed higher for the week with December corn posting a gain of 19¢, November soybeans were up 53¢, Chicago wheat advanced 12¢, Kansas City nearly 11¢ and Minneapolis was up 34¢.
Demand adjustments were more of a surprise than supply for Jerry Gulke, president of the Gulke Group. He says USDA’s 300-million-bushel soybean ending stocks figure respected the 4 million fewer acres, which resulted in a 210 million bushel cut to production. However, USDA offset that with lower demand. Gulke says the agency dropped exports 125 million bushels, which is earlier than he anticipated. USDA continues to acknowledge the competition from Brazil’s record crop, he says: “Low and behold, USDA cut exports because our calculations were without that change your carryout would be around 129 to 139 million bushels.”
Yield is still somewhat of a question mark, but Gulke says he’s talked to a number of agronomists who tell him that while the soybeans are short, the important determinant of yield is pod set.
“The government elected not to cut soybean yield — they left it unchanged at 52 and rightfully so.” He says it will take some crop problem in August or the market will need to stimulate more demand to keep soybeans at $14 at harvest time.
USDA made even more dramatic demand-side changes in corn. Old crop exports were left unchanged at 1.65 billion bushels. However, the new crop export projection was raised to 2.1 billion bushels, which seems like a tall order to Gulke.
“When you look at the bookings, we’re woefully behind.” he says.
USDA’s balance sheet suggests that to earn back some of the export demand we lost, corn prices will have to get much cheaper.
“Corn is going to have to be at a level that we beat the competition more than just once in a while,” Gulke explains. “We can get there, but we have to put the corn on sale. So, that means futures at $5 or less and not $7.”
If you look at South America and they raise a large corn crop, then ending stocks will swell even further.
The yield debate continues on corn even after the 4 bu. per acre drop from USDA in the WASDE report. However, Gulke says it’s amazing to him how the recent rains have improved the crop. This might have reversed some of the early damage, including length in that cob, to offset some of the kernel depth lost.
“That might allow the U.S. to produce an average corn crop,” Gulke says.
The August WASDE will tell the story: “If USDA lowers the corn yield a couple more bushels, then traders will say this is going to be like 2012 where they just keep whittling it down,” he says.
Gulke believes the higher weekly closes in the grains signal the market might believe there is more downside to the yield.
