The June USDA reports rarely fail to produce a big bang before the Independence Day holiday, and this year was no exception. The bullish surprise was in soybeans with acreage down 4 million from the March Prospective Plantings report to 83.5 million, which is 5% below last year. Corn acreage was bearish coming in at 94.1 million acres, which is more than 2 million higher than March and 5.5 million more than 2022.
Jerry Gulke, president of the Gulke Group, says he thought there would be fewer soybean acres based on his travels in the Northern Plains at planting time.
“I just saw less beans getting planting when the weather finally broke, while farmers in North Dakota were planting corn and spring wheat well past the insurance date because of the high insurance price guarantees,” he says.
However, he says, the soybean number was still a game changer and could result in ending stocks dropping to around 135 million bushels for the next marketing year.
“I’m not sure how you solve this supply shortage,” Gulke says. “You need to get at least 52 bushels per acre on yield now.”
On Friday, soybean prices soared in response to the USDA reports by nearly 78 cents for November. According to Gulke, the big question is how high do prices have to go to ration demand? The soybean market will be even more sensitive to weather and yield threats moving forward.
Conversely the increase in corn acres, without a significant decrease in yield, could be problematic for the market, he adds.
“With this acreage number and without a significant weather problem, you could be looking at a 2.6 billon bushel carryout. Even with a 5 bushel drop in yield, you could be looking at 2 billion bushels,” Gulke explains. “You’ve got a supply situation I don’t know how you solve.”
December corn was down nearly 34 cents on Friday and closed below $5. However, the contract was down 93 cents for the week as it had started to tumble early on with rains falling in parts of the Midwest and more in the forecast.
The quarterly stocks were tighter than a year ago, especially for corn, and indicates farmers sold old crop corn on the June rally in the market. It also confirmed the tight supply of old crop soybeans.
Volatility has been high in the grain markets the past month in the throes of the weather market. As a result, Gulke says they’ve tried to maintain flexibility to be able to pivot to the changing dynamics.
“The important thing is not to get caught on the wrong side of the market,” he says.
Gulke doesn’t like hedge-to-arrive contracts but prefers futures and options to allow the flexibility for the farmer. Last week when December corn went back above $6, Gulke says they lifted their hedges on November soybeans and elected to go with short calls at $14.
