For the week December corn was 18 cents lower, March corn fell 17 ¼, November soybeans were up 13 ¾, January soybeans were 14 ¼ higher, December soybean meal up $18.10, December soybean oil was 60-points lower, December soft red winter wheat fell 12, December hard red winter wheat plunged 16, December hard red spring wheat was down 3 ¼.
December corn lost 18 cents on the week and was 20 cents lower on Friday after USDA delivered a shock to the market by raising corn yield by 2.7 bu. to 181.2 bu. per acre. The market was expecting a yield cut with the average trade guess at 177.8 bu. down .7 bu. from September.
Report Accuracy in Question
Jerry Gulke, president of The Gulke Group says he was surprised USDA raised the yield on corn and heard from many farmers that are questioning the accuracy of the report.
“I’m just wondering whether they really have the expertise any longer to be able to really come up with some really good numbers,” he remarks.
Importance of Risk Management
Gulke says it doesn’t matter whether farmers believe the USDA report or not because it’s what the market is trading. However, it does drive home the importance of risk management, and he says in markets like these farmers need to protect themselves.
He stresses that going into a report that could change a farmers financial well-being, they ought to be hedged. “Because if the market’s going to go lower, there’s not a doggone thing we can do about it. You just have to be prepared for that. And in hindsight, we were prepared for it.”’
Technical analysis indicated in September that a market top was being formed in the grain markets and that hedges needed to be put in place.
“We were at that 90% sold for this year’s crop, 60% in cash and the rest in futures, and we sold some calls. So, the calls will only work for a while until you run out of premium, and that’s true with soybeans, 75% to 80% sold in wheat. This was one of those times where there was so much uncertainty, you had to bite the bullet,” he adds.
Gulke says it was tempting to take profits in the corn but stuck with the position as a true hedge going into the report. The continued drop in the corn market this week further confirmed that.
“Last week we took out $35 or $40 an acre with the 30 cent drop in corn, and we did it again this week,” he says.
Upcoming Changes
For farmers that are still hoping for yield cuts in corn in futures reports, Gulke thinks they may have to wait a while.He says in the past USDA has made revisions to yield and production estimates but the corrections have been slow.
“Somehow, they’ll rectify it and we’ll find out maybe in January.They’ll come up with some excuse and say, well, the crop is really not that big, but the demand is not as good either.”
In the meantime, he says farmers have lost the gross margin, not only for this year, but for next year in corn. For the market to turn back bullish Gulke thinks it will take a production problem in South America tied to the Super El Nino or a demand shock from China.“And we may have to wait three to six months to find that out,” he adds.
For more information contact Jerry at info@gulkegroup.com.
