Jerry Gulke: Happy Days Are Here Again

A positive USDA report sent grain prices higher this week. December corn prices were up 3.5¢. December 2021 closed up 8.5¢ for the week ending Nov. 13. November soybean prices were up 41¢ for the week ending Oct. 30. January soybean prices were up 47¢. Wheat prices were down across the board.

The higher moves in the 2021 contracts are significant, says Jerry Gulke, president of the Gulke Group.

“Traditionally what happens is when the markets sense some tightness in the stocks, the market will bull spread, which means they’ll buy the old and sell the new,” he says. “You would expect that old crop would go up more than the new crop, so there seems to be a concern about the new crop.”

These price patterns could show an acreage battle is brewing for next year, Gulke says.

On Nov. 10, USDA released its monthly Crop production and World Agricultural Supply and Demand Estimates reports. Some of the highlights include:

• Corn production for grain is forecast at 14.5 billion bushels, down 1% from the previous forecast but up 7% from 2019. Based on conditions as of Nov. 1, yields are expected to average 175.8 bu. per harvested acre, down 2.6 bu. from the previous forecast but up 8.3 bu. from last year.
• Soybean production for beans is forecast at 4.17 billion bushels, down 2% from the previous forecast but up 17% from last year. Based on conditions as of Nov. 1, yields are expected to average 50.7 bu. per harvested acre, down 1.2 bu. from the previous forecast but up 3.3 bu. from 2019.

As the focus shifts to 2021 planting, Gulke is watching a few key factors:

1. South American weather. Can it come in and rain everywhere?
2. China demand. Will they continue to buy?
3. How the presidential election will play out in global trade.

“I’ve been running the numbers,” he says. “You could probably flip a coin and plant either corn or soybeans and make money. We need to stay focused on good management and capturing our profit.”

Technically Speaking by Jerry Gulke

It has been a long time coming, but prices of commodities are hinting profitable levels, especially soybeans. As a result, the decision-making process seems no longer one of seeing negative returns/which commodity I can plant and lose the least, relying on government deficiency payments to make up the difference.

Now it appears we are in for a decision-making process that no matter which crop we plant, corn or soybeans, it will be profitable. Believe it or not, this has the beginnings of an acreage battle in the U.S. to ensure adequate supplies to meet the global demand for our products.

It has been a long eight-year slide to finally seeing a turnaround in prices posted just after the August 2020 Crop Report. I’ve shown charts periodically in this column and voiced what was happening in the radio interview this summer and in a summer Top Producer column suggesting I could see things lining up for less than 250 million bushel soybean carryout this year and an acreage battle brewing. The move happened a lot quicker than I thought.

Three months later, the Nov. 10 WASDE report reflected a carryout this year of less than 200 million bushels. The price response was swift again, up over 40¢ for the week for both old and new crop 2021 prices. This leads one to believe global traders understand the perils of weather now in South America, the Chinese turnaround in demand exceeding expectations, and a COVID-19 disaster that shows promise of a vaccine beneficial in Q1 2021.

The chart below shows just how much will be paid when there is a chance of running out of soybeans as a protein source. Managing price risk is not easy and neither is coming to grips with prosperity in such a short-term reversal we’ve witnessed. This problem is better than the last eight years of sliding prices.

The task now is to have the wherewithal to capture the profitability at hand, which looks to be with us for some time — without getting greedy and ignoring the reasons we farm: to put food on the table, clothes on our backs, obtain respectable shelter (housing) and to put money in the bank. It is nice to see opportunity knocking on our doors again.

Good Marketing

Jerry Gulke
Jerry@gulkegroup.com
Phone: 707-365-0601
www.gulkegroup.com