Rest of the Story: Wake-Up Call

Jerry Gulke's Rest of the Story ( Lori Hays )

I apologize for the tardiness of this week’s comments but finishing planting corn and starting soybean planting took priority after my regular morning wire to Gulke Group clients.  

Last week’s column took aim at the popular rhetoric in the media that China would have no alternative but to buy from South America all they can, and then go to the US perhaps next fall. Should the trade talks take longer to resolve it is possible China could begin to wash out purchases of cargoes of soybeans already on the books.  I ended with the statement that to assume China has no other option but to come to the US and their back was against the wall was not only arrogant but naïve as well (please re-read last week’s discussions for more details).   Based on market action last Friday and today it appears the market may be coming to the same conclusion.   The offer of a 30-day free trial of my daily morning wire sent to clients ends tomorrow, the day before the important May USDA Crop Report.  

As so often happens it, albeit late, appears that large brokerage houses and the ABCDs of Ag are starting to release speculation on the difficulty of Ag in the whole Chinese discussions that ended without much of an agreement other than “we’ll meet again”.  All this in what appears to be a “flawed assumption of brokers and pseudo analysts extrapolating increasing soy demand from China over the years to think that demand will increase over 100 to 102 mmt perhaps this year while underlying facts suggest that is not necessarily so making any realization that China may actually keep demand steady or even pull back somewhat while educating traders that their back is not against the wall a valid prospect.   I’ve discussed this possibility for months with clients explaining the problematic results of merely extrapolating the past into the future without due-diligence.  It appears this realization as caught some in difficult positions.   Price charts through 5 AM today (Tuesday morning) shown below tell the story. 

I remember very well the soybean embargo against Japan by the Nixon Administration that helped bring about the soybean industry in Brazil.  I also recall where I was the day that President Carter put on the embargo to Russia, which by the way had the full support of Congress but the Republican administration as well as Farm Bureau, Farmers Union and every grain organization for years blamed that one act for the plight of our Ag economy.  Here we are again with a pseudo embargo that is affecting Ag directly.  It appears we have learned nothing from history other than the years of building demand and the desire to get government off our backs ends up in a situation that could affect US Ag for some time to come; a slap in the face perhaps? 

The mindset of politicians is difficult to ascertain, as I am reminded of a few years back when I asked to write for Forbes magazine on agriculture and risk management.  I was in Palm Springs, CA at the time and witnessed first-hand the rhetoric regarding the drought in California that was at a crisis stage.  It was written by some then that it would take years to re-build reservoirs only to find it only took months.  The point is that during that time,  it was popular to read in editorials of papers there that questioned the rationale for California, perhaps one of the biggest if not the largest exporting state of Ag products in the US, exporting food to others when it required extensive water usage.  Why not only produce what California residents need and let others fend for themselves.   While short-lived, it showed the irrational thinking of individuals when it is their ox being gored.  Suddenly isolationism evolves. 

We in production agriculture produce a valuable commodity and have concentrated ourselves through bigger and bigger farming operations resulting in less and less votes and likely less and less influence save for the fact that each agricultural state from ND to TX has two senators who carry just as much weight when it comes to voting for legislation than does CA or NY, perhaps one of the only things keeping Ag from being a whipping boy more than it is currently?  So needless to say, how all this re-adjusting and re-negotiating the playing field comes out is very important to our Ag structure as we know it.  Will it end quickly under rationale behavior or will we be seen as an unreliable partner in the global playing field?  Any one or any entity that finds itself being held hostage to a particular supplier quickly realizes the precarious position he is in.  China most certainly has become aware of that fact.    I wrote a column a few years back in Top Producer on China entitled “The 800 lb. Gorilla” and the danger being dependent on one buyer who could disrupt our markets.  If I can find it, I’ll re-issue it again.

Concerning the soybeans and meal markets, see charts below.  The free 30-day trial good through tomorrow only, if interested, time is of essence.    Just go to [email protected]  and request the trial subscription, or just phone 480-285-4745;   707-365-0601.   

Jerry Gulke, President

Gulke Group Charts


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