When Bad Things Happen After Good Reports

Jerry Gulke on Weekend Market Report ( Farm Journal )

The May 10 Crop Production and World Agricultural Supply and Demand Estimates had the potential to send the markets higher. USDA reported smaller ending stocks for corn, soybeans and wheat, as well as increased demand.

The markets did go up, but that price jump vanished. The corn, soybean and wheat markets all closed lower for the week.

Jerry Gulke, president of the Gulke Group, always says it’s more important to see how the market reacts to a USDA report than the actual report. Additionally, he says, you have to pay close attention to a negative response to a positive report.

Was the good news already in the price well before this report came out? What did the report say that would lead someone to read between the lines? These are the questions to consider, Gulke says.

“Global corn stocks are at the lowest level since 2011 or 2012, and the trade guesses ahead of the report were much higher,” he says. “When I saw that, I said, ‘Wow, if this market isn’t up 10 to 12 cents, I’ll eat my hat.’ Well, I ate my hate. It did open higher, then the whole gain evaporated during the day.”

USDA lowered U.S. corn exports because of increased competition from Ukraine and Russia next year.

“Now suddenly those people who we used to feed in the ‘70s are becoming our competition,” Gulke says. “They will be one of the major exporters right with the U.S. So, at the most bullish possible global situation we’re going to lose demand? That was scary. That tells us something.”

For soybeans, USDA raised U.S. exports. This was likely because USDA believes Argentina won’t be able to increase soybean production and China will have to come to the U.S., Gulke says.

“USDA raised our exports without raising the planted acres or the yield,” Gulke says. “But we still had a carryover over 400 million bushels for the 2018/19 marketing year. Any increase in corn or soybean production, given the robust demand, will go right to the bottom line and the ending stocks.

“I think the market saw it the same way. It’s probably not going to get any better for demand than yesterday’s report. Now it’s up to what Jerry and his friends plant and what Mother Nature does.”

On top of the negative reaction to the USDA report, a Reuters article published this week reported China will import less soybeans than the previous year for the first time in 15 years.

“This is not what we needed to hear,” Gulke says.

Planting Progress Catches Up

Corn and soybean planting where tracking behind the average pace for most of this spring. But this week’s USDA Crop Progress showed dramatic increases. As of May 6, 39% of the U.S. corn crop has been planted, which aligns with a five-year average of 44% by this date. For soybeans, 15% of the crop is in the ground, which is slightly ahead of the five-year average.

Although farmers in some key crop-producing areas, such as northern Iowa and southern Minnesota, have planted little. Will we see switching from corn to soybeans?

“A lot of farmers—due to economic pressure—don’t want to risk it and plant corn too much later,” Gulke says. “We had good profitability in soybeans, but that’s went away. It’s almost like the market is thinking that corn will go to soybeans because Mother Nature will keep raining on it. I think the proof will be in the pudding next week.”

For more analysis of the May USDA reports, as well as other key topics affecting the grain markets, watch for Jerry Gulke’s “The Rest of the Story” column, which will be published early next week at AgWeb.com/Gulke.