Weekend Market Report

Jerry Gulke: Grain Markets Watered Down with Uncertainty

Thu, 22 Sep 2022 02:38:17 GMT

As mentioned in my weekly radio overview with Sara Schafer, the major market factors are centered on the following:

China buying corn with 300,000 mt announced and more likely.
Soybean news was silent as South America begins to export a good crop in Brazil and an excellent one in Argentina.
Flooding in America’s growing regions from Canada to Missouri and from Nebraska to Indiana is putting the best laid plans of the important acreage mix now up to Mother Nature and not necessarily Economics 101 (profit/loss).
African Swine Fever in China is cutting pork (good for U.S. exports—bad for protein and feed-grain consumption).
While U.S. hog consumption of feed-grain and soymeal is more important than China, the ramifications of lower global needs is another headwind to deal with on top of still uncertain tariff outcome.
All this make for uncertainty of the supply-and-demand fundamentals but as the charts below show, the technical aspects of price discovery, not matter how distorted in this political environment, are still very important to price discovery/outlook and risk management.

CORN

The trading pattern along with resistance and support areas, and with the help of proprietary buy/sell signals not shown, reflect what is now obvious. The price of $3.70 proved to be value and a place to remove (lift hedges) looking at $3.82 as a meager upside objective and perhaps too small an objective for some in the media to pay attention to. However, you can readily see corn blew right through $3.82.

(click images to enlarge)

So now what does the media analyst do that advised buying a put or just fighting margin calls do? Does he or she now blow out of hedges at $4.00 or just watch like deer in the headlights? What do the heavily short funds do now that $3.70 held just about the time water/floods fell on the corn belt and China buys corn? Does he run for cover or not?

The answer lies in knowing when to hold ‘em (accept risk) and knowing when to fold ’em (hedge off price risk). If you haven’t accepted the value of technical analysis along with a pro-active understanding of market fundamentals and market psychology in the past months, then I have failed to make a dent in the mindset of serious marketers.

What is said about corn can be extrapolated to soybeans and even stock market equity associated with commodities like the Tyson chart below.

SOYBEANS

Note the importance of the former uptrend line from September to February, ending when South American weather and crop relatively insured in spite of a new thrust by China to buy soybeans. Now there appears to be another crossroads as the important $9 support is threatened by an overhead resistance that soybeans have yet to crack. Will it make any difference if China buys more or not given the increased uncertainty of planting weather? The future of chart action will point the way!

LIVE HOGS

A picture is worth 1,000 words. Again, what was not obvious to some in mid-February was the collapsing thrust below support dating back to mid-August when futures left behind a months’ worth of trading in June hogs below $74. While the upside explosion and its extent were not known nor, the signal to get out of hedges, therefore being intrinsically long in the pen, was the key. What is supposed to be a profitable business tied to either cut-out price or some sort of formula that basically isolates the packer from some risk while the producer carries it, is now futher exasperated by the possibility of ASF appearing in the U.S.

Producers are at risk under any type of contractual agreement but being open for the last $22 speaks for itself. Fundamentally traders got impatient and full of apathy waiting for something to happen while being discouraged at prices falling $12 under the Chinese dilemma not understanding that timing and market psychology was as important as believing hog supplies were going to drown the price prospects. You probably read them all? The Cattle On Feed report was not present at this writing, but could have consequential effects on meats in general and live cattle in particular.

FINALLY let’s look at a publically traded equity like Tyson to view price discovery in a somewhat unbiased form with a technical focus as an aid may prove interesting. All the negative, or not, fundamentals regarding Tyson’s balance sheet can be research through any brokerage/research firm, but projecting what Tyson did under our current environment is not. Note the Christmas gift of the collapse in the stock market gave an opportunity to own Tyson at a price level that was below anything on the chart. That collapse was a gift from a risk standpoint as price dropped $35 from $50 high to $30. Odds were that one wouldn’t lose another $35!

With the ASF in mind and regardless of whether pork eaters would believe that a dead hog with ASF was not harmful to humans may be a stretch. China was in process of buying chicken from other sources as well. Tyson is famous for chicken. One of the first moves Ag Secretary Purdue did when the $12 billion support was announced was to buy chicken for school lunch and other programs. Tyson is known for pork as well. If there was a China “deal” to buy pork, would not Tyson benefit. Do corporations support both political parties? If there was a China pork and maybe a chicken deal would not Tyson benefit at least somewhat? Would it not be naïve that we would see a stock related to such activity start to appreciate before the actual Chinese buying would result from negotiations?

Is it a mere coincidence that Tyson has appreciated nearly 40% since the Christmas gift? Is it a coincidence that stocks often gain back 50% of what is lost in a post-bottom? Isn’t it interesting that Tyson is now back up to 50% of the total loss from December 2017 to Christmas 2018? Just seems too obvious does it not? It is more important it seems to be on the right side of a move rather than overanalyzing details and get lost in the forest of trees rather than seeing daylight. The chart of Tyson’s last three months response to the situation at hand is worthy of one’s time.

Good technical analysis is worthy of your time and expense. It is an investment in being able to lower the risk of making a “big-bad” . We all make errors, as that is how we learn. But especially in the farming business, we can’t afford to make a big error. I suspect the miss-calculations by major firms in 2016 that missed the price appreciation as well as the miss-calculation of the drop in soybean prices nearly a year ago betting that the tariff wouldn’t/couldn’t last long, were big errors. Missing the extent of a bull market is rather immaterial to a price collapse. Anyone can make money in an up market as it is just some that make more than others. However, in a bear market, especially in the current environment, a small drop can wipe out all the profitability; that is net taxable income. “That” is an error few can afford for any length of time.

THE UPSHOT

There is obviously more to price analysis than what might look like a simplistic view presented here. But I hope it peaks your mind and makes you think out of the box. I’ve seen market analysts come and go in the past 30 years and there may be one or two yet in the business that I would trust with the marketing of my farming.

We have a lot of “plant managers” in the business who are supported by nearly every commodity organization in the country opting to dwell on growing more production while ignoring what missing a dollar drop in soybeans or 50¢ in corn does to the bottom line. Bankers for the most part are unconcerned with marketing and wish to stay that way. Universities do a paltry job of education of real marketing; selling at a break-even isn’t a strategy. Price outlook with due diligence leaves a lot to be desired, just read the internet or listen to the media. Worse yet, I fear a simple understanding of the basics of price discovery and the merits of price movements are still at the bottom of the list of “to-do” things and certainly not on many “bucket lists”.

Good Marketing,
Jerry Gulke, President Gulke Group

Contact Jerry ag info@gulkegroup.com or leave your contact info or call 480-285-4745 or 707-365-0601.

Read more from Gulke at AgWeb.com/Gulke

Gulke: Grain Under Pressure with Better Conditions in SA

Thu, 19 Nov 2020 03:30:55 GMT

With South America getting much needed moisture and the market currently looking at more grain supply than demand, pressure continues to weigh on the grains market and soy complex, says Jerry Gulke, president of the Gulke Group. While grain and soy exports are behind expectations, livestock exports are staying fairly positive.

“Right now it’s a matter of consuming a lot and producing a little too much,” Gulke says.

Also this week, the Gulke Group wrapped up their annual December Outlook Conference in Chicago. Despite current problems and volatility within the agriculture industry, the majority of the speakers agreed on one thing—production ag is the best place to be and farmers wouldn’t want to be anywhere else. Listen to the full highlights from the conference and all of Gulke’s commentary on this week’s market action on Weekend Market Report.

Lack of Selling Could Come Back to Haunt Farmers

Thu, 19 Nov 2020 03:28:49 GMT

Farmers are holding tightly onto new crop corn and soybean supplies in hopes of higher prices returning in a post-harvest rally, but the herd mentality to marketing could come back to haunt farmers later, Jerry Gulke, president of the Gulke Group, said on Farm Journal Radio’s Weekend Market Report.

“The thing to do last year was to not sell grain at harvest and hold it into the post-harvest, and in November we made the highs,” Gulke said. “But this year, everybody knows that that’s the thing to do, which bothers me a little because the majority are seldom right in total. They can move markets for a while, but I am concerned that everybody out there is going to store for higher prices. Whether we can get those higher prices like we did last year or not, I don’t know.”

Amidst the lack of farmer selling and dearth of news, corn and soybean prices traded in a narrow range this week. December corn ended 2 ½ cents higher on the week at $3.82 ¼/bu., and November soybeans were 11¾ cents lower at $8.83¾/bu. Chicago wheat, meanwhile, rallied 31½ cents to finish the week at $5.22/bu., amidst production concerns in Australia and the Black Sea region.

Listen to his full comments here:

For U.S. corn and soybean farmers concerned with marketing recently harvested fall crops, Gulke said, many remained focused on potential rallies that could be sparked by weather issues in South America.

“If we get into a dry spell in Brazil that’s worse than what we’ve had, I can’t help but believe that some of the reason we’re at $8.82, or in that area, and not at $8 would be concern for South American beans,” Gulke said. “If that gets worse, then you could put a dollar on beans pretty easily.”

Hoping for a major fall rally in the row crops would be a tall order given the current supply situation in the U.S., Gulke added, stressing that South America will be the wild card in corn and soybean prices in the 30 to 60 days.

Selling some now and holding some later, he said, will help farmers mitigate risk.

“We need to remain flexible,” he said. “That’s why I kind of like to hold some in my bin.”

Rest of the Story: A New Cold Tariff-War

Wed, 11 Nov 2020 05:09:08 GMT

The market started out this week selling off quickly after re-opening at 8:30 AM, and traders had a chance to look at global events, weather and coffee. Given the collapse, perhaps they had three cups of coffee or have finally realized that this tariff situation to “make trade great again” is going to take a lot longer to resolve than first thought.

China so far has not shown that their back is up against the wall , at least in the soybean venue and pork for that matter which are sectors we are concern of as producers. Perhaps there is merit in pressuring China on all fronts as their economy and associated debt reflect that it isn’t all well in China and the Trump Administration knows it.

However, now their leaders have an excuse to blame the United States for their problems and the Chinese population apparently has his back. With a leader now with the ability to be a life-long leader, it is the long term that China is looking forward to. As an economist told me 20 years ago in a conference at the then Sparks Companies, Inc. (now Informa) they (China) have been around for thousands of years, and the U.S. merely 300 years. They have seen countries like ours come and go! I’ve remembered that statement ever sense and hardly a month goes by that I don’t recall it.

There is not much more to say that I haven’t said repeatedly for weeks in this column. By now you have gotten tired reading of the potential demise of the soybean market given the lack of being pro-active by the market advisories that felt China was in a corner and will have to come back to the U.S. Perhaps the word “eventually” should have been used? If intellectual property rights are a key sticking point, we may be planting another crop before all this is resolved.

There is a distinct possibility that we have entered a new “cold tariff-war” that lingers for perhaps years? Let’s hope not, but the complexity of the problems with more and more tariffs imposed, the problem of getting all items resolved is getting worse. Given the egos of the leadership involved and the fact that the Chinese need to save face in any solution, the problem may be greater than we see on the surface. In addition, I have not seen any evidence that those responsible in trade for our Ag well-being have much of a clue of what it means to have long term 20-year debt obligations nor do politicians in general. The Secretary of Ag recently said that it is much too early to determine the details of what will be done to support agriculture as negotiations continue, and it is “hoped” a settlement can be made.

Looming ahead is the important June 29 acres/stocks report this week and weather that could influence prices. If your analyst didn’t or refused to see the demise of soybeans coming or the changes in the structure that threaten our free-market, it is never too late to change, time was and still is of essence!

The report on Friday may hold some surprises. For corn there is the acreage situation that could rise 750,000 acres as some suspect.

Gulke Group saw a drop in corn acres already back in December and much higher soybean acreage than NASS saw. But remember NASS has trouble getting farmers, especially large farmers, to reply to acreage surveys. So, if they assumed what the traditional corn-on-corn large farmer did in the past and what he likely would continue to do, they may have overstated corn acres even yet and missed the effect of shrinking working capital on acreage. If so, the report on Friday may just kick the can down the road to the October report where farmers will have reported and sworn to be truthful of actual plantings. If so, in the mean time we will be held hostage to market psychology, tariffs and confused analysts.

If you find yourself lacking in marketing or fell prey to recent false psychology or are confused and disgusted, and need help marketing just go to go to info@gulkegroup.com to contact us or phone 480-285-4745 or 707-365-0601.

Good Marketing,
Jerry Gulke

Charts to Ponder

Gulke Group watches a lot of things that affect the prices of things we grow or raise and I have a lot of charts this week as there is a LOT going on and you don’t hear/see it much on the web and for sure not in “chat rooms.” Given all the positive rhetoric on corn demand globally, the Chinese having to buy beans from the U.S., and generally good economy, take a look at corn, soybeans, spring wheat (I still have major interest in ND), cotton as well as CAT, John Deere, Lennar (LEN-housing) and the Brazilian Currency (real). Remember the lower the price of the Real the cheaper Brazil’s soybeans are that can mitigate the tight basis in their soybeans currently. There is a lot going on!!!!!

The technical minded will recognize the massive bear flag in corn and then the pause off last week’s lows, and then even daily key reversals down in corn and soybeans (which may mean an exhaustion phase). In addition, a bear flag was formed in Mpls HRSW as well. Deere is at some very long-term support with CAT at new lows for 2018. As I write this the NASDAQ is down 200 (huge) and DJIA down 450. There is nothing like pressure from farmers, bankers and the financial community and indices to wake up politicians.

(click the charts to view a larger version)

Read more from Jerry Gulke by visiting www.AgWeb.com/Gulke .

Grain Price Movement: Déjà vu All Over Again?

Wed, 11 Nov 2020 05:08:39 GMT

If the upturn in corn and soybeans this week felt familiar—you’re right. Corn and soybean prices reacted exactly like they did one year ago, by moving higher at the end of August. For the week, corn prices closed up about 3 cents, soybeans were down 9 cents and wheat prices were up around 8 cents.

Wheat prices were the leader in posting gains.

“About six weeks ago the trade started talking about problems in Russia and Ukraine,” says Jerry Gulke, president of the Gulke Group. “That wheat rally lasted about 4 weeks (typical of a weather market) and proceeded to back losing nearly 100% of those gains.

Gulke says these movements have cleansed the system.

“Sometimes I say the market gets so irrational that it has to get sick, throw up and start all over again,” he says. “Wheat kind of did that. It really confused the bulls, and we went back to where it all started before the trade knew there was a wheat problem, .” Technically wheat began its positive bias back in late December 2017.

For corn, Gulke says, the expiration of the delayed pricing (DP) contract likely supported prices. When those contracts expire, you sometimes you get a rally, he says.

“Also, there’s still talk out there that the corn crop may not be as good as the government thinks,” Gulke says.

Soybean prices pretty much went along with the other two commodities, Gulke says.

Wet Weather

Many areas in the Midwest picked up significant precipitation this week. Here’s the rainfall over the past seven days:

“We still have a lot of rain coming,” says Gulke of his farm in northern Illinois. “We know what happened in Argentina when it just started raining during harvest. We just don’t need any more on these beans.”

With the three-day weekend in honor of Labor Day, Gulke will be watching how the markets open on Tuesday.

“We’re turning some things around,” he says. “If we could open higher, since we closed on the high of the week, that would be good news.”

The other big news item of the week was USDA’s release of its tariff aid plan. Gulke provided in-depth commentary in this week’s Rest of the Story column, “ Market Facilitation Program Details ”

Read more from Jerry Gulke by visiting AgWeb.com/Gulke .