Does Market Want Farmers, Ranchers to Cut Production?
The market’s reaction to Wednesday’s USDA numbers may have been mild, but Jerry Gulke sees plenty of cause for caution where the commodities markets are concerned.
“I have never seen livestock and grains in my lifetime as negative as they are right now,” said Gulke, president of the Gulke Group in Chicago and a farmer in Illinois, speaking with Farm Journal Radio after the report.
In terms of today’s numbers, Gulke noted a few positive things in the report and the market’s response:
- An uptick of 25 million gallons in corn for ethanol. “That speaks pretty well of the demand for ethanol,” he said.
- An unchanged estimate for soybean exports, “which is good, because we’ve all heard how bad it is in Argentina … with a wholesale dumping of 750 million bushels of beans at some point on our heads and the market not being able to absorb it,” Gulke said.
- No collapse in grain prices after the report was released. “How much more bad news could you throw at (the market)?” he asked.
But he also underlined a few worries.
- A considerable corn carryout of 1.785 billion bushels. “We still have about 500 million more bushels than we need to get corn really excited” and climb back to the $5 level, according to Gulke.
- Lower demand projections in corn and soybeans. “The government is saying, ‘We’ve done all we could do with finding more demand,” he said. “That means somebody has to have a problem next summer in order for us to see much above the light of day at $4.40 corn due to some minor disturbance somewhere.”
- Disappearing margins in cattle. “It looks like we try to recover every day, and then they rally up and someone sells into it,” said Gulke, who sees huge losses in the 1,800-pound steers that are coming to market. “We’re not going to get this thing to turn around until we get rid of these heavyweights.”
Listen to Jerry Gulke's full comments here:
It all adds up to a surplus of supply for grains, but also livestock, which will continue to keep prices so painfully low. “We’ve got too many turkeys, too many chickens, too many hogs,” Gulke said. “Suddenly after a year of crisis, we’ve got too much of everything. That’s true in corn as well, so the market is begging us, ‘Don’t do that anymore.’ Somebody has to cut back.”
Do you think it's time for farmers to cut back and let land go idle? Let us know in the comments.
