Corn Market Struggles to Find Equilibrium
Maybe this is a good time for U.S. corn and soybean producers to sit back on reflect. It’s a chance to take a noble attitude.
After all, the nearly $1.00 drop in corn futures this week is good news for the nation’s livestock feeders and other end users of corn and soybeans, says Jerry Gulke, president of the Gulke Group.
Click to hear the full Gulke interview.
"It’s indicative of markets. When they end, they end," he says. "I think a lot of people got complacent and thought, well, this is just another pullback. But a pullback in March and a pullback in June is a lot different than a pullback before I start harvesting my corn an d soybeans. It’s a whole different world."
The reason for this sharp downturn the past two weeks is a simple economic equation. It’s about supply and demand. The rally up the past few months was not necessarily due to increased demand, he says. It had to do with a short supply and the rally brought the market back into equilibrium by getting high enough prices that demand was cut.
Click for After Price Plunge, Expect Upswing.
"It’s just the way it works. You want to have a balanced equation to where everybody is happy. We were really happy at $7.00/bu. corn, but the guy that was using my stuff says ‘I can’t do this anymore. There’snot going to be a cow left. There isn’t going to be a hog left if we keep doing this.’ We came back to some sense of reasoning."
Beyond the perceived nobility of the situation, this give pork producers some breathing room on their input costs, Gulke says. On the ethanol side, it takes away some of the fear that the government would take away the ethanol blenders tax credit.
Regardless, this recent crash in the commodity markets means producers who sold corn ahead of time are sitting in a pretty good position. This is particularly so considering that the corn yield reports the Gulke Group is hearing are coming in better than many people believed.
"We have the potential of losing a whole year’s gains in beans because the bean crop looks like it’s better. In corn, there are a lot of reports coming in better than we thought."
