`
February 25, 2017
Weather:
Argentina weather during the weekend occurred as expected with showers and thunderstorms
confined to the west and south
o Temperatures were very warm to hot with highs in the 90s to 104 degrees Fahrenheit with
western fringes of crop country and the far north warmest
o Rainfall in most other areas was not enough to counter evaporation
o Lowest morning temperatures were in the 60s and lower 70s
· Brazil weekend weather included a boost in rainfall for center west and center south crop
areas while the far south and northeast experienced net drying
· Temperatures in Brazil were seasonably warm Friday through Sunday with many highs in the
80s and lower to a few middle 90s Fahrenheit
· Weather conditions in Brazil during the next ten days will change little with rain continuing
most frequent and significant from center west to center south while leaving the far south and
northeast in a net drying bias
o Temperatures will continue seasonable
· Argentina weather over the next two weeks will be mostly favorable with two periods of
organized rain
o The first period occurs Thursday into Saturday of this week and the second occurs March 911
o Temperatures will be unusually warm through Wednesday and then cool to a more
seasonable range this weekend
· The bottom line for South America is mostly favorable. Less frequent and less significant rain in
Argentina during the next two weeks will favor better crop development and field working
conditions. Some heavy rain is expected Thursday into Saturday and again for a little while next
week, but drying most other days will support a favorable environment for farming activity. Brazil
may trend wetter from center west to center south, but the impact on crops should be low. A good
mix of Brazil weather during the next two weeks should prove beneficial to most crops and their
production potential.
News:


The Brazil Soybean harvest estimated 34.3% complete as of Friday, vs. 26% average for this date.
Top producing state Mato Grosso Soybean harvest 66% complete. In the south the state of Rio
Grande do Sul reported harvest 13% complete. Cash Soybean prices in Brazil continue to drop. At
the port of Paranagua prices dropped 2.5% last week.
Government officials in Mexico announced Friday that next month they will send a trade delegation
to visit Brazil Corn, Soybean and Chicken producers as an alternative to U.S. suppliers. One official
stated "The United States unilaterally wants to change the established rules of the game, this will
evidently lead us to rebalance our trade relations". Mexico is the largest buyer of U.S. Corn as it
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and
affiliates may take positions for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material
and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to
invest. Prices used in trade recommendations are already reflective of known information.
`

holds a freight cost advantage over Brazil and Argentina but one needs to remember even the U.S.
has imported Corn from Brazil, 201,000 mt. in 2015/16 and 1.5 mmt. in 2012/13 and also from
Argentina, 107,000 mt. in 2015/16 and 572,0000 mt. in 2012/13.
Friday's USDA Cattle On Feed Feb 1: 101%; estimate 101%; prior month 100%; Cattle Placements
during Jan: 111%; estimate 111%; prior month 118%; Cattle Marketings during Jan: 110%;
estimate 110%; prior month 107%
Technicals:
LARGE SPEC ANALYSIS:
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and
affiliates may take positions for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material
and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to
invest. Prices used in trade recommendations are already reflective of known information.
`
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and
affiliates may take positions for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material
and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to
invest. Prices used in trade recommendations are already reflective of known information.
`
Markets:
The USDA’S Annual Outlook Forum didn’t offer any surprises bullish or bearish. Nor did they do us an favors
from a supply-and-demand standpoint, keeping ending stocks relatively high while seemingly pushing off any
decisions that might change price outlook until we see planting intentions and stocks at the end of March where
any significant move in acreages are left up to an actual planting intentions survey rather than relying on
economic models to predict any shifts. The following are some statement I gleaned from the written outlook as
presented at the forum that I found interesting in ascertaining the mindset behind their estimates. Print in bold
is my reaction.
While the 2017 outlook for U.S. plantings of wheat, corn, and soybeans is driven by modestly improved
price prospects over last year, they are still below the levels seen during 2011/12 to 2013/14. Plantings of
the 3 crops in a given year, including prevented plant acres, are highly correlated with prices in the
previous year.
The old guard at the agency that I knew has disappeared in to the sunset of retirement in
recent years leaving the task up to younger and less experienced personnel suggesting the
USDA is still hold on to beliefs that we make planting decisions largely based on what we are
getting paid for the previous year’s production and not so much based on what is being offered
at harvest for the crops we anticipate planting. I couldn’t disagree more. Such a belief is a
recipe for gross error in estimating. I have heard similar beliefs stated in the media including
the widely held belief that we like to plant corn and will do so unless weather prevents it.
Times have changed and those who hold to preconceived ideas are destined to make
predictions fraught with error and lead others down a similar path.
Forecasts for 2016/17 wheat, corn, and soybean prices, plus an assumption for a normal amount of
prevented plant acres, suggest a slight decline in combined plantings in 2017. The forecast planted area for
the 3 crops is projected at 224.0 million acres, not including an assumed 4.3 million in prevented plant acres.
Prevented plant acres for the 3 crops totaled just over 3 million acres in 2016,
below the recent historical average.
In their acreage estimate, not only is there an assumption of some land that will be idle and
just won’t get planted. That seems hard to phantom perhaps, especially for the soybean
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and
affiliates may take positions for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material
and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to
invest. Prices used in trade recommendations are already reflective of known information.
`
producer. However, from a historical perspective, idling land can and does happen under
extreme cases, or under a situation where keeping land fallow (summer-fallow) where the
benefits the following year nearly offset the cost of land and minor expense of weed control.
Growing up in ND decades ago, it was in the normal course of business to set-aside 20-25% of
land in fallow in order to increase odds of a crop on those acres the following year. This year,
there here and now of growing soybeans under a calculable profit seem to outweigh profits
benefit the following year. There here-and-now benefits may prevent not planting this year.
Wheat planted area for 2017 is projected down 4.2 million acres to 46.0 million. Winter wheat seeded area
in the January 12, 2017, Winter Wheat and Canola Seedings report was 32.4 million acres, down 3.8 million
from last year mostly resulting from a drop in Hard Red Winter (HRW), which was
estimated down 3.3 million acres at 23.3 million. Soft Red Winter (SRW) area was estimated down 0.3 million
acres to 5.7 million. Winter White (WW) seedings were lowered 0.2 million acres to 3.4 million. Spring wheat
(including Durum) plantings are expected to decline 3 percent (about 350,000 acres). Corn plantings for 2017
are projected at 90.0 million acres, down 4.0 million from last year and 3.6 million below 2016’s intended
plantings. Soybean plantings are expected to total 88.0 million acres, up 4.6 million from a year ago and 5.8
million above last year’s intentions.
The Spring wheat acreage estimate seems to be more of a text book calculated guess since there is has not
yet been a formal intentions; we’ll have to wait until March 31st to know. Perhaps the larger prevent plant
figure this year has some room for loss of spring wheat in ND? USDA’s own economic models should likely
have shown a bigger reduction in Spring wheat in favor of soybeans but USDA will state they are not in the
business of speculating.
Combined corn and soybean area, at 178.0 million acres, is up from a last year’s record of 177.4 million
and 2.2 million above 2016 planting intentions. Through more than half of February, new-crop corn futures
have averaged close to $4.00 per bushel, up about $0.10 from all of February a year ago. Soybean prices
over the same time period have averaged about $10.20 per bushel, nearly 2.6 times the corn price and
about $1.35 above a year ago. The last time the ratio during February was this favorable to soybeans was in
1997, which preceded the takeoff of corn ethanol in the United States and robust growth in China’s soybean
imports. A more recent historical comparison could be 2014, when a rapid increase in China’s soybean
import demand over the first half of 2013/14 drove the ratio up to nearly 2.5 during February, helping to
pull soybean plantings up 8 percent while corn declined 5 percent.
Using the analog year of 2014, soybean acreage increase 6.5 mil-ac to 83.3 from 76.8,
while corn dropped 4.8 mil-ac from 95.4 to 90.6 mil-ac. What isn’t stated is that all wheat
acres remained relatively steady in 2014 unlike the 4.6 mil-ac. drop estimated this year. It
appears USDA is refusing to deal with a major move either way beyond what might appear in
past analog years. They also did not discuss the increase in 2008 of 11 mil-ac of soybeans
that was realized during a low profit outlook for corn profitability.
Cash bids for fall 2017 delivery at Illinois elevators also underscore the increase in the relative
competitiveness of soybeans. With more than half of February complete, corn prices have averaged
about $3.70 per bushel compared with $3.50 per bushel for all of February a year ago based on
Agricultural Marketing Service (AMS). Soybean prices over the same period have averaged about $9.90 per
bushel, up from $8.50 during February a year ago and the highest since 2014. Although input prices such as
nitrogen fertilizer have declined in the past year, total revenue per acre has fallen much more substantially
for corn than soybeans following the apex of 2011/12 and 2012/13. For producers focused on managing
costs in a relatively low price environment, this is expected to enhance the relative competitive position of
soybeans.
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and
affiliates may take positions for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material
and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to
invest. Prices used in trade recommendations are already reflective of known information.
`
In summation it appears USDA thinks acreage is still a moving target, though financials suggest farmers
could favor soybeans over corn. Weather is always the wild card but the USDA is assuming prevent
planting increase will help reduce plantings overall. Planting intentions on March 31st could very well
hold surprises compared to USDA’s estimates. Should a wet spring evolve, even more uncertainty
evolves making June 30th the next revised number for the trade to analyze. Those conclusions aren’t
particularly helpful to an anxious marketplace trying to sort out what producers will plant. There is
economic tightness of our farm economy, tighter than the last time we made some switching decisions.
We have completed our internal client survey for 2017. We differed markedly from USDA last year at
this time, but in the end, we were within nearly 100,000 acres. We have already positioned ourselves
based on this year’s data versus that of the USDA, while remaining rather flexible given the assumptions
made by the USDA. There may not be an analog year that is comparable to this year making assessment
that much more interesting.
Yesterday’s Trades: Corn – For 2016, exercised CH 370 puts, putting us short 20% March
futures. For 2017, exercised CH 370 puts, putting us short 20% March futures and sold 15% CZ at
390 ¼. Soybeans – For 2016, exercised SH 1020 puts, putting us short 50% March futures.
Wheat – For 2016 and 2017, exercised WH 440 puts putting us short 25% March futures and sold
25% WN at 461 ¼.
Gulke Group Speaking Engagement, March 2, 2017 Sioux Falls, SD 10:30am – 3pm, cost is FREE: Jeff
will be speaking for First National Bank at the Hilton Garden Inn SOUTH (5300 S Grand Circle, Sioux Falls).
Mike Sands from Informa will also be there to cover livestock in the morning before lunch. Call 605-3355110 to reserve a spot.
Advice: No new advice.
A weaker bias this morning to grains/oilseeds while livestock are steady to higher, especially FC and LC
after the COF report Friday. We elected to wait for the COF report last week to revised strategy if needed.
We’ll stand aside today with no new advice while the market digests last week’s report and weather
expectations; weather in S America looks unthreatening. Grains/oilseeds trading weaker this morning.
A lengthy discussion/comments on some of USDA’s written justification for their estimates last week is in
morning comments today and worth reading to get a better sense of their analysis. The bottom line looks
like they’d rather kick the can down the road to their actual crop survey starting March 1, while leaving the
door open for further changes via planting intentions.
The large spec revised charts show little change but no significant increase either.
Cotton: Contract highs for May are at 78.50. Use a move above 78.50 to exit May hedges. Add to 15% to
May hedges on a move below 75 cts. Also, add another 20% to new crop sales CTZ17 by using a sell stop at
73.00 cts.
Rice: Some base building going on between $9.50 - $9.70. Our risk is a move below support at $9.50 in
May contract---that’s where we will rehedge 20%.
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and
affiliates may take positions for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material
and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to
invest. Prices used in trade recommendations are already reflective of known information.
`
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and
affiliates may take positions for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material
and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to
invest. Prices used in trade recommendations are already reflective of known information.
`
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and
affiliates may take positions for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material
and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to
invest. Prices used in trade recommendations are already reflective of known information.