Gulke: Risk Ahead of Friday WASDE

The data-driven crowd that has been starved for info during the government shutdown will apparently be back on track Friday. They seem to have been beside themselves, stating that without government information and reports, there is little to support decision-making or developing a commodity market outlook. 

Disruptions in methodology — especially what we have seen in the last 37 days — can often lead to opportunities that silently appear. So it was during soybean harvest, when market makers became dislodged without data and premiums for put and call options became cheap due to lack of involvement. Trading parasites lost a desire to be involved and re-ownership via call options offered opportunities not witnessed often.

Call options became cheaper than paying the outrageous cost of commercial storage, drop charges or price-later contracts. I discussed the dilemma of what to do for those who chose not to utilize or didn’t have access to on-farm storage for soybeans. The decision for me was to deliver cash contracts, lift hedges and re-own on paper, which worked well, considering the post-soybean harvest rally thus far of over $1 per bushel. We may be seeing something similar again ahead of Friday’s WASDE report. 

Doubts regarding China living up to purchase promises seem to be prevalent in the media. I’ve mentioned in this column the “out clause” in Phase I under President Donald Trump that stated our commodities had to be price-competitive and China had to need them to comply! My concern was that this clause could recur again. Subsequently, I took some backlash for doubting the process as if I were anti-Trump.

There is a fly in the ointment this time, however. Phase I came into being toward the end of Trump’s first term. This time, negotiations are coming with three years left for China to have to deal with the wrath of President Trump if things don’t go right. Furthermore, President Trump has been supportive of U.S. agriculture, both through words and actions. His comment after the recent negotiations with China was to jokingly say farmers should buy bigger tractors and more land, as they are going to need it. One doesn’t dig a hole for himself like that — especially the president. Or does he?   

SOYBEANS: What will WASDE do with the China/deal/framework? If we see an increase in soybean exports by only half the 12 million metric tons (mmt) reported, the supply and demand outlook for soybeans will look a lot different than pundits expect. If sales reflect the full 12 mmt and a reality of 25 mmt for three more years, soybeans will need more than a 4-million-acre increase next year. After the key reversal low on Oct. 1, January soybeans rallied $1.20/bushel, blew through the July highs I’ve mentioned in the past and now have paused to refresh this past week.

CORN: Trade estimates are for the yield to drop 2 bushels per acre (bpa) to 184 bpa. If WASDE reflects the 200 million bushels they found in stocks in September as a drop in feed & residual and an error in estimating last year and then reflects revised lower feed and residual use for 2025-26, a 184 bpa national yield is still too much. If yield is closer to 182 bpa, still a record, the trade may assume smaller crops get smaller with time, and the ability for corn to give up 4 million acres to soybeans next year will become suspect.  

December corn rallied and filled the July down gap and posted a key reversal down that has not been exceeded. But we’ve seen no collapse either, suggesting uncertainty in yield estimates. Doubting WASDE’s ability/desire to reflect a yield shock has me embracing futures hedges and covering with cheap call options. Kicking the production/yield to Jan. 12 looks like WASDE’s easy way out, opting to see first-quarter usage, stocks as of Dec. 1 and more data in general. 

Obviously, there are a lot of what-ifs mentioned above, and a surprise or even a shock is not out of the question in either crop. Seldom have I seen the ability to spend pennies in protection for such an event in either direction. While I seldom embrace buying puts or calls, I would suggest that if one is sold out or holding huge inventories of corn or soybeans, look at the option opportunities. A look at the recent price action of July corn and soybeans should pique your interest. The pause in the uptrends in the last five to seven trading days has relieved overbought conditions, putting prices in a more neutral mode and making them ready to respond to the report on Friday in either direction. 

Six Week Rule: Given that it has been six weeks since the price reversals seen on Oct. 1, price discovery suggests a lot of work may have already been done. A case can be made to buy both puts and calls at the cheapest price that are good for the next nine trading days — through the report and the week following. As a producer (long in the bin), being hedged with very cheap upside protection through the report seems reasonable, considering the risk associated with a massive new data dump. It maintains flexibility and buys time as well as protection against being blindsided by a WASDE report that may lack sufficient time to garner accuracy.

Jerry Gulke can be reached at (707) 365-0601 or by email at Jerry@gulkegroup.com