Marketing Consultant Talks Grain, Economic Rebound

3/1/2014 7:00 AM
By Philip Gruber Staff Writer

LANCASTER, Pa. — Nearly every prognosticator seems to be predicting a down year for at least some parts of agriculture. Nevertheless, negative news is not a reason to get disheartened about farming, according to Jerry Gulke.

Gulke, an agricultural marketing consultant who divides his time between Illinois and Palm Springs, Calif., delivered his agricultural outlook, interspersed with his political and even theological musings, on Feb. 19 during the Professional Crop Producers Conference at the Eden Resort.

Using an energy analogy, Gulke suggested that high prices can spur innovation in agriculture.

Higher oil prices encouraged investment in the natural gas industry that opened up the current fracking renaissance, which has dropped the price of fuel.

“We solved our oil problems for years to come by getting prices higher,” Gulke said.

The same approach might work with agriculture, as $7-per-bushel corn may have prompted people to experiment with alternative feeds, he said.

When prices are high enough, people will start looking for replacements for corn and soybeans. “It’s amazing how much feed value there is in the leaves you throw away from palm trees,” he said.

With corn as with petrofuels, it remains to be seen what happens now that prices have dropped from their historical highs.

“At $75 (per barrel of oil), fracking doesn’t work as well. Neither do the tar sands of Canada,” he said.

The high grain prices of recent years have also enticed U.S. farmers to add 147 million acres of cropland since 2005, he said.

Grain values pushed land prices higher. “We’re probably at a point now where we need to get down to rational levels,” he said.

Lower grain prices, though, could end up improving U.S. farmers’ ability to export their grain. “The world won’t use $7 (per bushel) corn, but they’ll use $4 corn,” he said.

To project the September-to-November trading range for corn, Gulke compares the size of that year’s harvest with the previous year’s.

He estimates that the 2013 corn harvest was 133 percent larger than the 2012 crop. The last time corn beat the previous year’s harvest by that much, fall prices were around $4 to $4.20 per bushel, he said.

Gulke said he expects the 2014 harvest to be 125 percent the size of 2013’s harvest.

While U.S. farmers now contribute a smaller share of the world’s grain exports than they used to, global demand has grown along with grains’ availability, he said.

“We’ve got more and more competition, which we don’t like,” but the world is using the greater supply, he said.

Eventually, one of the rising grain-growing countries will have a “hiccup” in a year when U.S. farmers have an excellent harvest, and Americans will be able to cash in on the high worldwide demand, Gulke said.

Such a hiccup is inevitable because other countries struggle to have a consistent output. “Ukraine doesn’t grow four good crops in a row,” he said.

The U.S. currently has an oversupply of grain, but that could change quickly, Gulke said.

Farmers are feeding livestock more so that they come to market at heavier weights. Market demand is driving that trend in cattle, he said.

Farmers are growing hogs larger in response to porcine epidemic diarrhea virus, or PEDv. They are looking to get more from their existing animals rather than risking adding animals, he said.

Giving more feed to fewer animals could result in a grain carryover much lower than originally expected, he said.

Cattle and pigs are already bringing high prices at market, and supply could get very tight in the next year or so, he said.

Because of PEDv fears, there are not enough gilts available to replace the current breeding females. U.S. farmers are having to reload with high-priced female pigs from Canada, he said.

“You could see a problem in hogs until next fall,” Gulke said.

“It’s going to be a slow process” to replenish the nation’s livestock herds, Gulke said. The offspring of a heifer held back now may not reach the customer’s table until 2016.

Farmers are good at finding things to make them pessimistic about the future of agriculture in addition to price pangs, global competition and livestock diseases, Gulke said.

Large swaths of the United States are still in drought, for example.

“It’s drier now than it was before” in Iowa, Gulke said. Northern California is starting to get rain, but not enough.

Many people, including farmers, are quick to blame the sitting president and whichever political party they do not like for market booms and busts. That does not make sense, Gulke said.

The market has had good and bad spells under both Republicans and Democrats, he said.

“It’s probably a systemic problem in our system that needs to be cleared up,” he said. “We do the best that we can to make this thing work.”

Gulke speculated that some of the farmers in the audience might be postponing expansions or land purchases while they wait for President Barack Obama to drive the country into ruin.

It is implausible that disaster is Obama’s goal, Gulke said, considering he probably wants his children and grandchildren to live in the U.S., and he likely does not want to dash the chances of future racial-minority political candidates by deliberately tanking the country.

If farmers waited for rumors of disaster to disappear before buying land, they would never be able to make a move, he said.

Gulke said he continued about his farming business even in the difficult ag years of the 1980s. As a result, he is now worth 10 or 20 times what he was before the start of those troubles.

Farmers need to be careful when listening to advisers, doomsaying and otherwise. Often advisers will criticize a market but then buy into it, or praise a strategy for sales purposes while personally avoiding it, he said.

Contrary to those who believe the economy is still in the doldrums, several statistics suggest the economy is improving, Gulke said.

The stock market has regained the ground lost after the recession, he said.

Gold, heavily promoted during the recession as a safe investment, has since fallen in value and has now leveled off. That activity in gold indicates money may shift from stocks to commodities, he said.

Gulke also showed a graph of the total number of miles driven in the United States. The line pushed upward almost unabated until it dropped and then steadied over the past several years.

The total miles driven will likely shoot up this year, indicating a stronger economy, he said.

If the U.S. can be as successful as it has been with 8 percent unemployment, imagine how successful it can be at 4 percent unemployment, which is considered full employment, Gulke said.

The farm and national economies are “not a disaster by any stretch of the imagination,” he said.

“What is there to tell you that we’re not in the best position” as a country in the past 30 or 40 years? Gulke asked.

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