Gulke: Corn, Crude Strange Bedfellows
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A comparison of price action between corn and crude oil shows that, contrary to what some market analysts claim, crude oil prices should not be the go-to explanation for volatility in ag commodity prices. (Chart by Gulke Group)
Since the start of the Iranian conflict, the media has used crude oil prices as the go-to explanation for ag commodity price volatility. I have not subscribed to that rationale and see it as an excuse — or worse, a misunderstanding of the price-discovery process. A quick comparison of price action between corn and crude oil makes that clear.
Corn, like crude oil, is a renewable resource. A new crop is grown every year, and depending on supply and demand, price will ration the need for more or fewer acres. Crude oil supply also responds to price and market disruptions. Looking at the charts, it appears corn has led the way most recently. Maybe there isn’t a real relationship at all.
Price action was similar early on — corn and crude both posted highs on March 6, the start of the war, highs that subsequent price action in April, May and June was unable to sustain. Wheat, soybeans and canola moved in concert as well. That date marked the initial magnitude of the trade’s kneejerk reaction to the Iranian episode. Thereafter, the hype was never enough to sustain a lasting upward trend for corn, soybeans or canola. Wheat had its own supply problems that helped it push beyond the March surge — until it, too, failed in mid-May.
May simply failed to generate enough momentum to make March 6 the beginning — rather than the end — of anticipation. Worse, when neither commodity could sustain May highs into June, corn gave way first, with crude following. Crude hasn’t yet seen an extreme collapse, but it’s off to a good start in that direction.
Corn has surrendered all its gains from 2026. If corn is leading the way, crude has yet to do what media analysts doubted it would — lose price, and faster than expected. The president said that when the war ends, crude would fall like a rock. If current price action is any indication, it is well on its way. Buying either corn or crude right now is like catching a falling knife.
The implications don’t stop there. Ag media has placed heavy emphasis on locking in fertilizer and farm fuel costs. But the lack of foresight from analysts who missed the 18-month upward bias in corn, soybeans and wheat — then turned bullish ahead of the Trump-Xi summit only to be blindsided by the bearish May 13 fact sheet — should make anyone skeptical about whether sound market analysis still exists. Most recently, a mere rumor that China was shopping for soybean bids caught the trade off guard, and apparently, large speculators were leaning the wrong way as they liquidated significantly.
That brings us to this week’s action, which has been a stark contrast across commodities. Soybeans reacted first to rumors of China looking for bids. Wheat followed, and by Wednesday, it was corn’s turn for a dose of reality — a reminder of what volatility means.
I have long argued that for China to buy U.S. soybeans — even at roughly $1 per bushel more than Brazilian beans — would represent an investment, not an expense. After months of making that case, a leading firm came out Monday making the same point: China has lost approximately $200 billion in exports to the U.S. and needs lower tariffs to support its economy. Appeasing the Trump administration in the soybean market would be a win-win.
The underlying problem is that the logic driving ag commodities, crude oil and energy broadly is being missed. Those who present themselves as market experts often have little real-world experience in the art of the deal. For many who offer market outlooks, the biggest negotiation of their lives may have been buying a car or a home with a bank loan. And yet some run for political office and make decisions that affect all of our livelihoods.
If the recent collapse — and the attempt to recover some or all of those losses — came as a surprise, it shouldn’t have. For my part, the selloff that bottomed last week met my criteria to exit all hedge coverage; the risk of doing so was well-defined. In fact, call options were purchased in anticipation of a price recovery. How high could prices go? I have an opinion I’m happy to share if interested. Email Jerry@gulkegroup.com.
Jerry Gulke can be reached at (707) 365-0601 or by email at Jerry@gulkegroup.com
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