The Rural Voice, 2001-02, Page 41USDA report holds
surprises
By Dave Gordon
On January 11, the USDA released
some most important reports
including 2000 production, supply
and demand and quarterly stocks.
Quarterly stock reports are always
important because they give everyone
a chance to take a good look at usage
over the past three months. As well,
the production report issued every
January, gives the first real estimate
of the previous year's acreage and
yields. Winter wheat plantings are
also reported, giving the first glimpse
of survey results. Of course, spring
wheat plantings can skew markets in
months to come and will be lumped in
with corn and soybean plantings.
Immediately following these
reports, the only market to record
stronger prices was wheat, as corn and
soybeans prices fell significantly.
CORN:
For some reason, funds
(speculators) were determined to be
long corn futures prior to the report.
However, when the quarterly stocks
were shown to be higher than anyone
thought and the projected carryover
was increased from December, the
party was over for the funds. The
reports shouldn't have been surprising
as export sales and clearances have
been lagging severely since "Starlink"
became an issue. However, feed use
was reduced from last year and this
was a bit of a surprise. Now, futures
prices will find a level that will
encourage export sales because world
stocks are still well below last year,
before rebounding.
To me, there are two factors that
should encourage higher corn prices
in the coming months. First, with fuel
and nitrogen prices increasing so
dramatically, new crop corn prices
need to improve to encourage acreage.
Grain Markets
There are analysts who are already
looking for a two -million -acre
reduction in corn. If prices don't
increase before planting, production
will be reduced which in turn should
push prices higher later. Secondly, the
wheat acreage, stocks and carryout
numbers were bullish for wheat prices
and I think wheat prices.may provide
a stimulus to corn prices.
In Ontario, basis levels are
extremely strong for both old and new
crops. Beware, though, of a stronger
Canadian dollar and more
importantly, the fact that when we
import corn we usually overdo it and
bring in too much which can lead to
lower basis levels later in the summer.
SOYBEANS:
The USDA soybean report was a
little surprising in that quarterly
stocks were higher than any pre -report
estimates. However, U.S. and world
carryouts for 2001 were virtually
unchanged even though both were
higher than one year ago. I thought
that European demand would hold
prices at least steady until the South
American crop comes to market.
However, it seems that the potential
of both an excellent South American
crop and increased bean acres in
North America is overriding other
concerns right now. Last year, prices
improved early in the year in the face
of a huge South American crop and I
thought the same would happen this
year but we may have already seen
the top prior to Christmas.
Basis levels in Ontario remain very
strong although lower futures prices
and a higher Canadian dollar have
combined to push the basis in
Canadian funds lower. Right now old
crop soys have a basis of $2 to $2.05
over March futures while new crop
sits at about $1.90 over November
futures.
Too many producers in Ontario
only take the time to look out their
back door instead of looking at the big
picture. I hear from growers in eastern
Ontario who think that because of the
extreme shortage in their area in terms
of both quantity and quality, that
prices should go much higher. They
don't realize that the quality of
western Ontario corn was very good
in 2000 even if yields were lower. As
a result, they also don't realize that
grain will flow to an area of high
prices and temper prices in that area.
So too, many growers in western
Ontario don't realize that Michigan
grew above-average crops of corn and
soybeans and that it's inevitable both
crops will flow into Ontario when
prices are high enough. In Ontario, we
definitely didn't grow enough corn to
meet our needs and the soybean crop
was barely large enough to meet
crushers needs. The point I'm making
is the producers cannot sit back and
expect prices to continually go higher
because while they are waiting, users
are processing grain no matter where
it comes from and as time goes on,
their needs are satisfied and markets
eventually dry up.
I think it is inevitable that North
American farmers will lean towards
growing more soybeans and less corn
and wheat in 2001. If corn prices
don't rise to attract acres before
planting, there should be less
production, and assuming constant
demand, prices should improve later
in the year. In Ontario, corn usage has
increased over the years to about 230
million bushels and we have only
grown this much corn twice — 1998
and 1999. So, expect to see basis
levels in Ontario remain strong
relative to historical values.
Soybean production, on the other
hand, could easily set a record in
Ontario if the weather co-operates.
Dry bean acreage surely won't
increase and as I've already stated,
corn acreage will be down, so
soybeans will make the most sense
especially in western Ontario where
cereal grains don't grow so well.
Eastern Ontario may opt to plant
spring wheat and barley. Producers
should keep in mind too, that food -
quality soybean premiums may erode
with an increase in production.
For the near term, it looks like
grain prices will stay in the doldrums
at least until planting intentions come
out in late March. Until then, there
will be all sorts of guesses. Each
producer needs to sit down and work
out crop returns.using 10 -year average
yields and then make their own
decisions.0
Information supplied by Dave Gordon,
LAC, Inc., Hyde Park, 519-473-9333.
FEBRUARY 2001 37