The Rural Voice, 2001-09, Page 60Drought shocks
Ontario corn market
By Dave Gordon
The biggest change we have seen
in the North American markets over
the past month probably occurred in
the Ontario corn market. The futures
markets have made a couple of feeble
attempts to go higher and the cash
soybean and corn markets in the U.S.
have shown some strength. But, the
corn market in Ontario has exploded
in both the old and new crops. It is a
phenomenon that we see every five or
six years — the last being in 1996.
Many analysts are projecting 2001
production based on crop ratings and
field tours. We have seen a recent
low figure for corn production of
8.85 billion bushels compared to
USDA's August estimate of 9.27
billion bushels. The Pro Farmer tour
came up with 9.0 billion bushels. The
USDA estimated the soybean crop at
2.87 billion bushels in early August
while some analysts have since taken
more than 100 million bushels off
that figure.
CORN
The corn futures market is holding
well above the lows put in earlier in
the summer, but any attempts at re -
tracking towards the old highs gets
sold off quickly. My personal feeling
is we will have to wait until combines
get in the fields to see how much
damage has been done over the past
few months. Keep in mind that the
largest corn state, Iowa, was planted
later than normal as was Minnesota
and both states saw some extreme
heat in early August. Both states have
had good rains, but the heat may have
done more damage than traders are
now assuming.
In Ontario, the drought hit the crop
56 THE RURAL VOICE
Grain Markets
at the most vulnerable time. There
was enough soil moisture to carry the
crop into early July. but when it
stayed dry and got extremely hot in
early August. the damage became
irreversible. Now there are pockets of
Ontario that got sufficient rain and
will have an excellent crop but in
general. the crop is in tough shape. I
do not think the crop will be any
larger than last year's and coupled
with the fact that parts of Michigan
are hurting as well. we do not have a
crop next door to backstop the
Ontario demand.
As a result. Ontario basis levels
have exploded with new crop basis
going from export to import values.
Today, old crop elevator basis is
$1.25 over December futures while
new crop sits $.05 lower. I do not
think corn growers need to be in a
great hurry to forward sell. In fact, if
my theory is correct, harvest time
may offer the most attractive period
to sell.
The futures market has not been
particularly kind to the soybean
market. Prices went higher during the
heat of early August. but when
temperatures abated and rain kept
falling, traders sold off the futures.
They are obviously of the thought
that the crop size can grow with more
temperate weather. The spot market
however has had trouble attracting
old crop beans and basis has
strengthened at processors in Illinois
and Ohio.
In Ontario, basis levels have held
firm, but haven't strengthened to the
extent that corn has seen. I think the
Ontario crop is in big trouble and
although some agronomists think
some new pods may be set, time is
running out. Around London, several
field surveys are turning up pod
counts of 7 - 15 per plant with only
two seeds per pod. The Soybean
Board has already lowered yield
estimates to 30 bushels/acre and there
is great probability that average
yields will come in lower still. Bids
for post-harvest soybeans are quite
strong compared to harvest,
indicating the strong future demand
and a good payback for storage.
As I noted with corn futures, I also
think that soybean futures will show
some strength at harvest time, but
probably not to the same extend as
with corn. Higher soybean futures
will encourage more South American
acres that will compete for the export
markets.
There is some concern that even
though they have poor crops this
year. China is selling old crop corn to
Korea and tilling some of the demand
that would have been filled by the
U.S. Will China need to turn around
and import grain from the U.S.'? It is
tough for us little people to figure out
what they are doing.
Even though wheat futures have
not gained much, many traders think
that wheat prices will lead the way to
higher grain prices. World wheat
stocks are shrinking (mostly in the
U.S. and E.U.) and this should lead to
higher futures prices.
Overall, I think producers are
somewhat in the driver's seat. I said
earlier in the summer that a drought
was tite only event that could take
prices higher and unfortunately,
Ontario took the brunt of the dry
weather. However, for those who
have grain (old or new crop) to sell,
the rewards will be good. Do not hold
old crop into harvest, but also do not
get too carried away with forward
contracting just yet. The
opportunities of today will not go
away quickly. BE PATIENT!O
Information supplied by Dave Gordon,
LAC, Inc., Hyde Park, 519-473-9333.
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