The Rural Voice, 2000-02, Page 41The sleeping giant
begins to wake up
By Dave Gordon
According to the media, we've
now entered the new millennium. It
arrived with great fanfare and
renewed hype around the world. Here
in North America, stock markets
reached all time highs as the year
closed out while grain prices showed
little life.
Early this week, I spoke to a group
of farmers and one of the areas I was
asked to discuss was "Will the
sleeping giant awaken'?" I said that l
was sure it would given what has
happened in the oil market and the
livestock markets, but I didn't know
what the catalyst would be. Well. the
USDA report of January 12 sure
provided the catalyst with lower
stocks, production and ending stocks
figures. These reports were a surprise
to most of us but they are pretty solid
reports and I think the trade believes
the numbers.
CORN:
The USDA report for corn was the
biggest surprise of all the reports. The
quarterly stocks was lower than any
guesses showing a better than
expected use. On top of this, 1999
product was reduced slightly leading
to a 280 million bushel reduction in
the 2000 ending stocks projection.
These corn reports have now
provided a solid foundation to build
on. I think prices now have an
upward bias and the higher corn
prices go the more likely 2000 corn
acreage will hold in the U.S. Also,
the result of these higher prices has
been an increase in farmer selling
which has led to weaker basis levels
in the U.S.
Grain Markets
In Ontario, producers have been
fairly heavy sellers of corn based on
their experiences of the last two
years. As a result. the major
processors have bought enough corn
to get them through until March 2000
and have pulled their bids until
March. This has led to a lower basis
for old crop corn at elevators. New
crop basis is still holding at $0.65
over December futures but with the
Canadian dollar gaining strength.
don't be surprised to see this basis
drop as well.
SOYBEANS:
The USDA also delivered a fairly
bullish report for soybeans on
January 12. They lowered production
by 30 million bushels, which
translated into a similar reduction in
ending stocks. Since the report, soys
have gained more than $0.20 with
March futures edging towards $5.00.
Prices will now be very dependent on
South American weather, which is
fairly dry right now but with
moderate temperatures.
In Ontario. basis levels continue to
hold quite strong despite fairly active
selling. In fact, the Ontario market
will remain at import levels
throughout this marketing year
because the processors are crushing
more soys than ever before. The only
fly in the ointment for basis in
Canadain funds is the strength of the
dollar. If soybean futures don't keep
up with the strength in the dollar,
basis levels will soften temporarily.
FEEDGRAINS:
Feedgrain has continued to be
pricey relative to corn prices
however, with corn prices improving
usage of barley and mixed grain may
pick up a little. Ontario barley is
selling for $95 - $l00 per mt with
mixed grain selling in the $90 - $95
area.
Recently, I looked at corn and
soybean charts for the past 20 years
with the assumption that in most
years producers were given an
opportunity to sell their crops at a
profit. In fact, the only years when
this wasn't the case occurred in the
mid -80s. Producers also need to take
a look at how often futures prices
trade at extreme prices (high or low )
and how quickly the market retraces.
We've already seen hog and cattle
futures recover, oil futures ha%e
gained dramatically and the shock
market is still flying. If speculators
see some action in the grain sector.
they will soon move money tow here
the action is. In fact. right atter the
USDA reports. the spec. funds started
buying both corn and soybean and
easily absorbed any hedge pressure
that producer selling brought to the
market.
The USDA reports have provided
a solid foundation for future price
gains. Just the tact that ending stocks
are not continuing to grow is enough
to lend support. Now, planting
intention and weather will be the
focus — in other words year -200(
production. I don't think anyone can
get outright bullish yet but there is at
least some hope on the horizon.
Producers will have an opportunity to
contract at some decent prices over
the next few months. In tact, today
new crop corn can be contracted
above $3/bu and new crop soys are
getting close to $7/bu.
As I mentioned earlier. as corn and
soybean prices go higher. the loan
rates will have Tess and less effect on
shifting acres. So far. we've heard
that soybean acres will be up and
corn acres down in the U.S., but corn
prices have already moved above
loan rates and may start attracting
acres. Back here in Ontario,
producers need to be very careful
when they are selecting corn hybrids.
Not only do you need to consider
GMO vs. non-GMO, but be sure to
keep your heat unit selection within
the range for your area. Just because
we've had two good years of heat
.accumulation doesn't mean it's going
to continue this year or next.
Finally, yes, I think the sleeping
giant is beginning to awaken.0
Information supplied by Dave
Gordon, LAC, Inc.. Hvde Park, 519-
473-9333.
FEBRUARY 2000 37