The Rural Voice, 2002-04, Page 56Grain Markets
Producers need to spend more time on marketing
Dare Gordon
isa
commodities
specialist.
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
March 15, 2002
Are the February blahs behind us?
It seems that the annual doldrums
carried on far too long this time, but
it may take some unusual
circumstances such as a drought to
make much improvement in prices.
It has been said for several years
that the wheat market should lead
other grain_ markets higher, but as
wheat prices sink, it has been the
soybean market that has strengthened
in the past few weeks. November
soybean futures have gained $.50
from the low in early January which
may change some planting intentions.
Corn futures on the other hand have
been stuck in a rut for months
although we have seen same
signs of improvement in the last few
days.
CORN
The USDA released a monthly
supply/demand report on March 8,
which lowered exports by 50 million
bushels and added this amount to the
projected carryover. This came as no
big surprise to traders and the market
actually shrugged off the increase and
traded higher. But, with world stocks
also increasing, price gains will be
limited. Fortunately, the U.S.
domestic usage is very good with big
increases in use coming from the
ethanol sector. By 2010, the U.S.
expects to more than triple ethanol
production, taking corn use up by 1.6
billion bushels.
In Ontario, old crop basis levels
eemed to have bottomed out in late
February before gaining $.07/bu.
Today, Ontario prices are basically
right at import levels. The fact
remains that we still need to import
52 THE RURAL VOICE
more corn in this crop year and this
should hold Ontario basis levels
fairly strong.
New crop basis on the other hand
will continue to be weak at least until
the crop begins to get through the
pollination phase. This point in
development will make or break the
crop and give us a better idea of basis
direction. Last year, new crop basis
wits weak until early July when
drought took over in many parts of
Ontario. However, we seldom have
consecutive years that progress in
similar manners.
SOYBEANS
The USDA reduced soybean
carryover by another five million
bushels but traders were more
focused on the South American crop
and harvest progress. Prices peaked
on the'day of the report. but have
since retreated. I have just read an
interesting statistic — every year since
1973. July soybeans futures have
traded above $5 between January 2
and March 31. This year, the high so
far has been $4.76 with only a few
trading days left in the month. This is
pretty dismal considering the fact that
world demand continues to outstrip
production and canola prices are on
the rise.
In Ontario, basis levels remain
very firm with elevators showing a
basis of $2.50 to $2.55 over May
futures for old crop soys. New crop is
also firm at $2.15 over November
futures. With the recent rally in future
prices, there has been considerable
selling and as a result, crushers are
pretty much out of the market until
late April.
The real question concerns new
crop soys. Basis levels for harvest,
and especially beyond, shipments are
very good because of the low
Canadian dollar. I know it has been
$aid before, but I do believe that our
dollar will gain some strength this
year. Are Ontario growers going to
stick by their plans to reduce soybean
acreage'? The spread between
soybean and corn prices is widening
slightly but will it be enough to
encourage soy acres? If you store
soybeans on farm, take a look at
forward selling some for winter 2003
shipment — at least on basis if you
think futures are going higher.
I may sound like I am harping a
little, but producers need to spend
more time marketing their grain.
Over the last three years, forward
contracting has worked very well and
given growers better prices about 90
per cent of the time. The exception
occurred last fall when corn basis
skyrocketed because of drought, but
that situation provided an opportunity
to forward sell at some very attractive
prices. Producers must spread selling
out over the crop year with a
combination of spot and forward
contracts in order to maximize
returns.
The feed grain and oil seed
markets are two different animals
right now. World coarse grain stocks
are not dropping as rapidly as
previously thought and the fact that
China recently cancelled corn
purchases out of the U.S. shows that
they have enough corn to satisfy their
needs. On the other hand, oil seed
stocks are projected to drop only
slightly even with a record soybean
crop in South America. Canola
acreage is a question mark in western
Canada because of the drought
conditions of 2001 and the possibility
of the same in 2002.
I know that Ontario producers will
plant more corn this spring and it is
important that a portion of the crop
gets forward contracted. Yes, new
crop basis levels are soft, I'iut if the
crop is large and corn needs to be
exported, there is still more
downside. It is not critical though that
soybeans get sold given the more
favourable fundamentals. There
should be opportunities as we get
further into the spring.
Let's hope that we have decent
spring weather and the crops get
planted early. A good spring always
makes producers feel optimistic and
eternal optimism is a common trait of
all farmers.°