The Rural Voice, 2003-02, Page 37Grain Markets
USDA carrgover reports shock mang traders
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
January 17, 2003
USDA issued many reports on
January 10 including quarterly stocks,
final 2002 production, world
production and updated
supply/demand reports. Most traders
thought these reports would show
some minor adjustments from the
previous ones and were unprepared
for the figures that were reported.
Quarterly stocks of corn, soys and
wheat were all higher than pre -report
estimates and I think the biggest
surprise of all was an increase in
soybean carryover. Most traders were
of the opinion that soybean carryover
would drop given the terrific export
pace to date.
The reaction of the futures markets
was completely negative immediately
after the reports with corn dropping
$.13 and soybeans down $.30 in two
trading sessions. On top of the decline
in futures prices was the steep rise in
the Canadian dollar, which today is as
high as it was last July.
Corn:
Just prior to the USDA report, corn
futures gained as much as $.11 with
speculative funds going from a short
to a long position in a matter of three
days. The report did not change final
production too much and although
harvested acreage was reduced, yield
was taken up to 130 bu/acre. Feed use
and exports were reduced for the
coming year and the final carryover
was increased to 924 million bushels.
This number is getting closer to the
psychological one billion bushels.
One advisory service has been
projecting a carryover of more than
one billion for the last three months
with their total usage coming in 100
million less than USDA.
The U.S. producer is putting corn
into the loan program at a steady pace
and the total in the loan is already
more than the projected carryout. This
should keep U.S. basis levels
relatively strong into the spring.
In Ontario, basis levels are holding
extremely strong in U.S. funds, but I
do feel some weakness coming. I
think 'on-farm corn will start hitting
the market over the next two months,
which may lead to some erosion in the
basis. I realize that cash prices are not
as high as they were last fall but I do
not see any strength in the near term
and I think a lot of producers will give
up hope and sell, thus proving some
sort of marketing plan is needed.
New crop basis is quite strong for
this time of year. Normally, new crop
corn would be bid about $.10 U.S. less
than we see today. But given the
forecast of less corn acres in Ontario,
the higher basis is justified and will
likely hold until we see how planting
progresses in the spring.
Soybeans:
The USDA threw a bit of a curve at
traders with their soybean reports. Not
only did they raise production by 40
million bushels, but exports were cut
to 900 million bushels which seems to
be a little strange considering the fact
that U.S. exporters have already sold
784,000 bushels with more than half
of the marketing year to go. Granted,
exports normally do slow down when
South America begins to ship, but
someone at USDA must have fallen
off the turnip wagon. Although
domestic crush may slow down,
exports should easily surpass the
USDA figure.
The report did shake up some fund
traders and old crop futures fell $.30
immediately after the report. In
Ontario, producers felt a double
whammy as the Canadian dollar rose
past the $.65 U.S. mark and basis lost
another $.30.
In Ontario, as I have said, basis has
lost about $.30 CAD. However, in
U.S. funds, basis has remained steady.
With the smaller canola crop, more
soybeans are being crushed in Ontario
and I expect this to continue for the
balance of the year. Ontario soybean
producers have been steady sellers and
appear to have their sales spread out
fairly well, which has allowed for
good orderly movement.
The January USDA reports are
considered to be quite important. Each
year, final acreage and production
figures for the previous crop year are
released along with quarterly stocks
and updated supply/demand. Every
year, there is moaning from some
sectors that the USDA does not
accurately report the figures, but it is
the one unbiased report that is
produced — and more importantly, the
market does pay attention. The
USDA's estimates may not prove to
be accurate when the marketing year
is over and already there is concern
that soybean exports will far exceed
the predictions. However the market
must digest the information that has
been released and in this case, absorb
the shock of higher stocks and
carryover.
Corn demand is one aspect that we
will need to watch closely. Everyone
is talking about ethanol production
and about how much corn it will use,
but we must keep in mind that this
growth will be gradual. In the near
term with the U.S. poultry industry
contracting, fewer birds will mean less
corn will be used. The lower corn
usage in feed may also be partially
attributed to the use of European feed
wheat. The bottom line is that the feed
and export parts of the demand
equation may be less than last year
and ethanol production will not take
up the slack.
Until weather becomes a factor in
futures prices, I believe prices will
remain relatively flat. The soybean
market will have some direct effect
from what happens. in South America.
However, the corn market may have
to wait until spring or early summer
for a weather scare. In Ontario, it
looks like both corn and soybean acres
will be down from 2002, so I cannot
suggest that producers get too
aggressive at forward selling. For the
time being, producers need to focus on
old crop sales, taking advantage of
peaks and avoiding the dips. Maybe it
is a good time to get a marketing plan
in place.0
Information supplied by Dare Gordon,
LAC, Inc.. Hyde Park, 519-473-9333.
FEBRUARY 2003 33