The Rural Voice, 2003-03, Page 49Grain Markets
Amazing changes happening in world grain market
Dave Gordon
isa
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
It's amazing to witness the
changes in world grain production
and trade. We have known for years
that South America has the potential
to increase production dramatically.
If Brazil does harvest 50 or 51
million tonnes of soys this year, it
will represent a 30 per cent increase
in production over the last two years.
In fact, the USDA figures show that
Argentina and Brazil combined will
produce more soybeans than the
U.S.
Russia and the Ukraine have
already shipped wheat into Canada
and now we hear that the U.K. has
just sold wheat to Canadian buyers
for delivery into eastern Canada. It
was not too many years ago that
Canada was exporting to Britain.
China is now a major corn
exporter replacing the U.S. as South
Korea's main supplier so you can
see that the U.S. will become a
supplier of last resort for many
buyers.
CORN:
The corn market has been very
flat for the last month but at least
prices are not going down. The
USDA lowered exports and
increased industrial use in the latest
report, leaving the projected
carryover five million bushels higher
than in January.
The U.S. basis has remained very
strong and this continues to support
the Ontario basis. U.S. producers are
unwilling to sell corn at current
prices but it would only take a move
to $2.50 futures to free up some
corn. The U.S: producer has the best
of two worlds: he can put the corn
into the loan program and if the
price goes higher, he can sell and
repay the loan or if the prices go
down, he can forfeit the corn to the
government. In other words, he has a
minimum price guaranteed. It is
clear that the U.S. corn producer will
not be able to depend on exports to
support prices in the future. It will
take a further expansion of the
ethanol and food industry to offset a
lack of exports.
In Ontario, basis levels continue
to be very strong. With the Canadian
dollar hovering close to $.66, local
basis has not backed off at all. The
question that I am asked frequently
is whether Ontario has already
imported enough corn and my
response is "almost". Considering
the fact that the 2002 crop was about
216 million bushels, imports need to
total only 25 - 30 million to match
total usage of 40 - 45 million bushels.
Old crop elevator basis is sitting
at $1.40 - $1.45 over March figures
while new crop is $1 over
December. It still appears that 2003
corn acreage will be down from
2002 in Ontario and as a result, new
crop basis is very strong.
SOYBEANS:
The USDA surprised traders with
their Brazilian soy crop estimate of
51 million tonnes. This is two
million tonnes higher than the
January estimate and more than a
million higher than Brazil's own
estimates. The futures market
dropped slightly after the report but
rebounded quickly to close higher,
so we know there are some concerns
that harvest weather in South
America will not be perfect. Another
factor that is keeping the soybean
market alive is the export situation
that sees China coming after
multiple cargoes of soys. By the time
Brazil is ready to ship, the U.S. may
already have reached the export
target of 940 million bushels. We
can conclude that until the South
American crop is in the bin, futures
prices should hold.
In Ontario, basis levels are quite
strong — a reflection of strong U.S.
basis. The two crushers are both
processing soys at the expense of
canola because canola crush margins
are terrible while soybean margins
are simply bad. Soybean supply
could get very tight by this summer
in both Ontario and the nearby
states. At first glance, soybean
acreage will be down in both Canada
and the U.S., so I would expect basis
levels to stay relatively strong.
Some analysis are touting a
drought scenario even at this early
date. Yes, many dry areas in the
western states and even in
southwestern Ontario have not
received much precipitation this
winter but a week of rain in the
spring can certainly change the
picture. Many years, weather
patterns turn 180 degrees in a short
period of time and then stay with the
new pattern for several weeks. It has
been noted that "El nino" is
weakening and this could lead to a
major shift in North American
weather. Besides this, meteorologists
in Australia think the chances are
pretty high that their long-term
drought will break this year and
probably fairly soon.
Basis levels for both old crop
corn and soys are quite strong
relative to import values with less
than full carry for forward contracts.
If producers are sitting on grain
hoping for a homerun later in the
summer, it likely will not come from
the basis. Will futures prices
explode'? Who really knows!
Holding grain under this premise is
pure speculation and not sound
marketing. I do think grain prices
will show some strength but only a
major weather event will lead to any
extreme swing to the upside.
Producers should be holding only a
small portion of old crop grain
outright and need to keep a close eye
on new crop prices. Spring is not too
far away and forward contracting
some grain before new crop is in the
ground would be prudenk.0
Information supplied by Dave Gordon.
LAC, Inc., Hyde Park, 519-473-9333.
MARCH 2003 45
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