The Rural Voice, 2003-09, Page 65Grain Markets
Weather markets don't listen to
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
August 25, 2003
Can you pronounce the weather
market? That's what we are in right now,
and where weather markets take us, no
one knows. Since late July, the heat of
the far west grain belt has moved
slightly eastward into parts of Iowa,
Minnesota and Missouri. These types of
markets trade so much on emotion and
even though the crop size may not be
ultimately affected too much, prices
become very volatile and afford
producers some opportunities to sell
some grain.
Corn and soybean prices fell from
mid-June to July almost on a daily basis
before beginning a recovery in early
August. The USDA crop report of
August 12 added fuel to the fire and
prices really got a boost.
On the other hand, wheat prices
bottomed out in late June before starting
a steady move higher by $.80/bu. It
would now appear that the wheat market
has absorbed all of the available news
and dry weather is not a concern to final
production figures.
CORN
Com futures sold off for 80 days until
July 25 although there was a brief respite
in mid-June. Through that period, the
crop got planted and plentiful rain
brought on a "bumper" crop. Usually we
look at early July as the critical
pollinating time for U.S. com, but a crop
needs moisture to fill out the cob after
pollination. This year, parts of the com
belt have been dry for the last four
weeks and the weekly crop condition
reports bear this out with the amount of
corn in the good/excellent category
dropping for four straight weeks.
On August 12, USDA released their
updated U.S. production and world
production and the supply/demand
reports. Going into the report, traders
factored in a record yield and a record
crop. So, when the USDA lowered the
U.S. yield by almost three bu/acre,
prices opened $.10 higher and traded
steady for a few days before hot, dry
weather pushed prices up by another
$.10. Corn futures have now moved $.30
from the lows of July 25.
Although corn production was
unaltered elsewhere in the world, the
projected world carryover was lowered
by eight per cent. I think we not only
need to focus on the North American
weather, we need to keep an eye on
world supplies.
In Ontario, old crop supplies are
pretty tight and the local basis has fumed
up by $0.5 to $1.15 over December
futures. We must keep in mind that there
will not likely be any new crop available
until November so, processors will be
forced to use old crop com until then.
With the moisture we've received in
the last four weeks, I think that the
Ontario crop has grown slightly,
especially in eastern Ontario. This
assumption is based on the hope that we
don't see a September frost. In any case,
I think the com crop will come in at less
than 200 million bushels which is well
under Ontario's usage.
SOYBEANS
Prior to the USDA report, most
traders assumed that the U.S. was going
to purchase a near record crop and that
carryovers would be burdensome.
However, production was chopped
slightly, exports for the coming year
were increased and the carryover from
this year was lowered. This all amounted
to a cut of 40 million bushels in the
projected carryover. Since the report, hot
weather has cut into potential yields as
have aphids. The recent Pro Farmers
tour of the mid -west found pod counts
similar to last year when the average
yield was under 38 bu/acre.
The heat has affected the western
Canadian canola crop as well and
although production will be far above
last year, there is still concern that
supplies will be limited. This will have a
direct affect on the soybean complex as
demand is increasing for soyoil. Once
the U.S. soybean crop is harvested, it
seems clear that processors will have to
depend on another big South American
crop. If soybean prices stay at today's
levels, the South American farmer will
likely decide to plant soys over other
crops.
In Ontario, basis levels have
remained quite firm as the old crop
supplies begin to dwindle as we get
closer to new crop. The revival in
soybean futures prices has certainly
reason
helped in getting the old crop sold and in
getting producers thinking about making
new crop sales. It appears that the 2003
crop is in decent shape given the amount
of rainfall we've had and in spite of
some very late planting. There are some
reports of aphid problems in the far
western counties of southern Ontario but
it doesn't appear to be too wide spread.
Producers should feel fairly confident
about selling a portion of their
production. It would make sense that
2004 may see a large increase in
soybean acreage following on wheat
ground given the fact that soybean prices
are somewhat encouraging.
Normally, I don't write too much
about wheat but I think that the situation
with wheat is linked somewhat to com
and other coarse grains. Globally, wheat
production is down with the large
month-to-month drops coming in
Canada and Europe. Canadian wheat
production was cut by three million tons
while all of Europe was lowered by 7.7
million. Ending stocks for this year
compared to usage is the lowest in
almost 30 years. It's clear that the world
has been using more wheat and coarse
grains than have been produced for at
least four years and this is one reason
why wheat prices have gained ground
over the past six weeks.
Two months ago, we thought that
Ontario wheat would be used heavily by
feed processors but, prices have gone up
to the point that wheat is now too
expensive to displace corn. We have
huge stocks of wheat in Ontario, but,
export buyers will likely out -bid the feed
mills for the largest part of the crop.
Unless South America and Australia
produce big crops, the world situation
will stay very tight for another year. This
should lend good support to prices for all
coarse grains. Of course, this doesn't
mean that prices will always be high
enough to meet production costs.
Right now, producers have an
opportunity to lock in some decent,
although not great, prices. Basis levels
are generally very good for all grains
right now but producers need to
determine their cash flow needs before
deciding how much to forward contract.
The main thing is to take advantage of
this current move in prices on at least a
portion of production.
I see an interesting year ahead with
lots of marketing opportunities. Just try
to avoid the dips in prices and reward the
price bulges.°
SEPTEMBER 2003 61