The Rural Voice, 2003-10, Page 55Grain Markets
USDA crop report holds big surprises
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
September 21, 2003
Following the USDA's updated
reports on September 11, there was a
lot of questioning by traders about
the veracity of the figures.
Most were surprised by both a
higher than expected corn yield and a
lower than expected soybean produc-
tion. Initially, the thought was that
soybean prices would prop corn
prices. But, that trend only lasted a
few minutes. Within four trading
days, corn futures dropped 19 cents
while soybean prices went up as
much as 33 cents. As the first reports
of early corn yields came in from the
U.S., corn prices continue to soften
and although many think that corn
prices are too low, there are no
fundamentals right now to send the
futures higher. Soybeans, on the other
hand, are continuing to show some
strength and for good reason; very
early yields in the U.S. are well
below expectations although many do
expect yields to improve in the longer
maturing varieties.
CORN
The USDA's estimated corn
production figure was higher than the
trade expected especially since crop
ratings fell every week in August.
Corn futures moved higher prior to
the report but once the higher
production and number came out, the
funds started selling again and,
coupled with old crop hedging, took
prices down 20 cents in a week.
There are still some who question the
USDA number, but some of the early
yields coming out of Illinois are very
good so don't be surprised if the final
production is higher again.
In Ontario, time is running out on
getting old crop corn sold. There is a
perception that the industry is short
of corn, but I believe it's a matter of
transportation being tight. In Western
Ontario, producers should not be
holding any of the 2002 corn crop
and 1 don't see basis levels getting
stronger. especially with the
Canadian dollar once again topping
73 cents.
New crop basis levels are
extremely strong right now. There
has been no adjustment to the basis as
the corn futures have weakened and
the Canadian dollar has gone higher.
Don't look for current basis levels
holding for very long. There is a huge
wheat crop still taking up storage
space and I think the Ontario corn
crop has grown in size a bit over the
summer months. Basis levels
reflected the thought that Ontario
would have a small corn crop, but
today the basis retlruts a very healthy
import price.
SOYBEANS
The USDA reduced 2003 U.S.
soybean production in August and the
average guess was a further reduction
of 100 million bushels in September.
However, with worsening crop
conditions, the figure came in over
200 million bushels less than in the
August report. For many traders this
confirmed their own thoughts that the
soybean crop was in trouble. The lack
of rain and extreme heat in August in
the western corn kelt and the
resulting damage were acknowledged
in this report by dropping yield by
three bushels per acre. Suddenly, the
projected carryover drops to 135
million bushels and export demand
for U.S. continues. In six of the last
nine years. the final soybean produc-
tion has declined from the September
report. The futures market responded
immediately with a 30 cent move
higher, most of which has been main-
tained. Right now, the market seems
to have some upward momentum.
In Ontario, basis levels are moving
towards new crop values as some
early soys are being harvested. We've
heard of yields ranging from 20 to 38
bushels per acre. It is hoped that later
maturing soys will show some benefit
from the September rains and yield a
little better.
Producers, however, need to
realize that the Canadian dollar is
edging higher with weakness in the
U.S. dollar. This will tend to limit
basis level gains so futures go higher.
It appears that we have diverging
situations in the corn and soybean
outlook in the U.S. The early corn
harvest is showing better results than
anticipated while soybean yields are
disappointing. We watched the corn
market initially get carried away with
expectations for high corn yields and
then over-estimate the detrimental
impact of hot, dry conditions in late
August and early September. When
all is said and done, the U.S. corn
crop will likely come in around 10
billion bushels with a carryover of
about one billion bushels. In the big
picture, the U.S. needs to produce 10
billion bushels on a consistent basis
in order to maintain a cushion. This
year, corn exports could actually
meet the USDA target of 1.8 billion
bushels because of the weakening
U.S. dollar.
In contrast to corn, the
fundamental picture for soybeans has
changed dramatically over the past
six weeks. In July it looked like the
bottom was going to fall out of soy-
bean prices. However, August is the
key month for the U.S. soybean crop
and ideas of record yields quickly
went out the window with the hot, dry
conditions followed by aphids and
charcoal rot. Now, it may be necessary
to ration demand with higher prices.
With a tight U.S. soybean situation
this year and higher prices, corn will
have a tough time competing for acres
next spring in North America. So, what
needs to happen? Either corn prices
will go up or soybean prices will
come down by the spring of 2004. 1
tend to think a little of each will
happen especially if South America
has another good growing season and
if world corn stocks stay tight.
Another commodity that has
already affected basis levels in
Ontario is the stronger Canadian
dollar. We've already seen the dollar
go from 62 cents to 74 cents and it
looks as if the fundamentals of a
weaker U.S. dollar will keep our
dollar moving higher. The stronger
dollar will definitely affect basis
levels in the next year and not
positively for producers, even though
in U.S. funds, our prices may be very
good. The weak Canadian dollar of
the past few years will no longer
provide a bonus to Ontario producers.0
OCTOBER 2003 51