The Rural Voice, 2003-12, Page 60RIME
Grain Markets
Markets are going to be volatile for 4 or 5 months
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
In the USDA reports of November
12 U.S. soybean production was
reduced, as expected, but it appears
that the carryover figure was plugged
at a minimal leyel. Corn production
was increased but so was usage as
exports were increased by 75 million
bushels.
In the past week, China has
cancelled both wheat and cotton
missions to the U.S. probably in
retaliation for the U.S. reducing
textile imports from China.
AND, in South America, with
relatively strong soybean prices,
another record crop is being planted
at the expense of corn.
CORN
The USDA actually reduced corn
carryover by increasing exports.
Production was increased from the
October report but could go higher
still. The weak U.S. dollar is a major
factor in the increased exports. The
U.S. has a record corn crop this year
but other parts of the world were not
as fortunate. China is still the wild
card. They are the major exporter to
other Pacific Rim countries. So, if
and when South Korea starts buying
U.S. corn, we may have proof that
China's stocks are getting depleted. I
feel this will lead to major strength in
corn prices.
In Ontario, basis levels have
weakened with the strong Canadian
dollar. Ontario yields are better than
expected but acres are small,
especially in western Ontario. In
eastern Ontario, acreage remained
unchanged and yields are astounding.
As a result, elevators are full and a
good portion of the crop is still in the
field in the Ottawa Valley. Even
though eastern prices are weak, there
is still not enough price spread to
56 THE RURAL VOICE
move that corn into western Ontario.
Quality is a problem in western
Ontario as producers harvest the
later -planted corn. Test weights are as
low as 47 pounds and some elevators
may be looking for heavier corn to
blend.
SOYBEANS
Some traders believe that the
USDA plugged the ending stocks'
number and calculated usage back
from the stocks. One thing is sure,
soybean prices have not gone high
enough to ration demand. Typically,
China buys U.S. soybeans from
October to February and recent
soybean sales to China have been a
strong indicator that they may buy
more from the U.S. this year than
expected. Some U.S. producers are
looking at switching soybean acreage
to corn in 2004 because of
disappointing soybean yields over the
past three years. Even though prices
have not rationed demand yet, some
traders think that basis rather than
futures will be used to move prices
higher.
Ontario did not have a very good
soybean crop. Average yields may
come in at 32 bushels. Demand for
soybeans remains strong with both
the processors and exporters lining up
for offers. The lack of, and cost of,
ocean freight has hampered the
movement of soybeans but it looks as
if some soys will finally move in
early December.
Some people believe that we are
seeing another great grain robbery
similar to 1972-73. Phis remains to
be seen. But we believe that China's
stocks of wheat and corn are getting
smaller. Does this mean that they will
simply tighten their belts and get by
on minimal supplies for a year? Not
likely. The Chinese economy is
growing by leaps and bounds with
more and more livestock being fed
and the people are using more
vegetable oils. China has been a
major corn and wheat exporter and
already they have cancelled sales of
both which also likely indicates a
depletion of their stocks. And China's
purchases of soybeans is far ahead of
last year's base.
How does all this affect the
Ontario producer in the face of a
rising dollar? Soybean growers have
likely got a good portion of the crop
sold. I think patience will be needed
before another sale is made. My
guess is that there will be another
move higher in soybean futures and
hopefully the Canadian dollar hasn't
gone much higher when this happens.
When I talk of patience, 1 mean
producers may have to wait until the
spring before a top in prices is made.
Corn producers probably haven't
sold a great deal of corn yet and as a
result many end users are taking in
imported corn. Basis levels in Ontario
may be considered weak but that may
be because of the extremely strong
basis we've seen for the past year.
Keep in mind that Ontario, Quebec
and the nearby U.S. states will
produce a third more corn this year
than last and basis levels in all of the
eastern corn belt reflect this. I do
think though that in spite of this
increased production that there is
light at the end of the tunnel. Futures
have held quite well through the U.S.
harves! and export sales are well
ahead of last year. In fact, if sales
continue at the present pace, U.S.
exports could reach two billion
bushels or 400 million more than in
2002-03.
Each producer has unique
circumstances and if cash flow needs
are going to require some more
selling, get it done but keep the
amounts sold to a minimum for the
time being. The markets are going to
get more volatile over the next four to
five months and will not be for the
faint-hearted. I do feel that better
prices are coming and as I said
earlier, patience will be the key.0
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