The Rural Voice, 2004-01, Page 40Grain Markets
Don't panic. Spread out (your crop sales
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
December 12, 2003
Demand is a word that we use
often in the grain trade. We tend to
talk about supply/demand reports and
in four years out of five, the supply
side of the equation is what most
traders focus on because supply is
easily seen and measured. Demand is
sometimes subjective. It can be
spread over a marketing year or come
in a burst of panic buying. Demand is
difficult to forecast and measure.
The soybean complex has seen
good demand for the last 12 months
and the resulting move in prices has
been $3/bu with an initial move of
$0.80 followed by a second move of
over $2. On the other hand, corn
demand has only kicked in over the
last four months, so the price move
hasn't been too obvious. We haven't
seen corn prices yet that have had the
slightest impact on usage and yet it
appears that we are in the very early
stage of a demand market.
CORN
The USDA released the latest
supply/demand update on December
11, 2003 with only one adjustment
being made to exports. Slowly but
surely, the U.S. government is
realizing that export sales are surging
well ahead of last year's pace. China
has supposedly withdrawn from the
export market which, if true, shifts
Asian demand to the U.S. and
Argentina. China has become the
second largest corn exporter but the
exports have been maintained by
stocks depletion not increased
production. So, as I wrote last month,
the buying pattern of countries such
as South Korea will need to be
watched in the coming months.
Flash: we just heard a rumour that
China is looking to buy two million
36 THE RURAL VOICE
tonnes of U.S. corn.
Even though U.S. farmers just
harvested the largest corn crop ever,
futures prices are continuing to move
higher. Until the Argentine corn crop
is harvested, the U.S. will be the
prime supplier to foreign buyers.
In Ontario, harvest is almost
complete, but the last few acres are
presenting some challenges. This last
bit of corn is generally very high in
moisture and very low in test weight
and, although the market seems to be
saturated with light corn right now,
I'm sure that, over time, there will be
better demand.
Basis levels in Ontario vary from
west to east with the lowest basis in
the Ottawa Valley. Forward selling
by producers has been very brisk into
the commercial markets as evidenced
by the fact that most plants do not
have a bid for nearby corn and one
plant actually has all of its needs
covered through the winter. But
producers shouldn't panic about this
situation because 1 think patience will
be the key to successful marketing
this year.
SOYBEANS
The USDA made no changes to
the supply/demand report for
soybeans choosing to not increase
usage. It still appears that the ending
stocks figure of 125 million bushels
was the starting point for the
calculations rather than the ending
figure. In fact, the ending stocks as a
percentage of use (five per cent) is
the lowest since 1973-74 and we are
still early in the marketing year.
Processors, I think, are counting on a
good crop in South America to
provide a constant supply throughout
next spring and summer. And it
seems that the USDA is also
expecting Brazil to produce another
record crop to make up for the
virtually negative supply/demand
balance in the U.S. The void between
world demand and U.S. supplies is
huge. But in the most recent world
estimates, even though world
production fell by two million tonnes,
the ending stocks were only dropped
by .76 million tonnes. Is this an early
sign of price rationing?
In Ontario, a few soybean fields
are still standing but it will be very
difficult to finish harvest without a
good freeze. There are enough
soybeans to meet the needs of
processors until spring, but there may
be a need by early summer to import
some South American soys to fill the
void until the 2004 harvest.
I've noticed that producers are
anxious to sell grain these days and
although this may be right in the case
of soybeans at $10, I think corn sales
should be spread out over the next six
to eight months. We've already seen,
to some extent, what a strong demand
situation can do to soybean and wheat
prices giving producers two good
opportunities to forward contract, but
corn has remained on the back
burner. This is probably because
attention has been focused on this
year's huge crop in the U.S. and the
resulting carryover potential. Slowly
but surely, world demand for corn is
starting to be recognized by traders
and almost daily we see some, sign
that many countries in the world
don't have enough corn to meet their
needs. Although China is in the
forefront, Russia has recently
received credit to purchase corn from
the. U.S. while other European
countries are increasing export taxes
on wheat sales. Late in November,
South Korea tendered for corn to
which China didn't even make an
offer.
A demand -driven market may
have many bumps in it, but in the
long run it provides some great
opportunities for producers. 1 think
that corn prices will gain more
strength than will either wheat or
soybeans since wheat and soys have
already made big gains. But no good
marketer would hold 100 per cent of
the crop and sell it all at once. Spread
to those sales and be patient.
As we come to the end of another
year, I want to wish our readers a
wonderful holiday season and a
prosperous New Year.O