The Rural Voice, 2004-03, Page 47Grain Markets
Grain markets hold optimistic potential
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
Grain markets have continued to
show good strength but now we are
starting to see more volatility. First,
there was a deadly form of avian flu in
southeast Asia which caught the
media's attention and got blown out of
proportion, then a milder form of bird
flu was discovered in Delaware and
Pennsylvania. Both of these items sent
prices down as, theoretically, usage of
corn and soymeal could be reduced.
However, when one looks at the
relative numbers, 50 million birds
killed in Asia is less than one half of
one per cent of all the chickens in Asia.
Still, there is a perception that things
will get worse before they get better. I
think that, especially in the U.S., steps
will be taken to stop the spread quickly
and get chicken exports back to normal.
CORN
The corn futures took off after the
January USDA report and have
continued to hold good strength. Even
with avian flu and the fact that
February is typically a month of price
weakness, prices continue to rebound
after every little setback. It reminds me
of the same type of action in October
and November when a record corn crop
wasn't enough to keep futures prices
down. The USDA reduced the
projected corn carryover once again in
the February report and it looks like
exports could continue to grow with the
weakening U.S, dollar.
Even if domestic feed usage does
drop off a little, an increase in ethanol
production should take up the slack. It
has already been projected that the U.S.
will need to produce 10.5 billion
bushels just to meet demand next year
and to get more corn acres, December
corn futures will need to gain relative
to November soybeans. So, I don't
think corn prices have reached a top
yet.
In Ontario, basis levels have
strengthened at elevators and currently
sit at 65 cents to 70 cents over March
futures for old crop corn. Although this
is below import prices, I don't see
much strength over the next three or
four months with all the local corn
trying to find a market. One very good
piece of news came out on February 13
in the form of government funds for
ethanol plants. Both Seaway in
Cornwall and Suncor in Sarnia received
funding, leaving only the Brantford
project without public funds. There is
supposed to be a second round of
announcements which may include
Brantford but time is of the essence if
that plant is to be operational by 2005.
New crop prices are decent, but will
need to go higher in order to compete
with soybeans for acreage. If a
producer is still undecided about what
to plant, I think he needs to sit down
and look at various price scenarios.
Instead of just looking at today's new
crop prices, take into account the price
potential of each grain before making a
decision.
SOYBEANS
The USDA made no changes to the
latest soybean supply/demand report
which was expected since the
government seems to be plugging their
numbers. Some private analysts still
think exports will be higher than USDA
shows and that the carryover will come
in at 110 to 115 million bushels instead
of 125 million. It's a given that the U.S.
will need to import either soys ormeal
and oil from South America, but the
discussion right now is about possible
rust contamination if soys are imported.
The U.S. has not ruled on whether there
is too much risk in importing soys versus
meal but there are rumours that some
containers of soys have been bought.
In Ontario, the soybean crush has
been reduced partially from a supply
problem but mostly because canola
crush margins are better. Even with the
reduced crush, soybeans will continue
to be imported and our Ontario old crop
basis will remain at import levels well
into the summer.
New crop basis is sitting at normal
levels for this time of year. It's neither
abnormally high or abnormally low. I
think this shows a mixed feeling about
soybean acreage this spring. We hear
both sides of the story. One says that
soy yields have been so bad that fewer
acres will get planted while another
says that cash outlay to plant corn is too
high and corn acres will lose out to
soys. Unless something changes from
the demand side, new crop basis likely
won't change too much until the crop is
planted.
I am still. of the opinion that
fundamentals are in place to push
markets higher. I think corn will lead
the way followed by soybeans and
wheat. There will be price fluctuations
as we go along depending on the news.
It has always been said that a bull
market must be fed bullish news every
day to keep going up but rarely do we
see a bullish item every day. The
number of chickens that have been
killed because of avian flu is
insignificant in the big picture but it is
important that the virus be brought
under control and kept that way.
With the U.S. dollar still losing
ground to other world currencies, their
exports become cheaper to the rest of
the world. Then, there are countries that
are short feed grains, especially corn,
and will need to continue purchasing
corn from the U.S., probably well into
the summer months.
Another factor that will play into
both corn and soybean pricing is
relative acreage. New crop corn futures
need to go higher to attract corn acres
given the high cost of growing corn.
And yet soybean acreage will need to
be maintained with demand continuing
to grow for soy products. I feel the tug
of war will tend to move new crop
prices for both commodities higher
with corn leading the way.
It's a given that soybeans will need
to be imported into Ontario right
through the summer. Corn, on the other
hand, is fairly plentiful and producers
should continue to sell into a rising
market. Processors need a steady
supply of product and if producers
don't sell when the processor needs
corn, they will import which simply
adds to the stocks. Basis levels will
hover near import values, but I don't
see us going to full import until the
summer months.
I know that many segments of
agriculture are in tough shape but I
think there will be some good
profitable pricing opportunities for
MARCH 2004 43