The Rural Voice, 2004-06, Page 52Grain Markets
Markets showing real volatilitg
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
Volatility has certainly set into the
grain markets, especially soybeans.
We've seen 50 -cent moves down,
followed by 30 to 40 cents up. All corn
is starting to make eight and nine -cent
moves in both directions as well.
Traders in these markets are very
nervous since stocks are tight, yet the
U.S. crops are generally off to a good
start. The question that won't be
answered until early July is acreage.
Most traders think the U.S. corn
acreage will end up over 80 million
acres while the soybean crop will be
less than 75 million.
The wheat market is also showing
some volatility and has had a 68 -cent
range since April 5. There are ideas of
generally good wheat crops in the
world but dryness and heat in the
western U.S. plains seems to be
persisting and keeping traders on edge.
CORN:
The USDA took another 20 million
bushels out of the current U.S.
carryover which, wasn't unexpected,
but at the same time they "found" an
extra 20 million tonnes of corn in
China. Supposedly, now they have it
right. It's always tough to get a good
handle on stocks in China and this isn't
the first time that stocks of a grain have
been adjusted by 10 or 20 million
tonnes.
Attention has now switched to
weather forecasts from supply/demand
tables. With most of the corn getting
planted early in the U.S., the rains of
the past two weeks have the crop off to
a great start. Traders always associate
rain with more grain. However, the
U.S. producer is reluctant to sell much
old crop because of the lower price and
as a result, basis levels in most of the
corn belt have strengthened.
In Ontario, it has been a struggle to
get corn planted in some areas notably
from London east and north and I've
48 THE RURAL VOICE
heard of some growers who switched to
soybeans early, taking some intended
corn acres. There is one estimate that
has Ontario corn acres at 1.7 million
and some in the trade think $1.5 million
acres will be more likely.
Old crop basis levels have come to
life and moved about 25 cents higher in
the last month getting closer to import
values. It appears that corn will need to
be imported later in the summer to
complement some of the lighter corn
that is left in bins. I still think there is
room for old crop basis to strengthen,
but the limit will be how strong the
Michigan basis gets.
New crop basis is quite strong right
now when compared to historical
values for this time of year and it may
stay strong if corn acreage doesn't all
get planted. Eastern Ontario, the
Toronto area and Lambton-Kent are the
areas that got corn planted in a timely
manner but other areas may see
soybean acres increase because of the
calendar.
SOYBEANS:
The old crop soybean futures have
fallen $2 from the peak in early April.
At the peak, prices are intended to
ration the available supply of soys as
meal and oil get too expensive for
consumers. When prices get expensive,
end users look at other alternatives. In
the case of the soy complex, the end
users in the U.S. have bought soymeal
from South America and the Chinese
crushers are caught between expensive
soybeans and cheap meal. As a result,
the Chinese are losing money and
having a tough time paying for the
beans. When prices make a move like
we saw in April, they tend to spike into
the high and not stay there for very
long. My feeling is that we've seen the
highs and if producers are hanging on
to old crop soys expecting to see $10
again it will be more by luck than good
management.
As of this writing, well over half of
the soybeans are planted in the U.S. but
now, with the recent rains, it will be a
slower process getting the balance
planted. Although I doubt if we will
see the old highs again, I do think
prices will remain firm until the crop is
made.
In Ontario, basis levels are holding
very well with old crop sticking to
import values. If corn acres don't get
planted in the next couple of weeks,
expect more soy acres if growers can
get the seed. New crop soys are priced
at about $8.80/bushel — the lowest price
in several weeks.
Many growers are lamenting the fact
that they didn't get corn and soybeans
sold at the peak of the market and
probably the main reason was greed.
Let's face it, that's human nature.
Speculators have driven both the corn
and soybean markets and generally the
funds will take a market too high or too
low. This year, soybean prices were
taken to an extreme before falling hard
over the past few weeks. It remains to
be seen whether or not the speculators
will push prices too low based on the
fundamentals of today. Soybean futures
prices are still well above historical
figures so, if producers haven't sold
any new crop yet and managed to get
the crop planted, it would be prudent to
get some sales on.
Corn prices may have peaked but
we have to keep in mind that the corn
supply/demand situation is very tight
and the U.S. needs to produce roughly
10.5 billion bushels. Domestic demand
in the U.S. is very strong especially
with the growth of the ethanol industry.
In fact ethanol now has its own
category in the supply/demand reports.
The early planting this spring has
probably led to more corn acres than
expected and fewer soybean acres.
However, we won't have USDA's
answer on this question until July.
Every year we talk about weather and
the critical period for corn will be mid-
June through mid-July and for
soybeans, it will probably be from mid-
July through September. Remember
that the loss in soybean yield last year
occurred towards the end of the
growing season.
I'm finishing up writing this column
on the May 24 weekend and we've just
had storms and rainfall throughout
western Ontario that have been
devastating. It's going to take a few
days to dry out and we will certainly be
past the prime planting dates for corn. I
hope growers are able to get some
shorter -day varieties and, like last year,
keep planting into early June. But, I
think that corn acres will by necessity
be lost to soybeans. All I can say is that
now we need a summer of above -
normal growing conditions to make a