The Rural Voice, 2004-11, Page 40Grain Markets
Nature gave back in September, October
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
As we find October winding down,
we are beginning to realize that mother
nature can give back what she takes.
There was little heat through much of
the summer, but September brought
warmth and we managed to avoid frost
until well into October. Even today,
there are portions of Ontario that have
not had a killing frost yet.
The same scenario is evident in the
U.S., and the USDA was certainly
aware of this when they issued their
latest production report. Com yields, in
particular, are expected to be a mind
boggling 158 bushels per acre and since
that report on October 12, some
analysts have raised their target to more
than 160 bushels. Soybean yields are
expected to come in at 42 bushels per
acre or higher.
CORN
The U.S. will be awash in corn
before harvest is complete. That's not
only according to the USDA but also
according to growers and elevator
operators. Yes, there are areas such as
in North Dakota where row crops are a
disaster, but as far north as central
Michigan, corn yields of 200 bushels
are not uncommon. To think that just
two months ago we thought it would be
unlikely to have an average crop of
poor quality corn and yet here we are
looking at a monster crop. Consider
that the record corn crop of last year
was about 10.1 billion bushels and
today we are looking at a crop of 11.6
billion.
I think the change in Ontario in the
last two months is even more
astounding. I believe that the five or six
weeks of heat in September has
probably added 40 million bushels of
corn. This would give us a crop of
about 210 - 215 million bushels, but it
will seem like a bigger crop because of
36 THE RURAL VOICE
a much larger soybean crop and large
stocks of wheat that have not been
moved yet.
Even though Ontario corn prices are
low, basis levels are still very strong in
U.S. dollars. The last thing we need in
Ontario is more corn imports at this
early stage in the crop year, so I believe
that basis levels will continue to fall.
The strength in the Canadian dollar is
surprising to some, but I think it could
get to 85 cents. Our dollar has been in a
downtrend since 1972 and only in the
last month has this trend been reversed.
A higher dollar will also add to a softer
basis and I'm of the opinion that
growers will need to adjust their
thinking about basis in Canadian funds
in the coming years.
SOYBEANS
The USDA raised production
expectations to 3.107 billion bushels,
an increase of 689 million bushels over
last year. Most analysts think this figure
is very close to what will be the final
production number. However, there is a
question about exports. The USDA has
penciled in 1.025 billion of exports and
most think that Chinese demand will
not meet expectations.
As a result, carryover could
approach 450 million bushels compared
to 112 million for the past year. This is
the U.S. and at the same time we have
South America starting to plant soys
and there is discussion about how big
the crop will be. Will growers in Brazil
be able to control Asian rust this year?
Last year it lowered the crop by about
10 million tonnes.
In Ontario, a few more clear days is
all that is needed to complete soybean
harvest. And it has been a good harvest
with much -improved yields and
excellent quality. However, the value of
any uncontracted soys is less than
desirable, so producers are storing
rather than selling. Because harvest is
almost complete and there is a lack of
selling, basis levels have improved in
U.S. dollars although it might not seem
so in Canadian funds. There has been
export interest and although exports
will help the supply/demand picture,
prices may not move too much,
especially if our dollar continues to
strengthen. I do think soybeans will
return more to storage than corn, but
there won't be any home runs unless
disaster strikes somewhere in the
world.
The situation producers are in this
year is unusual in some respects.
Everyone was sure we were in for poor
corn and soybean crops. Corn was so
far behind and soybean pods weren't
filling. Producers enjoyed great prices
last spring and were in a position to
forward contract at excellent prices.
Prices didn't stay up too long before
falling and of course, no producer will
sell into a down market. There were a
couple of recoveries in prices, one in
June and on a frost scare prior to
Labour Day. But, because the crops
didn't look too good and prices were
well below the highs, growers didn't
take advantage of the opportunity.
Now that harvest is underway and
yields are tending to be very good,
more producers are wondering what to
do. If one simply looks at fundamentals
there is no reason for prices to improve.
However, other factors will come into
play in the coming months. Low prices,
drought, a weak U.S. dollar can all
create demand for North American
graip.
I think soybean prices will be
impacted more by these factors than
will corn. Yes, ethanol is growing and
that forebodes well for the future, but
feed grain stocks are ample throughout
the world and there is a huge buffer of
stocks.
In Ontario corn growers are between
a rock and a hard place. Com prices are
terrible and I don't see much hope of
improvement and there are no
government programs to put immediate
cash into the pockets of growers. The
U.S. farmer, on the other hand, is well
looked after by his government and
can at least cover his cost of
production.
One program that Ontario corn and
soybean growers can utilize is the
advance payment program and even if a
grower chooses to sell some grain for
cash flow, the advance program can be
used on the balance. We've already
seen corn futures under $2.00 and I
think it will happen again. In fact, I
believe the new few months will see a
flat, grinding type of market with little
opportunity for much improvement.0