The Rural Voice, 2005-03, Page 48Grain Markets
Government help needed for farmers
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
February 11, 2005.
The USDA released their monthly
supply/demand reports on February
9, 2005 and as many suspected,
carryovers were raised for corn and
soys. The ending stocks for wheat
were reduced by 25 million bushels
surprisingly because of an increase in
exports. However, the carryover in all
grains will be larger than last year
and I think the carryovers could be
raised even more as the months go
by.
A new U.S. Farm Bill is now
under discussion with a lot of hoopla
about reducing the money spent on
agriculture. In reality, they are talking
about plugging some loopholes and
limiting the maximum amount that a
farm unit can receive while basically
leaving much of the program intact.
The U.S. grain grower will be well
looked after although there may be
some shifting of acres between crops
most notably going towards corn.
CORN:
The USDA reduced exports by 50
million bushels but left all other
usage categories untouched. I am of
the opinion that the export figure will
be reduced in the coming months to
reflect the poor weekly export sales
and shipments.
The growth of the ethanol industry
has been touted as the saviour of the
corn market and with low corn prices
and high fuel prices, the plants that
are up and running are making good
money, but now plants cannot be
built overnight. The result of building
more ethanol plants will create a
much stronger domestic demand
base, which will replace much of the
necessity to export.
As far as for the crop in the bins, it
will take a weather scare or an
44 THE RURAL VOICE
outright drought to light a fire under
future prices. Without problems
somewhere in the world, prices will
languish.
In Ontario, basis levels have
strengthened a little from last month
to $.30 to $.35 over March futures.
Demand for corn is steady but not
overwhelming with most commercial
users running a little slower than
expected. For producers who stored
corn in commercial facilities, the cash
price of corn today is virtually the
same as it was two months ago and I
suspect it might be the same two
months from now.
SOYBEANS:
The only change that the USDA
made to the U.S. supply/demand was
to reduce the soybean crush by five
million bushels. However, they did
drop Brazilian production to 63
million tonnes, which is still huge
crop. So far there has been a period
of dry weather, but enough rain has
now fallen to alleviate the dry
conditions and unless it keeps raining
or we revert back to dryness, the
South American crop should be huge
— maybe not as big as originally
thought, but still more than adequate.
It is not likely that the U.S. will be
able to improve their export demand
unless South American cannot
perform because of freight problems.
Certainly, Brazil will be the source of
choice for users like China, but last
year, logistical problems forced some
vessels to load in the U.S.
In Ontario according to Statscan,
December 31 soybean stocks were
almost double the previous year at
about 34 million bushels. Does this
mean that we will have to work
harder on exports and compete with
the U.S. and Brazil? Basis levels
were relatively strong through the
end of January, but have not softened.
Producers probably still hold 35 - 40
per cent of the 2004 crop and so far
their only saving gface has been a
weaker Canadian dollar since future
prices have been hovering around $5.
Soybean and canola crushes are
running behind last year.
It appears that many Ontario
producers are planning to switch
more acres to soys this year because
of the lower input costs. As a result,
new crop basis could be weaker than
we have seen for a few years. If the
Canadian dollar can manage to work
its way down towards $.75 U.S. in
the next few months, producers might
get the opportunity to do some
forward selling.
It is becoming repetitious, but
grain prices in Ontario are terrible
and I do not see much hope of a
general or broad-based rally unless
there is drought somewhere in the
world. It is tough for producers trying
to decide what crop to grow since
forward contract prices are not high
enough to cover the costs of growing
almost any crop.
As far as old crop corn is
concerned, there is no obvious event
that will push prices higher.
Theoretically, Ontario probably has
enough corn to get through most, if
not all, of the summer. I am of the
opinion that producers are holding a
lot of corn on farm and probably
should lighten up by spring. The
other option is to store until the bitter
end and hope that prices improve.
I have heard many producers make
the comment that they are not
planting as much corn or not planting
corn at all this year. I think that a
producer should stick to a rotation
year after year and not make rash
changes. If everyone moves in the
same direction, you know what will
happen to prices, especially in barley
and oats. I realize that there are
producers who are not going to have
the money to plant a corn crop and
instead will lean towards barley or
soybeans depending on the area of
the province. A shift to soybeans will
have some effect on soy prices but an
excess of barley acres will certainly
soften barley prices.
Last year at this time, producers
were looking at new crop prices and
making decisions on planting. There
was not a crop that was not going to
be profitable. However, very few
growers locked in those prices and
now we know the consequences.
Those producers who did forward
contract have done quite well.