The Rural Voice, 2005-05, Page 44Grain Markets
Earlg cropping start breeds optimism
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
The dust has been flying and
planters rolling even though the
calendar said it was only April 10. The
area west of Stratford and south to
Windsor dried out early and didn't see
much moisture until April 20. Between
these two dates, a lot of corn, and
small grains as well as some soybeans
got planted and even though the date is
early, soil temperatures in western
Ontario are above 50F. The same can't
be said for eastern Ontario where there
was still frost in the ground in some
spots as of April 20. The past couple of
years have seen the Ottawa Valley lead
the way in getting crops into the
ground, but this year the tables have
been turned.
With the cool weather and a high
probability of rain predicted until May,
planting may stop until a turn around
in weather.
CORN
The USDA released the monthly
supply/demand report on April 8 and
increased corn carryover by 160
million bushels which is a result of
lower usage in all categories. This
figure was a little higher than pre -
report guesses, but since the futures
markets were already on a slide, there
was very little change in prices. It
appears that most traders involved in
the corn trade feel the carryout will
grow further from today since exports
are not up to expectations and feel
usage is down which is possibly due to
the large supply of distillers grains
replacing corn in rations.
Corn planting in the U.S. is
probably at least 20 per cent complete
and it's still early. Last year the crop
also got planted early and had a stress -
free growing season which led to the
record yield. Statistics from past years
tell us that the yield generally drops in
the year following record yields by up
to 16 per cent, so observers are very
cognizant of the potential effect of any
hiccup this summer.
In Ontario, corn planting in western
Ontario got well underway before cool
40 THE RURAL VOICE
wet weather set in. But, it's early and
planters should be back in the field by
May 1. Already, some areas are
probably 50 per cent planted, and in
those areas corn acres are down
substantially. From Toronto east,
virtually no corn has been planted yet
and it doesn't appear that anything will
happen for a couple of weeks (early
May). That area needs to warm up and
dry out before much will be done,
which is a far cry from the past few
springs when fields were dry and warm
by mid-April. The OCPA is using an
acreage for 2005 corn at 1.45 million
acres which would be the lowest since
the 1970s. Using the five-year average
yield of 115.7 bu/acre, the total Ontario
crop would come in at 168 million
bushels or 75 million bushels less than
usage.
SOYBEANS
In the last USDA supply/demand
report, the soybean carryover was
reduced by 35 million bushels to 375
million for the 2004/05 crop year. As
well, the Brazilian soybean crop is
getting smaller by the week and is now
thought to be in the 51 -to -53 -million -
tonne range after starting out at 63
million. Along with a projected 1.3 -
million -acre drop in 2005 U.S.
plantings, these issues have put some
support under soybean prices. We've
seen prices rebound quickly 'from sell -
offs and, although we may not see a
whole lot of strength in the coming
weeks, I think we can hold above the
recent lows.
There were soybeans planted in
western Ontario on April 15 which is
probably the earliest that I've ever
seen. I think most traders in Ontario
still believe that soybean acres will be
higher this year although Statscan is
showing no change from 2004. I
realize that edible beans and cereals are
probably going to replace some corn
acres, but I can't agree with Statscan's
acreage figures. Our soybean trader
thinks soy acreage could be up three to
five per cent from 2004.
What we're dealing with this year is
like a double-edged sword. The world
has ample supplies of feed wheat and
corn and exports from the U.S. will
continue to lag because of high ocean
freights and the aftershocks of bird flu.
Old crop corn carryout is likely going
to get bigger by September because of
the slow exports and the fact that
DDGs are replacing some corn in feed
rations. Soybean usage in the U.S. may
also be overstated and could raise the
carryover from today's numbers.
Outside of China, global demand for
soys has fallen short of expectations.
On the other hand, there is a big IF
in the northern hemisphere for the
coming crop year. It's clear that if
demand for oilseeds continues to grow,
the U.S. and South America will need
to produce large crops to accommodate
the demand. So, weather will be a big
IF this summer throughout the midwest
U.S. The USDA is actually showing a
decrease in global soybean demand for
the coming year, but most analysts
think that China will continue to
increase their demand and nullify the
drop that USDA sees.
The situation with corn is similar to
that of soybeans. Yes, the carryover
this year will grow larger, but how
likely is it that the northern hemisphere
will produce another record yield?
Even with U.S. corn acres up from last
year, a trend line yield of 143-145
bu/acre just meets the expected
demand for corn so, weather once
again becomes a big IF. If weather is
good to perfect, yields will be good
and prices will stay in the doldrums.
However, any hiccup due to heat or
drought can easily lower yield
prospects and that will lead to higher
prices. Keep in mind that more ethanol
plants will be on line in the next year,
so industrial usage will grow faster
than the decline in feed usage due to
the extra DDGs.
As I've talked about before, the
hedge and index funds are becoming a
major factor in the commodity pits
which obviously include grains and
oilseeds. If these funds aren't seeing
returns from trading stock market
indices, they will quickly move to
commodities and history shows us that
when the stock market is making good
gains, commodities are typically
grinding lower. Of course the opposite
is true right now and the stock market
has not performed too well over the
past few weeks.
Right now, 1 can't honestly suggest
that producers sell any new crop corn.
Possibly by early summer, there will be
an opportunity to lock in some profit. I
think new crop soybeans will show a
decent return to producers in the near
future, but once again, let's see what
the summer offers since the Canadian
dollar appears to be stuck in a trading
range from $.80 to $.83 U.S.
I do believe we should have some
optimism for better prices but there are
many IFs.0