The Rural Voice, 2005-07, Page 45NmiL
Grain Markets
First weather scare hits market
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
June 17, 2005
It's June 17 and grain markets are
experiencing the first weather scare of
the year. Well, at least soybean prices
are reacting and dragging corn and
wheat prices along.
It is early for a weather market and
some analysts point to 1988 as a
comparable year. But. the one big
difference is the level of moisture
reserves. In 1988 soils were dry as
compared to 2005. However, there are
forecasts of a dome building in the
mid -west which may send
temperatures into the high 90s. By the
time you read this, futures prices will
either be higher or much lower
depending on the actuality of these
forecasts. The market is attempting to
anticipate what the price of soys and
corn will be in the future based on the
information available today.
CORN
In the last USDA supply/demand
report, no changes were made to
ending stocks from the May report.
The U.S. will carry over more than
two billion bushels this year and likely
next year. Next year's carry-over is
still based on a yield of 148 bu/acre
which is above trend line. However,
some analysts are beginning to change
their thoughts on yield but, it will take
major drought or heat to drop the yield
too far below the trend yield of 145
bushels.
The former Sparks Co. came out on
June 17 with their final acreage
predictions and suggested corn acres
may be one million acres higher than
the USDA's 81.4 million. If this turns
out to be accurate, production will be a
lot higher than we now are estimating.
In Ontario, old crop corn is slowly
being sold since cash prices haven't
really changed much in the last five
months. The only factor that will take
prices higher is the Chicago futures
price since our basis levels really have
no where to go.
The Canadian dollar seems bent on
hovering around the 80 - 81 -cent level
and it is having an affect on new crop
basis especially. New crop basis has
backed off slightly but is still
relatively strong compared to
Michigan values. In U.S. funds,
Ontario basis is about 35 cents higher
than comparable elevator bids in
Michigan which tells me that new crop
can be imported.
SOYBEANS
The USDA did reduce ending
stocks by 35 million bushels in their
last report and applied the drop to both
2005 and 2006. Simply put, demand
for soybeans is still good especially
when compared to production. But. in
reality stocks and use have had no
affect on futures prices. It's the
weather and the fact that the upper
mid -west may not get the intended
acres planted. Information lowered
2005 soybeans acreage by one million
acres as compared to the USDA and
this assessment is not far fetched since.
the upper mid -west will likely leave
600.000 acres unplanted. And. we
have paid limited attention to soybean
rust and aphids to this point. It will be
an interesting summer.
In Ontario. old crop basis has fallen
dramatically in U.S. funds since the
crushers have pretty much bought in
their old crop needs. Ontario producers
have been selling old and new crop
soybeans at a tremendous pace and
with good reason. From the low in
February, future prices have risen
$2.20 per bushel and just this week
made new contract highs putting new
crop elevator prices at $8.30.
Old crop soys will need to reach
export pricing levels to get rid of
supplies and there isn't much demand
in the export market. So. there may be
some carry over into the next crop
year.
Soybeans are certainly the story in
the grain sector of commodities. Just
when traders think prices will soften,
along comes some news that gooses
the market again. July futures are
beginning to lag the November more
and more indicating that a weather
premium is being built into the new
crop. But, no matter. the soybean
situation in the world is tight relative
to all other grains. Brazil came in far
below expectations at about 51 million
tonnes or 10 million lower than
original projections. And, the U.S. was
expected to plant fewer acres of
soybeans than in 2004 but, due to the
vagaries of weather, that acreage will
shrink even more.
I think it is prudent that producers
foreward-contract at least a portion of
their crop at these prices even though
we are not close to pod setting when
the real tale will be told.
Corn. on the other hand. is too
plentiful right now and a lot of the
U.S. crop from last year is still not
sold. When a producer looks at corn
prices relative to soybean prices it's
almost enough to make one cry. So we
have to make the best of a had
situation. Remember. it is still June 17
and the crop is not made. In fact. the
U.S. crop has already hit a few snags.
And. we can't forget the role of the
hedge and index funds which are
looking for a cheap commodity to buy.
Corn fits the hill. Oil prices have
zoomed once again. metal prices are
strong and soybean prices have gained
40 per cent since February . I think the
funds may look at corn as a fairly
long-term investment since it is lagged
so far behind other commodities.
As far as this year is concerned.
produces need to get rid of their old
crop corn sooner rather than later.
because the U.S. loan corn will come
on the market in August and
September. If a producer has the
financial means. he/she might look at
carrying the crop into next year since
the futures have carry right out to July
2006.
We have already seen some new
crop corn sold as cash prices got above
$3/bushel. But depending on what
soybean prices do. and. assuming they
go higher. 1 still think there is
opportunity for higher corn prices.
Producers need to leave target prices
with their elevator or merchandiser
and not leave their decision to the last
minute. Also. take a look at what
prices are available in the new year
and set some targets for winter or
spring selling.
These are exciting days in the grain
markets, but sellers need to he realistic
in their targets. It's no time to get
greedy.0
JULY 2005 41