The Rural Voice, 2006-01, Page 42116,
A
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
December 19, 2005.
Well, the countervail news is out
and now the questions begin. How did
CBSA (Customs) come up with such a
high figure? What does it do to the
value of Ontario corn? How will the
trade tribunal (CITT) react to all of the
appeals?
The preliminary countervail duty
was set at $1.65/bu U.S. or about
$1.90/bu Cdn. which was much higher
than anyone anticipated. No one seems
to know where this figure came from
since no documents indicated such a
high amount. But, CITT will hear
appeals early in the new year and will
Grain Markets
Where will prices go now?
make a ruling as to injury to the
industry in Canada by April. I know
that users will certainly be pushing
hard to get the duty reduced or
eliminated through submis-sions to
CITT and by their support of a safety
net program for corn producers
because in the long run, a duty will do
more harm than good.
However, in the short term, what
does this massive duty do to Ontario
corn prices? It certainly does nothing
to futures prices since the only affect in
the U.S. will be felt in some border
states such as Michigan. With a U.S.
carryover projected to be 2.4 billion
bushels, a few million bushels less in
exports will not make a dent in their
stocks. Now, how much premium will
or can get added onto the basis? In the
first day, $.15 was added to basis as I
write this article, there is the possibility
of some more gains. But since there
was already a $.30 premium reflected
in the basis prior to the countervail
announcement, there is not likely too
much room left before feed mills turn
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38 THE RURAL VOICE
to alternative ingredients such as
Ontario soft red wheat and western
spring wheat. Some would argue that
the cost of the alternatives will rise
with the extra demand, which may be
true, but there is lots of wheat in
Ontario to meet our needs.
My biggest concern is the outright
loss of demand for Ontario corn when
the next hog barn is left empty or an
industrial user cuts back production or
goes strictly U.S. corn program. I know
that hogs owned by Ontario operators
are already being fed in the U.S. and
the numbers are likely to increase and
that some corn processors are probably
going to export all of their production
to the U.S. and import all of their corn
requirements. They will apply for the
duty drawback as they export finished
product and receive back the duty they
paid on the imported corn.
This loss of demand is a very real
concern and another side of the
argument in support of a safety net
program. We cannot afford to lose corn
processors any more than we can lose
corn production. To depend completely
on exports or imports to sustain an
industry would be suicide. Instead,
exports and imports should
complement our domestic industry on a
level playing field.
Unfortunately, our political gurus
were duped a few years ago into
believing that the U.S. and Europe
would be phasing out subsidy
programs. So, NISA and MRI went by
the wayside and now CAIS is suppose
to replace the previous programs.
However, those in dire need (grain
farmers) are not able to trigger any
payment while many other farmers
who are not in need are ttiggering
payouts. Still many more did not even
enroll in CAIS. Producers who I talk to
all agree that MRI worked well and if
it was still in place, the corn industry
would probably be reasonably robust.
At this point, I do not expect
premiums to stay around for a long
time and producers need to become
very proactive in their marketing of old
crop corn. I think the best basis levels
may be seen in the next 45 days so
producers need to get on the phone and
take advantage of the basis
i mprovement.0