The Rural Voice, 2006-05, Page 48Grain Markets
Some up -side potential in corn futures
Dave Gordon
is a
commodities
specialist
with LAC.
Inc.,'Hvde
Park. 519-
473-9333.
By Dave Gordon
April 21, 2006
There are many issues to write
about this month ranging from
planting intentions to the countervail
decision. Futures markets have
certainly reacted to the planting
intensions report (however accurate
they might be) with December corn
futures putting in new contract highs
while soybean prices sagged.
Locally, Ontario corn producers
are probably still reeling from the
CITT decision that dumped and
subsidized U.S. corn has caused no
injury to Ontario prices. And, while
their reasons will be published on
May 3, it appears that the winning
argument might be that imports of
corn only reflect a shortfall in Ontario
production and is not a matter of
price.
CORN:
Corn issues have dominated the
news for the last month. The USDA
shocked analysts by reducing the
U.S. corn acreage by 3.5 million
acres to 78 million, well below any
pre -report estimates. However, I tend
to think the final corn acreage will
estimate, unless
come in above this
Deadline for
the June issue
of
The Rural Voice
is
May 17 2006
44 THE RURAL VOICE
planting is delayed. So far. most areas
are slightly behind last year's pace
and with nitrogen prices and fuel
prices so high. the U.S. farmer may
shy away from corn a little quicker
than in previous years. even though
soybean prices are in the tank. It is
fair to say the carryover in 2007 will
be lower than this year's 2.3 billion
bushels.
In Ontario. producers who were
holding corn pending the likelihood
of the corn countervail sta> inns in
place were dealt a huge blow with the
decision that the duty be dropped.
Old crop basis dropped $.10 to $.I5
right after the announcement and
could weaken some more depending
on producer selling. At the same
time. some corn growers decided to
reduce corn acreage since they felt
the upside to corn prices is now very
limited. I agree that the basis portion
of prices will be weaker but. I still
think that the futures part has some
upside potential depending. of course.
on final acreage. growing conditions
and demand from both the domestic
and export markets. I have always
maintained that producers should
stick with a constant crop rotation
since it will give a better balance to
pricing opportunities year in and year
out.
SOYBEANS:
The USDA made many analysts
scratch their heads with a projection
of 4.7 million more acres of soybeans
this year in the U.S. I think the
general consensus is that the increase
will be modified somewhat,
especially with soybean prices falling
since the report. The supply/demand
situation in the U.S. is still bearish
with the projected carryover this year
pegged at 565 million bushels.
However, some factors could change
the mix in the coming weeks. South
America is still harvesting so there is
not a final production figure and we
know that their production numbers
can fluctuate. As well, China has
been a good buyer of U.S. soys but
what about the rest of the world? If
demand does not pick up, the 2007
ending stocks number could be even
more bearish than the present
scenario.
In Ontario, basis levels are quite
weak but with the quantity of soys
still to be sold and the Canadian
dollar hovering around $.88, there is
not much hope for anything better.
Any rally in futures prices should be
looked upon as an opportunity to get
rid of old crop soys. With the new
crop. there is time for the dollar to,
weaken at some point and there is
also a big possibility that South
America will not plant as many soys
this fall.
The recent talk in Ontario
agriculture seems to be only about
corn and the disappointment among
corn growers with the CITT decision
to drop the countervail duty. Will the
governments now step up with a
better program for grain and oilseed
producers? I sure hope so. Will the
CITT decision be appealed? I doubt
it. given the cost involved. But. I also
think there are many positives
coming down the pike for grain
farmers and especially corn growers
in Ontario. Demand for corn in
Ontario will continue to outstrip
production and as a result, prices will
stay at import levels. Those import
levels will go higher as the ethanol
industry in the U.S. continues to grow
and local usage in the U.S.
strengthens basis levels. In Michigan,
there will be two new plants
operating in the next eight months
with two more set to begin
construction any day. These four
plants will use 70 to 80 ,million
bushels of Michigan corn that will
then not be available to the Ontario
market. As a result, corn imports into
Ontario will have to come from
farther away, which adds to the final
costs. In theory, that then pushes
prices to a level that is profitable for
Ontario corn growers and acreage
should expand once again in Ontario.
Yes, there are many negatives in
the Ontario marketplace today.
However, I believe with the
movement to biofuels in all of North
America, that prices will improve
substantially in the next year or two. I
just hope that producers can hold on
that long.0