The Rural Voice, 2006-08, Page 55l
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Grain Markets
Think about what bio fuels will mean to Bou
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
July 21, 2006
The saying among Chicago grain
traders is "Rain makes Grain" but
growers in the western corn belt must
wonder if they are just cursed. They
have not seen rain for a few weeks
yet prices cannot seem to maintain
any semblance of strength. Grain
markets have been following various
weather forecasts as of late and as a
result we have seen a lot of volatility
in recent days with the various
forecasts that come out each day.
Traders are betting that the rains in
the eastern corn belt will produce
better than trend line yields so funds
have simply liquidated their long
positions. Now, we wait for the next
piece of news to give some direction
to prices.
CORN:
The USDA issued a report
covering acreage on June 30 and corn
acres were pegged at 79.4 million
acres, down 2.4 million from last
year. In the last supply/demand
report, this acreage was used with a
trend yield of 149 bu/acre. The
demand side showed an increase in
projected feed use of 100 million
bushels in 2006 - 07 while demand
was increased in the current crop year
as well. When all the numbers were
added and subtracted, the 2007
carryover was dropped to 1.077
billion bushels or about one billion
less than this year. Now, the
prognosticators get their chance at
estimating actual yield and already
we are hearing of yields as high as
154 bu/acre. But, demand should
eventually take care of any extra
production.
In Ontario, old crop corn is still a
dog. Because current demand
remains so weak, I do not see any
basis strength unless producers quit
selling. I see the carryover this year
to be at least as large as last year and
although acres may not be as high as
in 2005, with the recent moisture,
yields should be quite good. Couple
this with a huge wheat crop and a big
soybean carryover and storage will be
at a premium this harvest. There may
be some weakness right in the middle
of harvest but I do believe that prices
will be better in the new year.
SOYBEANS:
The USDA reduced 2006 soybean
acres by 1.8 million from their
planting intentions report, which is
still 2.5 million higher than in 2005.
Using a trend yield of 40.7 bushels,
ending stocks will still be
burdensome and if yields come close
to last year's 43.3 bu/acre, stocks
could end up above 600 million. With
the amount of rainfall the eastern belt
has seen, yields should be good.
In Ontario, flat price for soybeans
is not too good, so producers are
trying to hold on and hope that prices
will get better. But, unless a disaster
of huge proportions occurs, there is
not much reason for futures prices to
suddenly go higher. And, crushers in
Ontario certainly do not have to reach
very far to get plenty of soys to meet
their needs. Yes, basis levels today
are at export levels but it is physically
impossible to arrange enough vessels
prior to harvest. So producers, who
are hanging on to old crop soys, niay
have to retain ownership right
through harvest.
The grain industry in North
America is on the cusp of huge
changes, pretty much a result of the
developing biofuels industry. Ethanol
and biodiesel production are about to
change the face of grain production,
pricing and marketing. On the ethanol
production side, we know that the
focus right now is on corn as the
feedstock of choice in most of North
America. Ethanol producers in
Western Canada are going to focus
on wheat as the feedstock while there
is also research going on regarding
the use of cellulose. Biodiesel
production will look to soybeans and
canola in North America but palm oil
could become very important
elsewhere.
Back to corn though — I have seen
supply/demand estimates that show
corn acreage growing in the U.S. by
five million acres in each of the next
two years. What price will corn need
to reach to attract this extra acres?
And, what crop is reduced to
accommodate 10 million more acres
of corn? Does wheat acreage take a
hit? What about soybean acreage?
What oil will be used in biodiesel —
soy or canola? So many questions to
be answered and it will be price that
determines what crops will be grown
in any given area.
We in North America need to
realize that areas of the world such as
Brazil and Ukraine have the ability to
grow so much more than is produced
now. It will take more infrastructure,
more acres, more genetic research
and better prices, but we can be
assured that advancements will be
made leading to larger world
production.
I do not believe most producers
have gone through the process of
thinking about how much feedstock
is needed by a plant or how much
ethanol and biodiesel will be required
to meet government mandates. It is
time to do a little studying and realize
the magnitude of the biofuel industry
and how it will translate back to the
farm gate. Every part of the grain
industry will need to be very nimble
and accepting of changes that are
inevitable.°
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The Rural Voice
Box 429
BLYTH, ON
NoM iHo
AUGUST 2006 51