The Rural Voice, 1991-09, Page 26GRAIN MARKETS
FUTURE BRIGHTER
FOR GRAIN CROPS
The much bally-hooed United
States Department of Agriculture
(USDA) report finally came out on
August 12. They estimated thc corn
crop at 7.418 billion bushels and the
soybean crop at 1.868 billion bushels,
and as bullish as these numbers seem,
the demand side was lowered dramati-
cally. As a result, the USDA report
didn't drop carryover stocks as much
as many analysts projected.
Then, this week started out on a
black note with the Russian "insurrec-
tion," which dropped markets fast and
hard. However, with stability return-
ing to the USSR, markets rebounded
quickly, and we should be able to
focus more on the supply and demand
sides in a more "normal" world.
CORN
The talk in corn is about weather
and export credits issued to thc USSR.
Weather strengthened corn markets
about 45 cents per bushel before
falling back by 35 cents on lack of
demand and the attempted coup in
Russia. Once stability returned, the
corn market rebounded to the $2.55
arca on December futures, and I feel
prices should continue to stay firm and
gradually strengthen.
In the past, USDA has typically
been slower than industry in changing
their crop projections and this year, I
wouldn't be surprised to see succeed-
ing production reports coming in low-
er than the August report. On the de-
mand side, look for the Western coun-
tries to be much more willing to step
in with assistance for the Soviet coun-
tries and this should translate into
grain exports over the next year.
In Ontario, basis levels in the south
dropped by another three cents to
eight cents under September, while
new crop stayed at 10 cents under De-
cember futures. The drop in old crop
corn was a result of a pick up in pro-
ducer selling in early August, and al-
though the elevator bid hasn't changed
recently, the FOB farm bid has im-
proved slightly to ten cents over Sep-
tember futures because of a slowing in
producer selling, but I do expect fairly
Large quantities of old crop corn to hit
.the market before harvest causing
further softening of the basis.
It doesn't appear new crop basis
will move one way or the other until
harvesting begins, and we see if any
harvest pressure develops. Storage
should not be a problem this year be-
cause there is very little wheat, and
basis levels are at the export point.
That will encourage shipment of corn
into lake terminals.
Although I don't think basis levels
will change much through harvest, I
am fairly optimistic about futures
prices, and producers will get most of
their price gains from the futures mar-
ket. After harvest, you may see some
strength in the basis, but whether the
improvement is enough to cover
interest and storage costs will depend
on export demand.
If the Ontario crop comes in undcr
185 million bushels, there is room for
some basis appreciation rather than
depreciation as we saw in 1991. But
keep in mind Ontario producers will
not likely see the false markets created
in the past when we saw huge basis
gains, unless there is considerable
strength on the U.S. side. With the
dropping of countervail duty in 1992,
Ontario will be in a position to both
import and export during a crop year.
I am quite friendly about the direc-
tion that the corn will go.
SOYBEANS
Soybeans have had strong price
gains, but have been weak relative to
corn, especially over the past two
weeks. The USDA report still showed
a relatively good soybean crop and re-
cent rains have been beneficial. How-
ever, the soybean crop is not out of the
woods yet, and I think future produc-
tion reports will reduce the crop size
further. The one factor not as ':ritical
as with corn is the carryover to usage
ratio, and this is what the market is
trading now. However, with the chan-
ges in the Soviet Union, soy products
could become part of future credit
packages and lead to greater exports.
In Ontario, the crop size is not as
large as originally forecast, but cer-
tainly big enough to supply our needs
and be in a position to export. Old
crop soys are being cleaned up and
there is no reason to be hanging on
now, especially considering new crop
soys are being combined in Ontario
(August 15). Elevator basis levels are
the same for old and new crop soys at
15 cents over November futures, and
unless the Canadian dollar drops dra-
matically, basis levels in the next year
should also gain, especially if there is
any weakness in the Canadian dollar.
FEEDGRAINS
Feedgrain prices have started to
strengthen considerably over the past
two weeks due mainly to the poorer
than expected'yields in Ontario.
Western grain harvest has just begun
with good yields anticipated, but a
large portion of that crop is destined
for the export market. The Canadian
government has issued a basic $1.5
billion to the USSR for barley and
wheat during the next crop year, and
this will have an effect on feedgrain
prices in Ontario.
Today, Ontario barley is trading in
the $80 to $85 range with good mixed
grain (mainly barley) selling for $70
to $72 per metric tonne. The Ontario
oat crop was generally poor in quality,
so if you have bright, heavy oats, you
may want to hold on to them for a
while. The Ontario wheat crop was
very small, and it now appears there
will be very little sold into the feed
trade to compete with corn. Most will
be used by flour millers and exported
through CIDA at domestic prices.
As a final note, I'm much more op-
timistic about grain prices in the com-
ing year, but don't expect the markets
to explode straight up. Instead, provi-
ding demand rebounds steadily via ex-
ports, usage relative to stocks should
keep the markets moving up, and there
will be a time to consider forward con-
tracting even your 1992 production.°
Information supplied by Dave Gordon,
LAC, Inc., Hyde Park, 519-473-9333.
22 THE RURAL VOICE