The Rural Voice, 2001-05, Page 56Grain markets still
floundering
By Dave Gordon
Grain markets have continued to
flounder amid foot and mouth scares.
mad cow disease, delayed planting,
acreage projections, stocks reports
and updated supply/demand figures.
Both new crop corn and soybean
futures made new contract lows on
March 30 on a foot and mouth scare
in the U.S. but rallied slightly when
tests were reported to be negative.
What would happen to prices if FMD
did appear in North America?
Hopefully we never find out because
the fear factor would likely override
common sense.
Today, thoughts have turned to
planting progress and crop conditions
and although long term weather has
not been talked about, I'm sure it will
be before June rolls around.
CORN:
On March 30, the USDA released
planting intention and quarterly
stocks reports. The USDA survey
showed fewer corn acres would be
planted than even the lowest pre -
report estimate. Using this acreage of
76.7 million acres at trend line yields,
production will only reach 9.59
billion bushels, which would reduce
carry-over by 400 million bushels.
Even an excellent crop would reduce
carry-over slightly.
Quarterly corn stocks came in
slightly under the average trade
estimate, so obviously domestic use
is making up for part of the reduced
exports. The U.S. has shown brief
spurts of good export activity but not
on a consistent basis. The Japanese
have finally agreed that "Starlink"
corn poses no human health problems
when fed to livestock. However,
don't expect export sales to pick up
52 THE RURAL VOICE
Grain Markets
quickly.
In Ontario, basis levels are still
very strong with the old crop board at
$1.10. over May and new crop at $1
over December. I think both of these
levels will hold until the corn crop is
planted in Ontario unless the
Canadian dollar suddenly goes to the
moon.
SOYBEANS:
The USDA reported that U.S.
growers intend to plant 76.65 million
acres of soys, higher than pre -report
estimates and more than two million
acres higher than last year. In fact
soybean and corn acres are almost
equal. On the other side of the coin,
quarterly soy stocks were up only
slightly over last year and 17 million
bushels less than pre -report estimates.
This isn't unexpected since exports
are well ahead of USDA projections.
When the supply/demand came
out on April 11, ending stocks were
cut by 10 million bushels. But, the
focus is on intended acres for this
spring and with corn planting going
slower than the last couple of years,
some traders are thinking corn
acreage has no chance of increasing
from the survey. This remains to be
seen because corn planting is actually
matching the longer-term average of
completion and if weather is good,
farmers tend to keep on planting
corn.
In Ontario, we continue to import
soybeans for crushing which is
certainly reflected in basis levels.
Specialty -grade soy exports have
resumed but at much lower premiums
and going to Europe instead of to the
Far East. Europe is actually wanting
non-GMO soys for crushing.
If spring planting weather is
normal in Ontario, soybean acres will
likely be reduced as producers look
for more profitable crops. Some
acres will be planted to spring grains
while other acres will see an increase
in dry bean acres. Soybean basis
should remain relatively strong given
the fact that Ontario will import soys
for crushing during the coming year.
However, because of the U.S. loan
rate -for soybeans, futures prices will
struggle unless there is a major
drought in the U.S. this year. Even
though prices of corn and soybean
have edged lower, corn still seems to
be the crop to grow in Ontario. Tho,
fly in the ointment for us is the
Canadian dollar, which has gained a
lot of strength off the lows of early
April. If corn futures prices don't
move higher basis levels will suffer
in Canadian funds. Right now,
producers who store on farm can still
lock in some good basis levels for
early 2002.
The futures market for corn is a
double-edged sword. Analysts have
set out several production scenarios
that would all lower corn carry -out in
2002. But. there is still a lot of
concern over foot and mouth disease
and the potential devastation if it hits
North America. Traders "assume"
that if FMD hits it will reduce
livestock numbers to virtually
nothing and therefore there will be
less demand for grains and oilseeds. I '
have talked to grain producers in
Ontario who are terrified of grain
markets collapsing due to FMD and
are looking at locking in prices as far
ahead as possible.
If conditions are normal or worse
than normal, grain carry-overs will all
be reduced and this is not reflected in
prices. Traders are still looking at
relatively early torn planting and a
large soybean acreage, both of which
should lead to ample production.
They have virtually no weather
premium built in. We've watched
wheat stocks slowly be depleted over
the years and yet prices have not
responded and possibly this is a result
of what was experienced in 1996
when users learned that just -in -time
deliveries are quite feasible. That
year corn and wheat stocks were
drawn down to an extreme, yet there
was still enough grain to go around.
In order to see any significant
strength in grain prices, we need to
experience a full blown drought and
even this probably would not produce
any startling prices. I hope I'm wrong
but we seem to be in an age of
complacency in the grain market and
I don't see anything too positive from
a producer's point of view.0
Information supplied by Dave Gordon,
LAC, Inc., Hyde Park, 519-473-9333.