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The Rural Voice, 2000-03, Page 44Higher use brings better prices By Dave Gordon The USDA updated some U.S. and world supply/demand numbers on February 11, 2000 which lent further support to the longer-term picture of grain prices. Basically, the reports showed that world usage of corn, soybeans and wheat is higher than previously thought. To me, the total usage figures are much more useful than individual supply/demand reports, which include a simple shuffle of grain from one country to another. World ending stocks are of great importance to the longer-term direction. Weather has played a large part in price movement this winter and there is some concern about soil moisture levels throughout the Midwest and plains of the U.S. Soil moisture maps are showing large areas of low subsoil moisture in the grain growing areas. CORN The USDA reduced the U.S. export figure by 25 million bushels but reduced world carryover by one million tonnes. The unexpected improvement in the Asian economies is now being reflected in the increase in usage of coarse grains, which bodes well for the future. Basis levels have improved in many parts of the U.S. due to a lack of producer selling. However, the pipeline is well supplied for the near future in the eastern corn belt and with so much corn yet to be sold, the selling plans of producers will certainly come into play this spring. Since the market started to move, producers have become fairly bullish and no one knows at what price they will now be sellers. In Ontario, basis levels have not fluctuated too much in the past month as we now sit under import values. It is tough to move nearby corn as feed mills and processors are booked up 42 THE RURAL VOICE Grain Markets through most of March. As a"result, nearby basis levels are weak compared to summer bids, a situation I don't think will change over the next few weeks. Producers in Ontario need to spread out their sales to avoid a run of on farm selling in April and June. My feeling is that there will be better selling opportunities in May and August and producers should be positioned to take advantage of these slots. Be ready to ship when other producers don't want to. SOYBEANS The USDA lowered soybean carryover in both the U.S. and world reports confirming thoughts that world usage is increasing. Two factors are front and centre in determining prices for the time being. One has been the weather in South America, which has been dry but lately has returned to normal and the second is the projected expansion of soybean acres this year in the U.S. I've been of the opinion that corn prices would rise to attract corn acres back from soybeans but a very recent survey suggests that due to fears of a drought, producers in the western corn belt are thinking about increasing sorghum and soybean acres at the expense of corn because more water is required to produce corn. In Ontario, basis levels have held firm for two reasons. First, the two crushers continue to process at record levels and secondly, the export of specialty soybeans continues to be very heavy. Producers are likely to see big basis swings because the crushers will be switching more capacity to canola in late February but this will likely be temporary. Longer term, crusher soys will be imported to offset the exports of white hilum soys. Basis levels for new crop crusher soys could get quite strong depending on acreage and growing conditions in Ontario. With more and more acres being dedicated to food quality soys, fewer acres will be available for crusher soys and as a result, imports could increase in future years. FEEDGRAINS Feed wheat prices have strengthened relative to corn and as a result, wheat usage for feed purposes has fallen off. Ontario barley and mixed grain prices have strengthened to about $100/mt in western Ontario. This is not a price at which corn is displaced from rations but these feed grains are more competitive than at any time in the past five months. One very important development that will affect oat producers is the closing of oat receiving at Quaker in Peterborough and at ADM in Midland. Although Quaker used very few Ontario oats, the Midland plant was a heavy user of eastern oats. Now, the main market for good quality Ontario oats will be the export market, which certainly can't handle the quantities of these plants. As I stated last month, the USDA report of January 12 put in a very good base to build prices on. The February world supply/demand report lent further credence by lowering world carryover stocks of all grains. Now, this is not to say that the world is running out of grain but it could be the start of a trend towards increased usage. There is a great deal of concern in the U.S. about low soil moisture levels throughout the Midwest and plains regions. A large area of the U.S. is considered to be abnormally dry with some smaller areas already into what is called a drought. Many weather forecasters are predicting some sort of dry weather fallout from La Nifia possibly in the western corn belt. With world usage of grains and oilseeds increasing, I feel that any sort of weather problem has the potential to take prices of new crop grain sharply higher. Last month, I commented on the fact that North American yields have been super for the past six years and in order to meet usage projection, corn yields actually need to increase to record levels. The prevailing thought is that corn acres will be down in the U.S. and prices will have to improve to attract acres back from other crops. We may see two very distinctive markets. The old crop market needs to be sold at regular intervals through the summer while the new crop market may react more directly to drought scares. If producers feel compelled to sell some new crop grain, do so in small percentages. I firmly believe that we've seen the low end of grain prices and the future looks much brighter.0 Information supplied by Dave Gordon, LAC, Inc., Hyde Park, 519-473-9333.