The Rural Voice, 2000-04, Page 62Markets finally notice
U.S. drought
By Dave Gordon
It has taken a while but drought
conditions have become a topic of
discussion in Chicago. I have looked
at the drought monitor weekly for the
past five weeks and wondered why
the markets were not reacting to
abnormally dry conditions through
much of the corn and soybean belt.
Now that the National Oceanic and
Atmosphere Administration (NOAA)
has spoken, traders are taking notice.
This week (March 13-17), all grain
markets put in substantial gains after
NOAA issued a warning that the
drought will worsen before relief is
seen later in the summer. The spec
funds returned to the markets as
heavy buyers in all grains.
CORN
The USDA released the monthly
supply/demand report on March 10
but no changes were made. The
important reports come out on March
31 when planting intentions and
quarterly stocks are reported.
Currently the feeling is that corn
acres will be down from 1999 and
that corn usage will be very strong.
With the improvement in futures
prices, basis levels have weakened
slightly throughout the corn belt as
producers have started to sell at the
higher prices.
In Ontario, basis levels have
remained steady in Canadian funds,
but weaker in U.S. funds because of
the falling Canadian dollar. In the
near term, there is more corn to be
moved than markets can use and
buyers don't need to be aggressive. If
we look to the export markets,
contrary to some reports, there is not
a great deal of corn presently sitting
in river or lake terminals. In fact,
most of the corn in Quebec ports is of
58 THE RURAL VOICE
Grain Markets
U.S. origin and is waiting to.be
trans -shipped. It is possible that corn
will get moved into position for
export, but don't expect immediate
relief.
New crop corn prices are also
gaining strength with elevators now
paying about $3.30/bushel. If a
producer has not sold any new crop,
it might be time to start with a small
amount. Then, raise the bar a little
and sell some more. Just be sure of
your cost of production and that your
selling price covers the costs.
SOYBEANS
The USDA lowered the 2000
carryover through an increase in
exports and now it looks like stocks
will be lower than in 1999. Up to
now, it has been assumed that
soybean acreage would increase this
year because of the high loan rate.
However, with prices in general
improving, market prices and weather
conditions will determine acreage. It
is also assumed that usage of
soybeans has been good and that the
quarterly stocks report will bear this
out. The one glitch in a bullish
scenario is the fact that some crush
plants. are temporarily shut down
because of poor crush margins. But,
as soy meal prices go higher, these
plants should be back on line shortly.
In Ontario, a weaker Canadian
dollar and higher future prices have
pushed basis levels higher in
Canadian funds. Exports of clear
hilum soys have been strong and the
domestic crush is heavy. Nearby
soybean shipping is similar to the
situation with corn. Sellers want to
move more soys than the crushers can
handle in the short term, but I am
sure the crushers will need all of the
Ontario soys that are out there.
FEEDGRAINS
Feedgrains prices are tagging
along with corn prices but there is too
much local grain coming out for the
market to use. Ontario barley is
selling for about $95/M.T. depending
on quality but limited amounts are
being used by feed mills. Western
feed wheat and feed barley are priced
well above corn with small amounts
being used.
Grain prices moved steadily lower
from 1996 to December 1999 when a
major bottom was finally confirmed.
It took the USDA report in January to
jump-start the futures markets. What
followed in February were markets
that tried to break down but couldn't;
tried to go higher but couldn't. There
was definitely support under the
market but no news to make prices go
higher. Now, in March, we are
already observing drought conditions
in many parts of the U.S. Here in
southern Ontario, we certainly need
more rain to build up moisture
reserves. What does this tell us about
growing conditions this summer? We
know in Ontario that rains at the right
time are as important as how much
rain falls over the growing season,
but it will be as much the perception
of drought as the reality that will
make prices move.
I think the drought conditions of
today will eventually give us some
good pricing opportunities, however
short or long term they might be.
Drought concerns in the spring can
move markets from planting time
through June while hot or dry
weather at pollination time can move
prices in July and August.
Keep in mind that the U.S. needs
to produce 9.5 billion bushels of corn
and more than 2.6 billion bushels of
soys just to meet current usage levels.
For corn, this means yields need to be
in the 134 bu./acre range which is
close to a record. What are the odds?
Many will say that it is likely because
yields of the last two years did reach
134 bu./acre. I think even with a good
yield, there will be excellent pricing
opportunities sometime during the
growing season. The situation is the
same for soybeans which need a yield
of at least 35 bu./acre to meet
demand.
Prices are now getting to levels at
which producers need to pay close
attention. If your cost of production is
covered, start by contracting small
amounts. Then, set your sights a little
higher with each new sale. You can't
go wrong locking in a profit, but
don't oversell your production.°
Information supplied by Dave Gordon,
LAC, Inc., Hyde Park, 519-473-9333.