Loading...
The Rural Voice, 2000-11, Page 36New corn use figure could change industry By Dave Gordon Is the bottom in? Has the tide ' turned? The last USDA report gave us some figures that will provide the fuel for markets in the months to come. Many traders expected production to be cut because of lower yields, but were surprised with the supply/demand reports for both corn and soys. Total corn usage is targeted above the magic 10 billion -bushel level for the first time. At the same time soybean usage was conveniently reduced by 53 million bushels to offset the decrease in yields. The scenarios for both corn and soybeans will surely lead to some adjusting of the relative commodity prices. CORN: The USDA reduced total corn supply by 225 million bushels and increased total use by 200 million bushels. Now, the cut in production was not a surprise but the increase in demand came from increasing feed use while exports took up the balance of the increase. Just think of what 10.1 billion bushels of use means if it.continues into future years. The U.S. farmer will need to produce a bumper crop year after year to meet usage if demand continues as projected for this year. Outside of North America, the USDA finally plugged in lower production for China at 105 million tonnes, down 23 million tonnes from last year. This reduction led to lower world stocks and I feel the world situation coupled with domestic usage in the U.S. will put a good support under prices. Not only do we need to look at the present situation; we need to look ahead at higher energy and nitrogen costs and the effect it will have on planting intentions for corn. I think corn prices will have to increase somewhat to encourage more corn 32 THE RURAL VOICE Grain Markets acres. In Ontario, we've pretty much arrived at one basis for corn with most elevators sitting at $.65 over December futures. In the southwest where harvest has progressed the furthest, yields are down from average but test weight is reasonably good at 56Ibs to 57Ibs. In Huron County, yields are also down with test weight hovering around 531bs. Keep in mind that most of the corn harvested so far was planted early (late April to early May) and the later planted corn is still to see a combine. I've heard of samples tested from Toronto to Ottawa that have varied from 451bs to 541bs with moisture still in the 30s. It will be another month before we see the full story on the 2000 crop. SOYBEANS: The USDA reduced soybean production by 77 million bushels from their last report but at the same time they reduced usage to leave the carryover unchanged at 365 million bushels. Interestingly, "Oil World" has said that the USDA is overestimating the soybean carryover and underestimating demand. Supporting this view would be the increased feed use for corn but a reduced soybean crush. Does it not make sense that an increase in livestock feeding would also require more soymeal and therefore a bigger crush? The overriding fear right now is that both the U.S. and South America will increase soybean plantings in 2001 and until 'we see more yield data from this years crop or a reversal of thinking about plantings, prices will remain stagnant. In Ontario, basis has increased in both U.S. and Canadian funds. Harvest is well underway and yields are generally well below last year's and as a result, crushers have pushed their bids higher. The Canadian dollar recently dropped to 17 -month lows at well below $.66 U.S. last week which also added to the soybean basis. With a smaller than anticipated crop, crushers will probably continue to have bids that are quite sharp. Today, elevators are paying between $1.76 and $1.80 over November. Harvest in the U.S. is on the downhill run now. As of October 15, soybean harvest was 75 per cent complete while corn was 66 per cent done. To this point, there has been very limited producer -selling as they have opted to take the LDP or the U.S. loan program, thus keeping grain off the market. There is always talk about a shortage of storage space but, invariably, the crunch comes right at the end of harvest or not at all. Keep in mind that U.S. elevators don't mind building piles of corn on the ground to alleviate storage problems. I feel the USDA is fairly accurate in their yield and production figures and I'm simply in awe of the corn use projection of over 10 billion bushels and the ramification in years to come. In Ontario, it looks like my projection of 170 million bushels of corn may be closer to the mark than most. It appears that the crop west of Toronto will be of reasonable quality but light on yield i.e. more normal. However, from Toronto to Ottawa there are too many comments about how bad things are. Producers are asking if there will be buyers of grade 5 or sample grade corn. Many samples have been tested and although there are some instances of 54 and 55lbs corn, I've also talked to some with 451bs test weight. I think prices will be stable to stronger over the next few months and producers should get their crops harvested, get any contracts filled and then deal with the marketing. I'm sure there will be markets for lower test weight corn but right now buyers don't have a good handle on how much of a discount should be applied. Needless to say, I think Ontario corn and soybean markets will trade to or near import levels for the next few months. Although this year's crops are not the smallest we've seen, usage has steadily grown and in a year like 2000, demand obviously will outstrip supply. There will be some opportunities to achieve reasonably good prices; at least, compared to what we've seen. In fact right now you can lock in well over $3/bu for new crop 2001 corn and over $7/bu for 2001 soybeans. It's important to look ahead whether its three months or 12 months when marketing and hopefully 2001 will provide a turnaround from 2000.0 Information supplied by Dave Gordon, LAC, Inc., London, 519-473-9333.