The Rural Voice, 2003-04, Page 62Grain Markets
Grain markets shift from demand to supplb focus
621
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
As the weather shifts from winter
to spring, so too the grain markets are
shifting from a demand to a supply
focus. Market watchers are looking
ahead at potential acreages and yields
and plugging those numbers into their
supply/demands.
Corn markets have been trending
sideways to lower for weeks now and
the news of 80 to 81 million acres of
corn in the U.S. certainly adds
another negative factor. Soybean
futures have also been trending
sideways but this is quite amazing
given the size of the South American
crop.
The grain markets have not been
connected to the recent moves in gold
and oil prices and if recent history
repeats, the Iraqi situation should
have very little affect on grain prices.
Corn:
The most recent USDA
supply/demand estimates once again
raised the corn carryover with a drop
in exports. The thought was that
industrial use would be increased to
partially offset the reduction in
exports but they chose to leave all
domestic use unchanged. There is no
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58 THE RURAL VOICE
question that exports will fall short
and in fact, estimates may need to be
reduced again from 1.75 billion
bushels. However, U.S. basis levels
are staying very strong.
In Ontario, cash prices have edged
lower although the basis in U.S.
funds is extremely strong. In
Canadian funds, local basis has
dropped only a slight amount given
the strong move in the Canadian
dollar.
There has been some talk that if
the seaway does not open by April 1,
some corn users may raise their bids
to cover in some needs, however, I do
not agree with that assumption
because all of the big users — Casco
and Commercial Alcohol have rail
access and if the need arises can
quickly change the mode of
transportation.
It has been said that no two years
are the same when it comes to
marketing. This year is different in
that some factors came into play that
we have never seen before. Basis
levels have been at an all-time high in
the U.S. and Ontario since harvest
and the question that needs answering
is how long will it last? My feeling is
that basis will stay strong until the
new crop is made — especially in
Ohio and Indiana.
Soys:
The USDA reduced the projected
soybean carryover by another five
million bushels to 160 million. U.S.
exports were increased to 960 million
bushels but at the present pace, a
target of one billion should be quite
attainable. If the current export pace
continues the carryover could be
close to 100 million bushels, the
lowest in many years.
The world supply of soybeans has
grown steadily over the last 10 years
but the demand has kept pace. Even
though North America is losing share
each year, it can still tip the
supply/demand balance. May
soybean futures have traded between
$5.40 and $5.80 for seven months, so
a break out of this trading range will
signal a significant move up or down.
Ontario soybean prices have
eroded over the past three months
with the huge move up in the
Canadian dollar. Old crop basis levels
are still very high in U.S. funds and
will likely soften when the lakes open
up for shipping. Ontario processors
will likely import fairly large
quantities of U.S. soys this spring to
meet their crush requirements.
If we stand back and look at the
corn vs. soybean scenario, two
different stories appear to be
emerging. Estimates of U.S. corn
acreage are already showing an
increase of at least 1.5 million acres.
In addition to the carryover from the
2002 crop growing, this higher
acreage will only add further to the
corn stock levels. U.S. corn exports
are disappointing at best and I see no
reason for optimism in the next year
unless production somewhere in the
world falls flat. Domestically, even
though the ethanol market is growing
steadily, it takes time to get new
plants on stream, which does not help
in the near term.
The soybean scenario is much
different. Although domestic crush is
running behind projections, exports
are more than making up the
difference. As previously mentioned,
exports could top one billion bushels
which would be close to last year's
figures, but has to come from a
smaller total supply. Along with good
exports, acreage estimates indicate
that one million fewer acres will get
planted this spring. This smaller
acreage will likely lead to lots of
volatility this summer when and if
dry weather becomes a factor.
Volatility in the market will give
producers opportunities to make
some decent marketing decisions and
Ontario soybean growers will need to
do a good job of selling with the
elimination of market revenue. I think
the soybean market has shown good
strength in both old and new crops
given the size of the South American
crop. My feeling is that this trend will
continue and offer some good
opportunities over the next few
months. Producers need to be ready
to pull the trigger.0
Information supplied by Dave Gordon,
LAC, Inc., Hyde Park, 519-473-9333.
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