The Rural Voice, 2003-06, Page 55Grain Markets
Prices changing in a hectic month
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
What a difference a month makes!
We have seen big gains in a number
of futures prices including wheat,
corn, soybeans and the Canadian
dollar. From the lows of later April to
the highs in May, soys moved up
$.50, corn by $.30, wheat by $.65 and
the dollar by $.05. In Ontario, the
effect of the higher dollar has at the
very least, offset the higher futures
with a lower basis.
As of this writing, the concern in
the U.S. is whether or not all of the
intended corn acres will get planted.
Some areas are completely planted
while others are a little behind with
the overall completion sitting at about
85 per cent. Soybean planting is well
behind normal but there could be
extra acres if corn planting is delayed
much longer.
CORN
A good part of the rise in futures
prices is probably connected to the
fall in the U.S. dollar with the
thought that the U.S. will become
more competitive in the world
market. However, it will take time to
see if exports actually do pick up, as
we will focus on new crop sales.
In Ontario, the effect of the higher
Canadian dollar has finally kicked in
and we have seen old crop basis
levels drop by $.20. New crop basis,
on the other hand, is unchanged
because there is concern that a lot of
corn acres will not get planted. There
are pockets in the province where
corn planting is well along, but in
London, only the lighter or well -
drained soils are planted. I truly
doubt if we will get 1.8 million acres
planted in Ontario, which is a drop of
six per cent from 2002. The net effect
should be at least a stable new crop
basis.
Old crop corn prices on the other
hand are going to struggle. Not only
is the dollar stronger, but also the
corn basis in Michigan has fallen
$.10 and may fall further. Besides, if
new crop Ontario wheat continues to
be flat priced less than old crop corn,
feed mills in Ontario will likely
replace some corn with wheat. This
will cut into corn demand in the face
of higher on-farm stocks as reported
by Stats Can.
SOPS
Soybean futures have shown some
strength due partly to the slide in
the U.S. dollar, but also on reports
that the Brazilian crop may not be as
large as previously thought. I have
seen ' production numbers of
49 million tonnes as compared to
some earlier estimates of 51 million
tonnes.
The USDA lowered the carryover
to 135 million bushels and because of
anticipated tightness in supplies,
some U.S. crush plants have shut
down or plan to shut down
temporarily. Many traders feel the
final carryover number will be close
to 100 million bushels, which would
be lower than any year in recent
memory and one of the lowest stocks -
to -use ratios ever.
In Ontario, basis has plummeted in
Canadian dollars by $.55 since the
end of April strictly due to the rising
dollar and this drop offset any gains
in futures prices. Even with this
lower Canadian basis, crushers are
still very close to import values and
there is concern about tight supplies
late this summer. But, it would be a
crapshoot for producers who might
think about holding until late August
or September. There is a risk that
crushers could temporarily shut down
for a few weeks.
Corn growers in Ontario will
likely wait awhile before making a
decision about switching acres to
soybeans. I do believe that there will
be more acres of soys at the expense
of corn.
The big talk in business circles has
been the strength in the Canadian
dollar or more correctly, the
weakness in the U.S. dollar. A broker
in Chicago did tell me that the
Canadian dollar looks like it is
becoming the darling of all currencies
and sentiment like this might
continue to push our dollar higher.
We hear all of the moaning from
manufacturers about not being
competitive with the higher dollar,
but I remember a $.90 dollar and in
fact the Canadian dollar was a
premium to the U.S. dollar in the
early 1970s. The effect on producers
will be extreme if the dollar
maintains its strength. Commodities
are tied to exchange rates and it win
take a drastic change in thinking if
producers are to survive. Basis levels
will not. be as huge in Canadian
dollars in the future. Keep in mind
that if a Michigan farmer was being
paid $2.50/bu. for corn, an Ontario
grower would be getting $4/bu. when
the dollar was at $.64. Therefore, the
higher our dollar trades, the closer the
two prices become. Our prices should
never reach par because Ontario is
net importer, but Ontario producers
need to be realistic about setting flat
price targets.
Not only have the Canadian dollar
and SARS been making headlines —
now we have made cow disease. I
was sure that we would hear that it
was found in Ottawa but no — a
northern Alberta ranch was the
culprit. Cattle prices in Canada
have already taken a beating and
with beef exports to the U.S. cut ofi
at least temporarily, one has
to wonder where our industry ends
up. Some local feed mills normally
ship a large quantity of their
production to the U.S. and some of
these shipments have been suspended
because of animal by-product
content. Since this is the first
time that mad cow disease has
surfaced in North America, there is
no precedent as to what grain prices
will do as a result. The major initial
reaction has been a drop in the
Canadian dollar for the time being.
All we can hope is that there is some
type of aid being considered for beef
producers. For grain growers, let's
simply hope for some warm, dry
weather for at least a couple of
weeks.0
Information supplied by Dave Gordon,
LAC, Inc., Hyde Park, 519-473-9333.
JUNE 2003 51