The Rural Voice, 2004-02, Page 43Grain Markets
USDA report surprises traders
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
January 23, 2004
The first USDA report of every
new year tries to peg the final grain
production figures for the current
year and update the projected
supply/demand estimates. Sometimes
the pre -guessing is right on the mark
but this year market participants were
left in shock.
Almost every number that the
USDA produced was bullish and as a
result,, prices pushed higher into new
territory. In fact, corn futures saw the
highest weekly close since January
1998 and soybeans matched a June
1997 high close. The spec funds have
been big buyers of futures, which
have kept the momentum going
higher. There should be a downward
correction in the next few weeks but
the fundamentals dictate a further
move higher going into the spring.
CORN
The USDA actually lowered the
U.S. corn production when most
traders thought they would likely
increase it slightly. Along with this
lower production, usage was
increased in every category. Corn
exports could be higher than the
Deadline
for the
March issue
of
The Rural Voice
is
February 18, 2004
estimate of 1.975 billion bushels and
the increase in ethanol production
will continue to use more and more
corn. The projected carryover was
dropped to 978 million bushels, the
lowest in years although this latest
run up in prices has the pipeline full
for the short term.
In Ontario, corn basis is holding
steady for both old and new crop. The
higher futures have encouraged some
selling in order to get bins opened,
but for the most part producers with
corn stored in farm bins are looking
to capture higher prices down the
road. Many producers think the
Ontario basis should be higher
because of the higher corn futures
and weaker Canadian dollar, but
commercial firms, who sold grain for
winter delivery that was bought at
harvest, have saturated the market.
Producers should plan ahead and get
some sales on for the spring and early
summer months.
Currently, the elevator basis is
$.60 over March futures for old crop
corn and $.65 over December for new
crop. It appears that new crop basis
could strengthen in order to assure a
good size corn crop in 2004.
SOYBEANS
The USDA lowered 2003 acres
and yield slightly in the report of
January 12. In order to achieve a
carryover of 125 million bushels, the
carryover from 2002-03 was
increased and crush was reduced.
Interestingly, the USDA increased
imports of soy oil and soy meal,
which would indicate that the U.S.
will come up short, and rather than
buy soybeans from South America,
the products will be imported. U.S.
exports were increased by only 10
million bushels, which is reasonable
since the rate of export sales is
slowing. China is now looking to
Brazil to supply most of its needs
from March through August and with
the small 2003 crop in the U.S., it
appears that Brazil's exports could
increase by 3.5 - 4.0 million tonnes to
satisfy the Chinese appetite.
In Ontario, basis levels continue to
gyrate with tt•.: Canadian dollar
Fluctuations but basically it is holding
import levels. The soybean
processors are crushing at a slower
pace than last year as crush margins
are under pressure. In other words,
the price of soybeans is rising faster
than the price of the products. This
reduced crush lines up reasonably
well with the reduced 2003 crop.
The past two months have been
pretty exciting from a producer's
point of view. Corn futures have
moved $.50 from the low of
December 24, which was a blip,
caused by the BSE discovery in the
U..S. with a U.S. dollar that is gtill
getting weaker, more livestock being
fed than in the previous year and
ethanol production that is increasing
at a very fast pace, corn prices should
continue to be strong. As well, the
market has to ensure that U.S. corn
acreage in 2004 is not reduced which
will be a tough job considering the
increased cost of not only nitrogen,
but seed as well.
As I have always said, producers
should never hold out for the absolute
high price, but instead should sell a
portion of the crop into this rising
market. Right now, producers have
an opportunity to reduce some of
their price risk and should take
advantage of this opportunity. I feel
the futures market will make a
downward correction in the near term
and sellers definitely want to avoid
any sales on this dip.
Soybean growers have seen a price
move over the past year that not only
is very strong but the upward
momentum has not stopped yet.
Futures prices have not yet rationed
usage enough to leave the U.S. with
much of a carryover. Now is not a
time to be greedy though. Everyone
knows that today's prices are
profitable and no producer wants to
be left holding the bag if and when
the market starts to fall. Remember
the words of the song "What goes up
must come down" are very true and
we will see lower prices sometime in
the future.
The move in grain prices is one we
see once every five to eight years and
producers must take advantage of the
opportunity. You will not be sorry.0
FEBRUARY 2004 39
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