The Rural Voice, 2004-10, Page 48Grain Markets
Good yield news brings bad price news
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
September 17, 2004
Last month, my opening question
asked if the bleeding had stopped.
Well, it hasn't. In late August, there
was concern about frost, but as
Labour Day approached, it was
obvious that warm weather was in the
offing and harvest started in earnest
in the south and central corn belt.
Early yields of corn have been
outstanding with reports showing as
high as 250 bushels per acre in
southwest Illinois. Soybean yields
have been a little more variable with
reports of 35 to a high of 84 bushels.
As one can imagine, futures prices
have been in a downward slide and
we're not even into the harvest glut.
The USDA updated their monthly
supply/demand report by increasing
corn production and carryover and
reducing soybean productions.
However, most traders do not believe
that the soybean crop has gotten
smaller.
CORN:
The USDA increased corn yield to
149.4 bushels and one has to wonder
if they will eventually go above 150
bushels per acre. This is pretty
incredible given the problems in the
northern areas of the corn belt and yet
some analysts are already touting a
crop in excess of 11 billion bushels.
It would also appear that the USDA
may be a little optimistic in their
export projection since shipments
really faded towards the end of the
last crop year and total exports for the
year came up well short of the target.
Good feed grain crops in the world
coupled with a planned expansion in
Argentina's corn acres leads me to
believe that world demand will be
limited for U.S. corn.
In Ontario, there appears to be a
44 THE RURAL VOICE
lot of old crop corn sitting in farm
bins and time is running out. There is
also lots of corn in Michigan that
could come into Ontario prior to
harvest except for the fact that freight
is not available. This may provide an
opportunity, though, for Ontario
producers to get a few more dollars
for their corn. In fact, as futures have
fallen, basis levels have strengthened,
leaving the old crop flat price
virtually unchanged.
With the change in weather in late
August to a much warmer scenario in
Ontario, ideas are that the size of the
corn crop has grown. Statscan has
projected a crop of 190 million
bushels which may be attainable if
we continue to remain frost free into
early October. Still, Ontario will need
to import corn in the coming year, but
corn usage by the feed industry will
likely be cut in favour of western
feed wheat.
SOYBEANS:
The USDA actually cut soybean
production in the U.S. but juggled
figures to keep the carryover virtually
unchanged. The futures market
reacted positively right after the
report, but by the end of the day
prices were down. This was not a
good sign for producers since it
showed that market makers didn't
believe the USDA figures. Anecdotes
from producers who have harvested
early soys generally point to excellent
yields with no extremes to the low
side but definitely some extremely
high yields. There will be pockets in
the northern corn belt where yields
won't be very good due to late
planting and an early frost but early
yields in the far south will probably
more than compensate for this loss.
Unlike last year, there was little
pressure from drought or aphids
during this growing season.
One positive in the soybean
picture may be the damage that has
been done to the Canadian canola
crop. With good world demand for
oil, soybeans should fill in for poor
canola oil yields.
In Ontario, old and new crop basis
levels have closed in a great deal and
by the end of September we will
likely only have a new crop basis.
There should be some harvest
progress by the end of September
since a lot of fields are turning colour
and dropping leaves in parts of of the
province. Yields in Ontario should be
closer to average than yields we've
seen over the last two years and basis
at harvest will be weaker than it has
been for a couple of years.
It appears that the adage about a
big crop getting bigger may be true
this year in both corn and soybeans.
We haven't even got into the harvest
glut yet and already prices are falling,
mostly based on the assumption that
yields will be huge. If the crops in
Ontario can escape frost until the
second week of October, the quantity
and quality of both corn and soys
should improve, leading to a
softening in basis levels.
We need to focus on what the
demand will be like after harvest. I
don't see outstanding world or local
demand for corn except in the ethanol
industry. The feed industry will have
lots of feed wheat and ethanol by-
products to replace corn if prices get
out of sync. Keep in mind that feed
grain production, worldwide, was
much higher this year than last and
these grains are available as feed.
U.S. soybean exports after. harvest
will once again depend to some
extent on South American weather
during their growing season. China
will continue to play an important
role in world demand but maybe not
at the same level as earlier in 2004.
Last spring when prices got
over -blown, China kept buying
soybeans but wouldn't or couldn't
pay when it came time to ship the
product. Export shippers will be very
cautious in their future dealings with
the Chinese and I think the export
market will be a little quieter in the
coming year.
Ontario producers have been very
cautious about forward -selling grain
recently both because of lower prices
and the uncertainty about what's in
the field. Any remaining old crop
corn needs to be sold by the third
week of October and old crop soys
should all be gone by now.
Let's hope that the weather holds
for a good and safe harvest.0