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The Rural Voice, 2005-01, Page 42Grain Markets Storing corn unlikelg to pub for itself Dave Gordon is a commodities specialist with LAC, Inc., Hyde Park, 519- 473-9333. By Dave Gordon December 10, 2004. Grain production in almost all areas of the world was at or near a record this year. What a contrast when compared to 2003 when Europe. Australia and China experienced droughts. After record corn yields in the U.S.. it will be interesting to see how the U.S. producers will react to high input costs and low grain prices. My own feeling is that corn acres will increase simply because of the extreme corn yields this year. When corn outyields soybeans by a ratio of 3.75 to 1.00, growers are impressed and remember figures like that for at least six months. Simply put. we have to eat our way through all of this grain and fortunately the world's appetite is pretty good — especially for soybeans. Corn must compete with other coarse grains as well as feed wheat out of western Canada. CORN: The projected corn carryover continues to grow in the U.S. as the USDA starts to pare back the projected exports, thus leaving the domestic market to consume more corn than ever before and the only area of real expansion is in the ethanol sector. In my mind, it will take another two or three years before the full impact of the ethanol expansion will be felt in North America. Meanwhile, unless there is a disaster somewhere in the world, I think the size of the U.S. crop will continue to be overwhelming and limit prices at the current levels. On the positive side, we can be pleased that usage has grown dramatically over the past l0 years. In Ontario, harvest is almost complete with less than five per cent in the field. The unharvested corn tends to be found in pockets and some will stay out until spring. Basis levels did perk up around the first of December and a little corn was sold. However, I am concerned about the amount of unsold corn that producers are sitting with. The fact that there is a lot of corn in storage in Ontario does not bode well for an improvement in prices. Yes, prices are low but they 38 THE RURAL VOICE could quite easily stay under pressure for the next four or five months. If we assume that the Canadian dollar will continue to trade in the $.80 - $.85 range, there is not much hope for basis improvement. The best that on-farm storage can do is to lock in the carry offered by the forward kids. The USDA has left soybean carryover unchanged this month and exports have been quite good to date. The market will now focus on South America and the crop progress in Brazil and Argentina. So far. the weather has been quite favour- able but that could change any time and will be reflected quickly in Chicago. A Big plus for the U.S. is the fact that China has once again started buying U.S. soys. which if this continues should provide some stability to prices. But, bear in mind that the projected ending stocks are huge relative to the last couple of years and somehow this carryover needs to be reduced if we are to expect much price movement. In Ontario, Statistics Canada has confirmed a 90 -million -bushel soybean crop, the biggest ever. Basis levels reflect this huge crop and as with corn, I think for the next few months, the basis will stay soft. Some crusher soys have been exported along with food grade soys but more will need to be done to get the excess out of the system. Soybean crush should increase in Ontario since Bunge has announced that they will no longer crush canola. Soybeans will likely use that excess capacity. We have had a year of contrasts in 2004. Prices have been at both ends of the spectrum. absolutely terrible growing conditions turned into a fabulous September and the corn and soybean crops went from a poor to outstanding. The unfortunate thing is that prices were high when no crops were in the ground and producers did not feel comfortable enough to forward sell even when prices began to fall. If there were a lesson to be learned, it would be to use crop insurance to back up forward contracts. Producers can actually contract up to their insured level without risk and in hindsight this was the year to do it. Now — what to do about grain that is unsold? As I have mentioned several times, I think it will take a drought in some part of the world to give a sustained boost to prices. The perception of a problem will give only temporary gains. In general terms, there is lots of grain in the world to meet demand for the next 12 months but I have a feeling that soybean prices will show a little more strength than corn. The world needs both the North and South American soybean crops to meet demand and any sort of problem in Brazil or Argentina will be reflected quickly in prices. China has an appetite for soybeans that is not evident in corn and typically they buy U.S. soys until the South American crop is ready to ship. Growers in Ontario need to take advantage of the market if and when there is a response to conditions in South America. Corn, on the other hand. is a different story. The world is awash in corn, as well as other coarse grains not to mention all the feed wheat in western Canada. Even though Ontario is a net importer of corn. movement into the province normally does not start until spring. This year. however, U.S. corn was bought last summer when prospects for a good crop looked dim. Now, the Ontario market is front -loaded with imported corn going along with a superb local crop. It will take several months to work through this supply. so 1 do not see much hope for improvement in prices in the next two or three months. There will be technical moves higher but I do not see any fundamentals that will give us a sustained boost. In fact. I do not see any moves that will cover storage costs. Producers with on-farm storage can lock in carry through forward contracts for spring delivery. My feeling is that this carry will disappear as we get closer to a delivery period. As far as new crop 2005 is concerned. I think the U.S. producer will plant more corn and fewer soybeans even though input costs will increase substantially for corn. With an average corn yield this year of more than 160 bushels for corn versus 42 bushels for soybeans along with the threat of Asian rust, producers will plant corn as long as planting conditions are good. In Ontario, we need to keep an eye on the dollar, which has been to $.85 U.S. We are seeing a correction right now, but it appears that the U.S. wants to see their dollar soften some more, which should put strength back into the loonie. Producers might want to look at selling some basis on new crop corn and soys if our dollar gets under $.80. It has been a very trying year for Ontario producers and, as always, we can only hope that things get better. 1t is going to be tough but I do see grain producer persevering. At this time of reflection, may I wish all my readers a very Merry Christmas and all the best in the New Year!0