The Rural Voice, 2005-02, Page 39Grain Markets
New gear, same old bad news
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
January 21, 2005.
The New Year certainly has not
brought any good news for grain
producers in Ontario.
The USDA issued several reports
on January 12 including final 2004
production, quarterly stocks, revised
supply/demand reports for the U.S. and
world supply/demand reports. In all of
these reports, there were only a couple
of bright spots — a lower than expected
U.S. winter wheat acreage report and a
lower than expected U.S. soybean
carryout. Otherwise, the reports were
negative to prices and we have seen the
fallout in the days since the report.
Unfortunately, there will need to be
a crop disaster somewhere in the world
to boost prices. In the interim, Ontario
grain producers have absolutely no
support programs to protect them,
which shows the government's lack of
interest in agriculture.
CORN:
The USDA raised the 2004 U.S.
yield to 160.4 bu/acre and at the same
time reduced exports, thus leaving the
projected carryover at 1.96 billion
bushels. Some analysts think the
carryover may end up higher still and
are also projecting corn acreage to
increase by 1.5 to 2.5 million acres.
The U.S. support program makes corn
production attractive and I am sure that
corn growers are still looking at their
2004 yields as compared to soybean
yields.
The U.S. corn producer still has not
sold much corn even though they have
taken the LDP on their production.
This does not bode well for prices
down the road when selling begins. It
is much the same story in Ontario.
Producers are holding a lot of
ownership right now although there are
pockets in the province where selling
has been heavier. Basis levels in
Ontario are sitting at $.25 to $.30 over
March futures and 1 do not think there
will be much change unless the
Canadian dollar takes a nosedive. As I
have said before, there is lots of corn in
Ontario to supply the market for most
of the year. A combination of much
better-than-expected local yields and
the early importation of U.S. corn has
left us with large stocks of corn. As of
this writing, there is very little corn
being imported, but there is still lots on
the books for spring movement into
Ontario.
SOYBEANS:
The USDA lowered 2004
production slightly and quarterly
stocks came in near the lower end of
the pre -report estimates. Projected
ending stocks in the U.S. were also
reduced slightly with an increase in the
domestic crush number. On the other
hand, world soybean stocks were
increased slightly to 60.8 million M.T.
and it appears that South America is
experiencing good soybean growing
conditions. Decent I -2 -inch rains
alleviated dryness in some areas of
Brazil in the last 15 days and right
now, Brazil alone is expected to
produce about 63 to 64 million M.T.
compared to 50.8 million M.T. last
year. Very early yields are over 50
bu/acre and it appears that rust is not
spreading. Growers in Brazil are well
stocked with fungicides and will do
everything possible to keep the rust
under control.
Even though U.S. soy exports have
been excellent to this point, we are
now coming into the time frame when
U.S. sales slow down as buyers revert
to South America. Last year, as Brazil
experienced harvest delays and rust
losses, a large portion of sales
continued to come out of the U.S. but
this year the supply of soys in both
North and South America is huge and
competition will be fierce.
In Ontario, producers have been
selling soys at a steady pace since the
beginning of the year but not at a rate
that will keep the crushers full. Prices
have dropped about $.25 since the
USDA report but basis is now
recovering a little as the Canadian
dollar backs off. Producers need to
keep in mind that Ontario produced 90
million bushels of soys in 2004 and it
is going to be a challenge to match
producer sales with crusher demand. If
producers are not selling, the crushers
will import from the U.S. to keep
processing and eventually the crunch
will come.
In all of my years of trading, I do
not recall any time that has been as
bleak as today. Cash prices are low and
there does not seem to be any light at
the end of the tunnel. In years past,
there was some sort of market revenue
or government aid but now grain
producers have no safety net available.
The federal government is committing
only a fraction of the dollars they are
allowed under GATT rules while at the
same time pointing their finger at other
countries levels of subsidies. Would it
not be prudent for farm organizations
in Ontario to press the government on
these allowed levels of support? It is a
fact that the U.S. gives Targe amounts
of support to its farmers and that
Quebec producers, outside of supply
management, have a shared support
program that is partially funded by the
Federal Government.
Stepping down from my soapbox,
let's get back to markets. The only
hope for better prices in the near term
will depend on a drought somewhere in
the world. In North America, grain
supplies are big and I think the ending
stocks will increase from today's
figures. We could see corn carryover
reach 2.2 or 2.3 billion bushels even
though domestic usage is at a record
high. 1 also think that soybean exports
will slow down to a point that will add
to the carryout in the U.S. and unless
something happens to the South
American crop. world stocks will
increase as well. Typically a lower
U.S. dollar would promote more grain
exports, but this year it is obvious that
there is no big demand in the world
after a year of excellent crops.
It appears that the U.S. farmer will
grow more corn and fewer soybeans
this year, which is likely the opposite
of what Ontario growers will plant. If
the dollar dips, as some economists
predict, this should be an opportunity
for improved basis levels in new crop
grains. There is a thought that the U.S.
will increase interest rates while
Canada lowers rates, which would
cause the Canadian dollar to drop.
possibly to the $.77 to $.78 area. At
today's new crop prices, 1 cannot
suggest that producers price out any
FEBRUARY 2005 35