The Rural Voice, 2005-04, Page 50Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
Grain Markets
How quicklg things change
By Dave Gordon
March 18, 2005.
Sometimes I wonder if these grain
comments do anyone a service. By
the time readers receive their copy of
The Rural Voice and get around to
reading the magazine, my comments
are history. In fact, as soon as it is
written, it is already history.
A lot can happen in a month and
the last four weeks have shown the
power of the funds. Markets turned
during the last week of February on
some dry weather in Brazil and it
only took funds four or five days to
buy back their record short positions
and get long futures. Soybean futures
have been the leader and have gained
about $1.90/bu while corn has only
made up $.29/bu. Wheat has
improved by $.74/bu in the same
time. I will discuss later the impact
that commodity funds have on futures
prices.
CORN:
The USDA released an updated
supply/demand report, which
increased corn carryover. In fact, all
of the numbers were slightly negative
yet prices did not stay down for long.
Speculators took the market higher
and on March 15, futures prices
broke through resistance on the
upside. Now, we will see how much
interest the funds have in running
prices higher. The fact is that right
now the corn markets are not trading
based on fundamentals but rather
from a purely technical perspective.
The U.S. corn growers do not care
why prices are going up and have
been aggressively selling a lot of corn
over the past few days with a smile.
After all, they have received their
LDPs and counter -cyclical payments,
so higher corn prices are a bonus.
In Ontario, old crop corn basis at
$.35 over May futures is strong
relative to Michigan. I sense there is a
fear in Ontario that most of the old
corn will hit the market at one time
and we could be in for a blood bath. I
tend to be more concerned about the
Canadian dollar, which suddenly
showed incredible strength last week
and is currently sitting just over
U.S. $.83. My major concern though
is what happens in the next few
months if our dollar goes to $.90,
which is a figure that our broker
thinks it will be reached in six
months.
New crop basis is also very strong
at $.45 over December futures. I am
of the opinion that a reduction in corn
acres of 10 to 15 per cent is probable.
I hear the growers say that they are
going to make drastic cuts, but I think
any cuts over 10 per cent would be
caused by a wet spring. I think that
new crop basis will remain strong and
bids will be aggressive.
SOYBEANS:
The soybean market made an
incredible move from the low in early
February. Analysts and traders began
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46 THE RURAL VOICE
r
lammak
to take notice of some dry weather in
southern Brazil and that was enough
to get the funds moving. In a matter
of days, they took a record short
position to a long position with little
overhead selling. Similar to corn,
basis levels for soybeans have come
under a lot of pressure with huge
farmer selling.
Basis levels in Ontario have also
fallen sharply in U.S. funds with a
good deal of producer selling. In fact,
we are not able to move old crop
soybeans until May, which is a far
cry from the situation we encountered
in December and January when soys
could be shipped within a week of
selling. It looks like this situation
could continue into the summer since
there are a lot of soybeans still to be
sold.
Old crop basis ranges from $.75 to
$.80 over May futures and with the
Canadian dollar showing some
strength, I do not expect this basis to
hold. Similarly, new crop basis is
quite vulnerable from today's basis of
$.70 - $.75 over November.
Producers with on-farm storage
would do well to forward contract
some soys for January shipment, as
there is good carry over harvest
shipment.
This recent move in futures prices
has caught fundamental traders
unawares because any analysis of
supply/demand, especially in feed
grains, demands traders to be short.
However, with a spark from Brazil,
soybean futures started to move
higher, dragging corn and what
along. Then the funds kicked into
overdrive. Soybean futures had very
little producer selling from U.S.
farmers in the first $1.25 move while
corn attracted a great deal of selling
which limited its initial gains to $.24
in the first move.
As far as the funds are concerned,
we are looking at commodity index
funds, which mirror the CRB index
representing a whole basket of
commodities. Quite often when we
talk of funds, we are talking of funds
that trade only grains. However, the
index funds that have recently made
waves are funds that are buying oil,