The Rural Voice, 2005-06, Page 48Grain Markets
USDA predicts bumper corn crop
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
May 20, 2005
It's May "two four" and it would be
nice to at least have some "good"
spring weather for a change! Farmers
in Ontario are not the only ones
affected as this cold weather has
pushed well south into the U.S. over
the past four weeks. Frost reports were
common throughout Iowa, Illinois and
Indiana in early May and some of the
early -planted corn did get hurt. Even
though corn planting is almost
completed in the U.S., emergence is
well behind normal. Soybeans are 50
per cent planted which is ahead of the
five-year average, but once again,
emergence is slow. Meanwhile, the
winter wheat crop has been
deteriorating slowly and is no longer
expected to yield a bumper crop.
CORN:
The USDA took their first shot at a
2005/06 supply/demand report.
Surprisingly, they increased the yield
above the trend line to 148 bu/acre,
which leads to a larger carryover.
Along with this little surprise was
the fact that the 2005 carryover was
unchanged at 2.214 billion bushels
when most analysts thought it would
be moved higher. After all, usage is not
likely to meet the USDA's projections.
What the market will do now is reflect
crop development throughout the
summer. Will production reach the
point that stocks will grow? Or, will a
weather factor reduce yields to a point
that stocks actually get pulled down? If
we do not see stocks decline, I am
afraid that prices will be under pressure
for a long time to come.
Locally, corn basis for both old and
new crop has moved up by $0.05/bu
with the Canadian dollar under U.S. $.80.
New crop basis at $.60 over December
futures is actually a plus $.01 to $.02 in
U.S. funds. That value is particularly
strong in face of the fact that Michigan
44 THE RURAL VOICE
will end up storing old crop corn.
Old crop corn basis will not likely
move too much with the huge amount
of corn in storage. We are seeing a
steady flow of selling but there is
considerably more to go.
SOYBEANS:
The USDA surprised most traders
with their projected 2005/06 soybean
carryover. Instead of an increase from
this year, the figure was reduced by 65
million bushels from the expected
number for this year. Both exports and
crush figures were increased for
2005/06 and total usage is projected at
just less than three billion bushels.
Planted acreage was reduced, as was
yield from last year's figures.
As I said earlier, the crop is not
losing bushels right now because of the
delayed planting. However, the cool
temperatures are a concern since
germination is very slow in most areas
and although a crop is never killed in
May, the U.S. still needs to produce
close to trend line yields to meet usage.
Seasonally, we typically see prices
peak out in May or June and the only
factor that will push prices higher from
this peak will be drought in July or
August. Right now, drought is the
furthest thing from anyone's mind.
In Ontario, the soybean crop is
getting planted, albeit into cool soil and
it appears that acres will certainly be
up from last year — possibly by
100,000 acres. The new crop bean to
corn price ratio is sitting at a little more
than 2.5:1 which in itself should push
up soybean acres.
There is a concern about the
movement of old crop soys as the
window of opportunity is getting
smaller. One crusher will be shut down
for at least two weeks in July for
maintenance and with a huge amount
of soys still sitting in the country, I
think there will be old crop soybeans
carried over into the new crop year.
There are no two years in marketing
grain that will be exactly the same.
Yes, there are years that are similar and
one can use what was learned in one
year to apply to another year but I am
trying to recall another year that is
close to what we are encountering right
now. In Ontario, soybean stocks are
probably double the requirements of
the crushers for the balance of the year
and corn stocks have been burdensome
since last fall.
World demand for soybeans is
unprecedented and the U.S. has
reduced their acreage both of which
have served to give some support to
prices. In Ontario and.Quebec though,
soy meal demand has backed off
leading to a reduced crush, which will
likely carry on through the summer. On
top of this, Ontario production should
be higher this year due to the larger
acreage. So, we will likely carry old
crop soys over unless an export market
develops before fall. Otherwise, the old
crop will be added to this fall's crop
and exported next year.
Corn is a slightly different story.
We have big stocks in Ontario and
Michigan, but Michigan is poised to
produce another big crop while
Ontario's production will likely be
down sharply. So, where does this
leave us? Old crop corn is fairly priced
today give or take $.20/bu either way.
The Ontario market remains close to
import values. New crop corn on the
other hand is overpriced relative to old
crop and relative to Michigan new
crop. I think it is time for producers to
at least sell some new crop basis
contracts because eventually new crop
and old crop will converge and with a
big supply of old crop, I do not think
old crop prices will move higher, thus
leaving the new crop price vulnerable
to a drop.
However, as domestic demand
increases in the U.S., the market
becomes more vulnerable to weather
during the growing season and if any
drought conditions arise, I think
soybean prices will be affected the
most because of the lower acres. Corn
yields would need to fall about six
bushels below the trend line just to
bring next year's carryover in under
two billion which is not impossible but
highly unlikely.
I do not see much future in holding
on to old crop grain unless you are
willing to hold on for the possibility of
a drought. New crop soybean prices are
decent but I do not think it will hurt to
hold off sales while looking for a little
more improvement in prices. From the
corn side, I think producers should take
advantage of the relatively high new
crop basis. Let's hope we see at least
one opportunity to price out at higher
future Ievels.0