The Rural Voice, 2006-02, Page 34Grain Markets
There's a lot of corn, wheat and soybeans left to be sold
Dave Gordon
is a
commodities
specialist
with LAC,
Inc., Hyde
Park, 519-
473-9333.
By Dave Gordon
January 20, 2006
Here we are in 2006 and by the time
you,read this, there will be a new
federal government in Canada. From
the rural perspective, what the new
government will do for grain and
oilseed producers and how quickly it
will be done will be paramount to
increasing income in 2006.
The USDA released some pretty
significant reports on January 12,
which will help set the tone for prices
in the near future. The magnitude of
projected carryovers for corn and
soybeans was confirmed by the USDA
and will probably keep prices under the
gun until spring.
CORN:
The USDA raised production in the
U.S. to 11.11 billion bushels but also
raised usage, albeit to only 10.81
billion. This demand figure is a good
sign that domestic usage has indeed
increased even though exports were
reduced and with prices that are so low,
we might even see the export figures
reversed. Low prices tend to take care
of low prices and I would think that
"cheap" corn might entice some
foreign buyers to buy U.S. corn
sometime this year.
Soon the U.S. farmer will decide
what his crop mix will be and even
though the U.S. Farm Bill pays grain
farmers quite well, the cost of energy
and fertilizers will likely prompt a
switch away from corn. A two per cent
drop in corn acres would mean 1.5
million fewer acres at harvest
representing more than 200 million
bushels of corn. Will this help prices?
Not necessarily but it should keep them
from falling.
In Ontario, basis levels which
peaked at $.80 over March futures right
after the countervail announcement
have dropped back to pre -report levels
30 THE RURAL VOICE
of $.50 over March. There was a spark
in the market right after the report, but
it was very short-lived. Buyers quickly
realized that there is more corn for sale
in Ontario than they can handle in the
short term. In fact, there may be
enough corn to supply users until
September without any more imports.
Basis levels for old crop corn should
remain stable but I do not see anything
right now that will put any strength
back into the basis.
SOYBEANS:
The USDA really surprised traders
by raising the U.S. carryover by 100
million bushels as not only was
production raised, but also export
demand was lowered. In the face of
some improvement in South America
growing conditions, this was not good
news for prices. Currently, there is also
a glut of soy oil in North America,
which has forced many processors to
reduce their crush by up to 50 per cent.
It actually looks as if the soybean
picture is totally divorced from the
grain picture. While coarse grain stocks
in the world are shrinking, soybean
stocks are growing. And if the U.S.
farmer switches corn acres to soybeans,
it will only add to the problem and
keep prices under pressure.
In Ontario, a lot of soys were sold
when prices were a bit higher around
the year-end. Now, both processors in
Ontario have reduced soybean crush
until the glut of soy oil can get moved.
Expect basis levels to be under pressure
along with the futures over the next
few months because of the slower
crush as well as the Canadian dollar.
This week, our dollar fell below the
100 -day moving average only to
rebound and end the week near $.87
U.S.
There is so much uncertainty and
pessimism in rural Ontario these days
and it is easy to understand the
underlying reasons. The urban
population has no idea that there is a
problem, let alone what the problem is
and what caused the problem. As a
result, our politicians do not know, or
apparently care, that there is a problem
and agriculture does not have that one
strong voice around the cabinet table
in either Toronto or Ottawa. Enough
said.
Right now, it does not look as if the
market is going to give producers the
kind of returns they need to stay in the
game. The American grain grower
certainly does not earn his living from
the marketplace but rather from the
U.S. government and while it is a great
feeling to be independent of
government payouts, it is a fact that
U.S. subsidies are a major factor in
keeping world grain prices down.
The corn countervail has so far had
a very limited impact on corn prices
and I do not expect that to change any
time soon. There is just too much corn
in the province right now. Ideally, the
federal government would have a
safety net in place by April 1 which
,would eliminate the need for a
countervail duty. But, I guess I can
dream. When the final duty amounts
are announced, I think the duty will be
reduced to well under $1/bu which
really will not have any affect on
prices. If end users such as commercial
processors or livestock producers are
willing to provide extensive
documentation, they can use U.S. corn
and draw back the duties. However,
right now, U.S. corn is not trading at a
large enough discount in Ontario to
make it worthwhile getting set up with
CBSA and to do all of the paperwork.
The one bright spot in prices might
be in the wheat market. With a smaller
than expected hard red wheat acreage
and a severe drought emerging in the
southern plains, KCBT wheat prices
have started to move higher. And, since
volume is not big enough in Kansas
City for the large funds, they will look
to the Chicago wheat market where
there is more liquidity to put on their
trades. Some traders are looking for a
$.30 to $.50 move in KC wheat which
should provide another opportunity for
Ontario producers to either sell old
crop or forward contract new crop.
I want readers to realize that there
are millions of bushels of corn, wheat
and soybeans in Ontario to be sold and
moved over the next eight months. The
bottom line is that we are not going to
run out of grain anytime soon. Take
advantage of any strength in either
futures or basis to do some selling.
Also, do not forget that the Canadian
dollar will likely continue to work
against producers as they market their
grain.0