The Rural Voice, 1996-05, Page 20TG3U-1(gOMG7V
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16 THE RURAI VOICE
Grain Markets
Top not here yet?
The most critical USDA report that
I've ever seen was issued on March
29. It included planting projections
for 19%, but more importantly, the
quarterly stocks reports for corn,
wheat and soybeans were also issued.
Wheat and soybean stocks both
appear to be high enough to meet
demand over the next three to six
months but corn stocks of 3.8 billion
bushels will lead to a lot of scrimping
to get through to September 1, 1996.
After all, usage in the first six months
exceeded five billion bushels.
As a result, corn prices have
moved into an all time high territory
with few signs of let up. High prices
usually lead to more acres and higher
production while users reduce their
consumption leading to a bear grain
market. But this time around, the
demand for U.S. corn and wheat has
been very steady and strong at
historically high prices. In the very
near future, feed use in the poultry,
hog and cattle industries will have to
be reduced and prices will have to
reduce demand by foreign countries.
We have already seen a small
reduction in poultry and cattle
production but the poultry industry in
particdlar will have to lower
production in a more substantial
manner. The hog industry is still
turning a small profit but I think feed
prices will outpace hog prices and a
reduction in numbers will take place
this year. The wild card is the export
market because corn and wheat prices
in terms of foreign currencies are still
relatively cheap. It's not politically
palatable to embargo exports because
of past experience and if we are in a
world market, it isn't too practical to
suddenly change the rules.
There is no question that we've
had a strong bull market in grains for
the last 15 months and bull markets
never last. So how can we tell when
the top is near? Well, we can look at
history. When the major non-
agricultural newspapers or magazines
feature the near crisis shortage in
grains, you've had your first signal.
So far record high corn prices have
only warranted minor news clips in
the business columns. Watch for
grain appearing on the front cover of
your favourite big city magazine.
Another signal of a top in grain
prices is the small trader finally
becoming bullish. So far, the small
trader is holding more short positions
than long ones. The culmination of
the bull market will come with a lot of
emotion, media coverage and bullish
enthusiasm. So far, none of these
factors has entered the equation yet.
Soybean prices have not kept up
with the strength in corn and wheat
prices. In the past (i.e. 1973-74) grain
and oilseed prices generally moved in
tandem but now individual grain
prices seem to move independently of
other prices to an extent. I think the
longer term potential of soybeans may
lead to stronger soy prices at the same
time as corn and wheat prices are in
decline. This may happen over the
next two years or it could happen in a
relatively short time span. In other
words, oil seed prices and feed grain
prices could easily move in different
directions throughout the nineties.
Right now, oilseed prices are a
little sluggish with South American
soys starting to reach the world
markets. But in the U.S., new crop
prices still favour the planting of corn,
so good growing conditions are
essential to get the most out of the
soybean crop. With the world
population burgeoning, demand won't
likely slacken off this decade.
We've all heard about the
condition of the U.S. wheat crop but
we could look closer to home for
potential problems. The Ontario
winter wheat crop needs warm
weather in order to come out of
dormancy quickly. Some growers
think that winger kill has destroyed
more than a normal percentage of the
crop in Ontario but probably not to
the extent that we are seeing in the
U.S.
It may be difficult for me to