By Brian Doidge, Market Analyst, Ridgetown College/University
of Guelph
July 12, 1999
U.S. & World
We passed July 4 with no hot dry spell in sight. Figures show 77 per cent of the U.S. corn crop is rated good to
excellent, perhaps the best rating ever for this time of year. The result? Chicago surrenders 40 cents in a month,
30 cents of that since the end of June.
The USDA released its monthly S&D report July 12, but did not reflect current excellent growing conditions,
using instead average yields to project production. Current conditions are used to project yield and production
in the August report. USDA increased old crop imports two million bushels to 20 million bushels. Canadian corn
export data run about three months behind totaling 13.7 million bushels to end of April. Shipping 6.3 million more
bushels in the four months remaining in the USDA crop year to meet 20 million bushels is a tall order, but we will
gladly give it a try. The USDA also reduced old crop feed usage by 50 million bushels, reduced food and industrial
usage by 15 million bushels, but increased exports again by 50 million bushels. The result was a 17-million-bushel
increase in projected old crop carryout to 1.744 m bushels. Old crop average cash price dropped a nickel to $1.95
US$/bushel. All moves were pretty well as expected.
For new crop, USDA used the June 30 lower planted acreage estimate of 77.6 million acres (down three per cent from
1998’s 80.2 million acres) but only average yields which lowered the crop projection to 9.65 billion bushels from
9.76 million bushels in 1998. No one believes this crop estimate, preferring instead to use 1994’s record yield
of 138.6 bu/ac to project a crop of 9.9 billion bushels. Of more interest was USDA’s projections for new crop usage.
Feed demand dropped 50 million bushels to 5.575 billion bushels which is likely still too high; food and industrial
usage slipped 15 million bushels to 1.88 billion bushels, which is too low as milling usage is likely to increase
not decrease; and exports increased 75 million bushels to 1.925 billion bushels which is also likely still too
low given rebounding Asian demand and low world prices. Carryover increased to 1.994 billion bushels which is likely
low due to a larger crop than USDA is projecting. Unfortunately, the 15-cent drop in average cash price to $1.85
seems reasonable. Since all new crop Chicago futures prices on July 9 were above $1.85 by more than the average
U.S. basis value, USDA expectation for Chicago price direction seems clear. Either basis will be stronger than
normal (not likely given a huge crop; but possible given strength in exports) or Chicago futures prices will drift
lower.
Two things are of note in this dismal situation. SPARKS released its latest crop production estimate as 9.421 billion
bushels on an average yield of only 132.6 bu/ac. SPARKS is a well respected company and suggests that yields are
vulnerable in the south and southeast, while droughty conditions dominate Ohio. Time will tell; unfortunately,
there is an old market adage that big crops get bigger.
The other element is very strong U.S. export sales. Old crop sales stand at 1.86 billion bushels as of July 9 with
seven weeks to go to achieve USDA’s latest estimate of 1.925 billion bushels. The current sales pace of 30 million
bushels/week means that the U.S. could easily surpass the 65 million bushels needed to equal the projection in
less than three weeks. New crop export sales are decent with 46.5 million in sales already. Of course, with a possible
10-billion-bushel crop (although not according to SPARKS), exports must be strong and an average cash price of
$1.85 makes that easier to do. A sleeper on the export side is that Russia reduced its crop estimate to 53 million
tonnes and may need to import 15 million tonnes of feed grain in 1999/2000. Ontario has sold corn to Russia in
the past. With our own big crop on the way, and Russia not too concerned about genetically enhanced considerations,
we might be able to do some business...say, 500,000 to one million tonnes?
Ontario
Old crop exports overseas likely finished for the year with a 41,000 tonne shipment of Ontario corn out of Baie
Comeau end of June (the corn originated in Sarnia). Canadian corn exports overseas this year total 22 million bushels
with another 15 - 18 million into the U.S. (USDA says 20 million). Only 75,000 tonnes of old crop corn is left
in export position in the transfer elevator system with no large amount in any one location, although Windsor continues
to accumulate corn.
Old crop corn in-country is also scarce. End of May marketings reported through the commercial system in Ontario
totaled 2.798 million tonnes or 46.3 per cent of the crop versus 1.575 million tonnes (32.6 per cent) one year
ago and 2.056 million tonnes (40.4 per cent) the year prior. Marketings to date are obviously significantly higher
than the last two years, but actually only slightly higher than the long-term average of 45.5 per cent for the
date. However, volume through the commercial elevator system of 110.8 million bushels is second only to 1985/86’s
115 million bushels for the end of May. If the long-term average of 58 per cent of the crop is to eventually be
sold through the commercial system, only another 28 million bushels or 11 per cent of the crop remained to be sold
from the end of May through the end of August.
Industrial users sensed old crop availability drying up. The first vessel imports of U.S. corn this season took
place in early July with one boat each into Casco Port Colborne and Cardinal. U.S. corn by truck is moving to
the Casco London wet milling and Commercial Alcohol Chatham ethanol plants. Lack of old crop availability in Ontario
and local FOB pricing currently near import levels means U.S. corn will come into the province for the balance
of the old crop year...that is, until the initiation of the industrial users’ policy to reject any hybrids not
approved for use in Europe.
Most primary elevators in Michigan have decided to adopt a new crop-receiving policy similar to elevators in Ontario
which is to accept non-European approved corn only at specified locations. This means Michigan truck corn will
be available for Casco London and the Commercial Alcohols ethanol plant. However, availability by vessel out of
Toledo and Duluth is not clear. One of the Toledo grain companies, Anderson’s, announced a policy of receiving
non-approved corn only on designated days. Casco’s acceptance of this policy as sufficient segregation at a dual
receiving location is not clear; however, Casco presently will not accept corn from any Ontario elevator location
that receives both approved and non-approved hybrids. If Casco decides to accept Anderson’s segregation protocol,
why would a different set of rules apply for U.S. corn than for Ontario corn? We will have to wait and see the
actual policy as it unfolds.
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