July 1998
Market Trends
By Brian Doidge, Market Analyst, Ridgetown College/University of Guelph
June 8, 1998

U.S. & World
Chicago has collapsed since last report (JULY off 22 cents; DEC down 30 cents) as conditions have been close to ideal west of the Mississippi while the Eastern Corn Belt caught up on planting and is getting nice rains as required. Forecasts through June call for wetter than normal along the Ohio River valley and central corn belt with normal temperatures...not the kind of forecast leading Chicago to expect drought. As a result, corn prices are seeking out new lows.

Longer range 90-day National Weather Service forecasts for June – August call for above normal temperatures and below normal precipitation over virtually the entire area east of the Mississippi. You might think this would support prices, especially when coupled with the fact that Michigan, the entire South, and an area west of the Mississippi stretching from Mexico to southern Iowa all have received less than 75 per cent of normal rainfall in the 30 days through June 6. However, the west-central corn belt centered on Chicago is in good shape and is forecast to continue in good shape. That has been, and is likely to continue to be, sufficient by itself to keep prices on the defensive.

Still discussing weather outlooks, data indicate that the El Nino event of 1998 is following a pattern most closely similar to 1983 or 1992. Late in May, the World Meteorological Organization declared that El Nino is ending as the Southern Oscillation Index approached zero. The two previous events of 1983 and/or 1992 don’t hold much promise for Ontario corn because we had a drought in the first and a miserable fall in the second. Late June and early July will be a critical period.

Adding additional downward pressure has been the continuing economic pessimism and uncertainty in Asia with the Japanese Yen reaching new lows seemingly every week. Japanese exports remain strong while their domestic market weakens which has reduced imports of all kinds, especially raw materials and ag commodities. As a result, Japan’s trade surplus has been increasing and has risen for the last 13 consecutive months. This strength in the U.S. dollar against virtually every currency in the world has sapped export prospects for most ag commodities...corn especially.

Coupled with a decent U.S. wheat crop, U.S. wheat prices have been under pressure and have dropped below “loan rate” levels in many areas of the central Great Plains. This means that wheat feeding is economically viable and offering growing competition for corn in feed rations west of the Mississippi.

Dismal wheat prices, anemic export prospects, and the escalation in European Union wheat and barley export subsidy levels and volumes have combined to spur cries from U.S. wheat producers for the USDA to quickly expand use of the Export Enhancement Program. This volatile situation, coupled with Congressional elections coming this November, looks like the start of another round in the “Grain Trade Wars” between the U.S. and the E.U. Unfortunately, corn is exposed in the middle ground.

Another item of interest this coming week is the U.S. Surface Transportation Board’s expected ruling on the proposed division of ConRail’s rail system in the northeast U.S. between Norfolk Southern and CSXT rail companies.

Ontario
Ontario remains relatively dry despite the passage of a few showers. As a whole, the province had received less than 75 per cent of normal precipitation for the 30 days ending June 6, while the area south of a line from Grand Bend to Hamilton had received less than 40 per cent of normal. Frost in parts of the province the first week of June hurt corn in an area from Lambton through Wellington and north into Perth with perhaps Middlesex hardest hit. Damage, however intense in localized fields, is perhaps limited as of yet for the province as a whole. Throw in the fact that the Canadian dollar has plumbed new lows below 68 and a half cents, and you would think basis should be strengthening. Not so, because the Commercial Alcohols ethanol plant in Chatham is out of the corn market at least until deliveries in mid-August (more likely until new crop deliveries this fall) due to a shut-down for equipment reinstallation. This has dramatically weakened old crop demand and basis has dropped about a dime from early May.

One frustrating factor, at least for market observers accustomed to reliable data, is Stats Canada’s May 28 “Imports of Corn and Seed by Province” report. Imports of U.S. corn have been very large this crop year and Stats Canada’s April 20 report had shown accumulations as of the end of February at 28.29 million bushels into Ontario and 44.5 into Canada as a whole. However, revisions contained in the May 28 report revised accumulations as of the end of March to only 16.2 m bushels into Ontario and 31.9 into Canada as a whole. That is a huge variation and one which has significant implications for prospects for basis offers to producers, processors, and the trade.