By Brian Doidge, Market Analyst, Ridgetown College, University of Guelph
U.S. & World
Chicago markets continue to drift lower and are currently testing support levels
established last spring around the $2.38 level in the MARCH contract, $2.42 in
the JULY and $2.38 in the DEC ‘03. Something to notice is that in each more
distant contract, current prices have slipped further below these initial support
levels from last April. At current levels, Chicago traders have erased essentially
the entire 2002 drought bull move.
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Corn, Chatham
WKLY AVG ADJ TRACK BASIS
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That is reflective
of two things: a) Chicago’s concern about the ability of U.S. corn exports
to achieve current USDA projections; and b) Chicago’s concern about expanded
corn acreage in the spring thanks to enhanced support for feed grains relative
to oilseeds under the 2002 U.S. Farm Bill.
We are currently technically ‘oversold’, so a bounce higher should be
anticipated, especially before the New Year; but sustained movement higher is
going to be difficult to generate without some meaningful improvement in export
sales. Cumulative U.S. corn export inspections are running 15% behind year ago,
which is bad enough but shows poorly versus wheat which is only 11% behind and
soybeans which are 6% behind. Weakness in export sales and shipments gives comfort
to spec funds looking to build net short positions leading into the usual farmer
‘tax-selling’ spike once we turn the New Year. Any rally now would likely
be viewed as an opportunity to establish those short positions in anticipation
of a slump later.
Given the magnitude of U.S. industrial demand, especially ethanol grind, there
would not appear to be substantial downside risk of a major move lower. However,
being nibbled to death by ducks is just as fatal as a swift thrust. Grinding lower
is painful, especially if you have corn in storage.
Ontario
Stats Canada released its November field crop production estimates showing another
increase in the corn crop. OCPA’s estimate of 203 million bushels was eclipsed
by Stats Can’s 216 million bushels. Our yield guess of 108.3 bushels/acre
is lower than Stats Can’s 113.1 bu/acre which is up more than 10 bu/acre
from the 2001 crop. Bottom line? About 13 million bushels, around 6%, more corn
than our last projection. However, we have not detected much softening of basis
as a result. We may not. We will remain on an import basis despite the slightly
bigger crop than anticipated. Imports will shrink a bit, but we will continue
to import U.S. corn.
In an interesting sidelight, Stats Can says that production of genetically modified
corn totaled 1.8 million metric tonnes in 2002, up 20% from 2001. What is interesting
is that average yield for the GM corn was given as 117.9 bushels/acre versus
108.9 bu/acre for non-GM corn. Much of that better yield may be attributed to
improved plant health and standability for Bt hybrids even if corn borer pressure
was not substantial in all fields.
Bottom line? Price looks to drift sideways for some time to come with occasional
rallies in Chicago, but nothing of substance.
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