December 14, 2000

By Brian Doidge, Market Analyst, Ridgetown College, University of Guelph

Concerns about acceptance of StarLink corn in Asian markets, especially Japan, Korea and Taiwan, are taking their toll on U.S. corn export sales and shipments. However, things may be turning. On the same day the USDA S&D report was released, a senior Japanese Ag Ministry official in Washington suggested that an agreement on testing protocol for feed corn is close to being finalized with the USDA, and that routine Japanese purchasing of U.S. feed corn is likely to resume shortly. Good thing, because China continues to sell corn, although at heavily subsidized prices, into these same Asian markets, whereas most U.S. analysts had concluded that China would have to back off due to lower available corn supplies. Something to think about. China is an extremely shrewd grain merchandiser. It is entirely possible that the Chinese continue to make export sales, at a time when most had expected otherwise, in an effort to drive Chicago prices down so as to actually lower their purchase price when and if they eventually buy U.S. corn. They have played games before, and this may be another example.

However, Chicago futures prices did not go down on the somewhat unfriendly USDA Dec.12 report. In fact, corn prices held on despite selling pressure from the soybean pit which moved lower despite a friendly USDA report. And corn prices actually moved higher the following day. Keep the old market adage in mind that “a market that refuses to go down on bad news is a rising market”. All in all, trading activity in Chicago would appear to be drifting sideways in a tight range between $2.10 and $2.30 in the nearby MARCH contract through the turn of the new year. We have broken down out of the uptrending market Chicago enjoyed from early September through late November, but there does not appear to be the momentum to push us down substantially. As we suggested last issue, this market looks to grind slowly higher through early winter. Major support is at $2 and major resistance at $2.30 MARCH contract ($2.35 MAY; $2.40 JULY). We will eventually break out to the topside as Chicago scrambles to buy corn acreage this spring.

Chicago is starting to realize that U.S. corn acreage is very likely to slip again this spring as huge increases in natural gas (nitrogen fertilizers, drying costs) and diesel prices will sharply increase input costs, especially for corn when compared to soybean production. The nearby/DEC ’01 spread in Chicago futures has been slowly widening. Because of the need to buy corn acreage, I expect the spread will widen further (premium on the DEC ’01 contract).

Ontario
As mentioned last issue, the Canada Grain Commission’s (CGC)November 3 Memorandum No. 2000-11 concerning responsibilities in the importation of StarLink corn certainly caught the grain trade’s attention. The Memorandum makes very clear that “shippers and elevators are, therefore, prohibited from shipping and receiving corn (and any other grain) containing any StarLink corn. It is the responsibility of shippers and elevators to ensure that any corn (or any other grain) they handle does not contain any StarLink corn.” Follow-up memoranda from the Canadian Food Inspection Agency on November 20 and the Canadian Grain Commission (Memorandum No. 2000-14) on November 29 clarify and reinforce the issue. In fact, the CGC memorandum clarifies that for any U.S. corn delivered to a CGC licensed facility (i.e., the transfer elevators in Ontario), “official testing and certification must be conducted by the United States Department of Agriculture, Grain Inspection, Packers and Stockyards Administration, Federal Grain Inspection Service, or their licensed delegated/designated agents...U.S. corn which has not been certified in accordance with the above shall not be received into any licensed elevator. Failure to comply may result in serious penalties.” The significance of this memorandum is to specify that the USDA, GIPSA or FGIS are the only acceptable testing and certification agencies. Many Ontario importers of U.S. corn have, up to this point, been relying on U.S. supplier testimonials.

The implication is that because of the short Ontario corn crop (perhaps only 180 m bushels versus 232 m last year), perhaps one third of which is less than grade #3, basis offers for good quality Ontario corn FOB the farm will remain strong as the ‘hassle factor’ and liabilities involved in importing U.S. corn increase. One thing to keep in mind, however, is that significant strengthening of the loonie could weaken basis offers.