October 18, 2000

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

What analysts had been looking for in the September USDA Supply & Demand report but didn’t get (a reduction in the U.S. corn crop estimate), they got in the October 12 USDA report. USDA dropped the U.S. crop by 170 million bushels to 10.192 billion, still a record but more in line with guesses. However, that wasn’t the end of the good news:
• old crop carryout stocks were reduced 54 m bushels as expected to match the year-end grain stocks report
• new crop feed usage jumped another 100 m to a new record of 5.85 billion bushels
• new crop exports were increased again by another 100 m
• total usage surged higher to 10.1 billion bushels, the first time ever above the 10 billion mark
• the net result is that new crop ending stocks dropped 425 million bushels, down 20% from the September report, which if accurate marks the second consecutive yearly decline in stocks-to-use ratio
• average cash price estimate jumped 15 cents to U.S.$1.85/bu
The true significance of the report is the strengthening in demand and downturn in stocks-to-use ratio. Chicago markets are now looking for futures prices to grind slowly higher through the winter. The five-year slide in corn prices might have turned a corner higher or, at the very least, have flattened out.

Helping support this optimistic turn for corn is the continuation of very dry conditions in U.S. hard red winter wheat producing areas of the southern Great Plains. Only 64% of the crop had been planted, and only 28% emerged, by October 15. Both indicators are significantly slower than averages of 75% and 49% respectively. Forecasts for continued warm and dry weather at least through the end of October hold out no relief. The result is that U.S. wheat prices have moved up, making feeding wheat less attractive.

A note of caution is needed. Last report, we noted the wide spread in Chicago corn futures prices across the board, especially compared to soybeans. At that time, the spread DEC 2000 to DEC 2001 corn was 43 cents, while NOV 2000 to NOV 2001 soybean spread was only 39 cents. Today, the corn spread has narrowed to 40 cents while the soybean spread has widened to 44 cents. Corn demand is starting to increase nearby prices relative to the deferreds and lessening the incentive to store. Just the opposite signal is coming from soybean markets.

Two items on the genetically enhanced corn front. Taiwan has announced it will require GMO labelling in 2001. Tolerances and protocol will be established by the end of 2000. This comes on top of the embarrassment in the U.S. over the recall by Kraft Foods (Taco Bell), Azteca Milling, Mission Foods and Safeway of some taco and corn flour products following the detection of the ‘Starlink’ genetic modification event in corn food products. The Aventis genetic modification has only been approved by the U.S. EPA for feed and industrial usage, not food. Only about 350,000 acres of Starlink are planted in the U.S.(none in Canada). Although Aventis announced a 25 cent/bushel incentive in an effort to buy up segregated corn produced and thus deflect it to feed or ethanol markets, the incident has caused quite a legal fuss concerning responsibilities of seed companies over usage and marketing of their products. Lawsuits by farmers, elevators, dealers, handlers and processors have already been lodged to recover damages accrued in attempting to channel affected corn after the fact.

Ontario
In Canada on October 10, in the countervail duty suit by the Manitoba Corn Producers’ Association against imports of U.S. corn into western Canada, the Canadian International Trade Tribunal (CITT) announced its preliminary ruling that U.S. corn imports have depressed Canadian corn prices. Reports circulated October 17 that the U.S. has requested Canada Customs to delay decisions on countervail duty and anti-dumping investigations due November 7. The CITT would have 120 days following the Canada Customs decision to issue a final ruling.