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

U.S. & World
USDA released its October Supply & Demand estimates which were somewhat unfriendly for corn with production and carryout both above trade guesses. A 1.8 bu/acre jump in estimated average corn yield took the crop up by 120 m bushels, about 70 m more than expected, to 8.969 b bushels. Partially offsetting that increase was an upward adjustment of 37 m bushels in feed usage last year (reflecting reduced August 31 actual ending stocks)which lowered carryin stocks this past September 1. Combined with a 50 m increase in projected feed use for this crop year (now 5.65 b bushels versus 5.6 estimated in last month’s report), projected carryout stocks for this coming August 31, 2003 increased by only 35 m bushels. Nevertheless, projected average cash price to the U.S. producer was lowered a nickel to $2.50/bushel.

Corn, Chatham WKLY AVG ADJ TRACK BASIS

The upshot of the report is that the bottom has been passed in crop yield and production estimates. From now on, crop size projections are likely to ease higher, not lower. The peak in corn pricing set near Labour Day of $2.92 DEC’02 will not likely be tested for some time. In fact, this USDA report means that we are likely to have trouble moving up through the $2.60 area in the DEC’02 contract. Attention will now shift completely to the demand side where performance in feed usage and exports is crucial for price direction through the next five months.

That’s where things get a little sticky. U.S. export sales are running 12% behind year ago pace, while actual shipments are off 20%. Part of the reason for the slow start has been the labour disruption at U.S. west coast ports for the last week or more. Bush, through the Taft-Hartley legislation, ordered an 80-day back-to-work/cooling-off period and workers returned to work October 9. But part of the problem has also been reluctance of export buyers to step up purchases as prices moved higher. Sales have been slow as foreign buyers and export houses held their ground and were not panicked into more aggressive buying strategies as crop production estimates dropped with drought through the summer. This USDA report seems to have rewarded their tough stand against higher prices.

The wild card is feed usage. Industrial users and exporters can’t control that. Although feed usage projected for 2002/03 remains about 200 m bushels less than the last two years, it has been creeping back up as evidenced by both the 37 m bushel adjustment necessitated for the 2001/02 crop year, and the 50 m jump projected for the 2002/03 crop year in the October report. The trick to higher prices in Chicago will be that the feed usage number must continue to edge higher, not stall out or move lower.
Activities of major poultry and swine buyers in the mid-eastern seaboard would seem to confirm a stronger U.S. feed usage outlook. Recent major purchases of both Ontario and Michigan corn for shipment this winter into early spring have buoyed basis for corn in the March-early May time period.

Ontario
Feed market action will likewise be key for price direction in Ontario over the next 5-6 months. Not only have there been major sales of Ontario and Michigan corn to the U.S. southeast rail feed market, sales into the northeast feed market have been firm as well. Replacement costs for U.S. corn delivered into Ontario for March-May 2003 were .25-.30/bu higher than offers for Ontario corn delivered in the same time period. Until those sales to the U.S. eastern seaboard. Basis offers in Ontario began moving up as users realized supplies of U.S. corn might not be quite so readily, and cheaply, available as thought.

On the downside, there will be a surge in movement of western feed wheat into the eastern Canadian feed market over the next six to eight months. This year’s abysmal cropping conditions in western Canada have meant that total western wheat production is down 25%, western barley down 29%, and canola production down 33%. The volume of milling grade wheat in particular is sharply lower. But terrible growing and harvesting conditions mean that the percentage of the crop grading feed is sharply higher, with some estimates as high as 40% of the crop. Analysts suggest 4.5 million metric tonnes of feed wheat is available versus only 3 mmt on average in the past. A portion of that feed grain, and a larger proportion than in the last several years, will find a home in eastern Canada.