November 10, 2000
By Brian Doidge, Market Analyst, Ridgetown College, University of Guelph
U.S. & World
The trend toward a relatively smaller U.S. corn crop suggested in the last two issues continued with the November
9 USDA S&D report. At 10.054 billion bushels, the crop is still record large, although now just 4 million bushels
larger than the crop of 94/95. It is interesting to note the changes that have occurred in USDA projections for
the 2000/01 crop since the first official estimate in the May 12 report, and the impact of those changes on price.
The August 11 report marked the high-water mark in crop size at 10.369 billion bushels, and coincidentally also
marked a peak for total supply. The crop estimate has shed 315 million bushels in the three reports since August.
Coupled with a drop of 79 million bushels in the carryin stocks estimate from the 1999/00 crop, total supply diminished
394 million bushels (3.2%)in three months before all of the crop was even harvested.
On the other hand, total usage has continued to climb throughout the 2000/01 crop estimation period, tacking on
550 million bushels in six months. Feed usage gained 200 million bushels thanks to increased livestock inventories
and lower feed wheat and grain sorghum production. Export projections gained 375 million bushels (but may be suspect
as overly optimistic).
The
result of lower supply and increased demand is that projected carryout stocks
have plummeted 709 million bushels, or 30%, since the August report. More importantly,
stocks as a percentage of use have declined from 24.4% in August to 16.6% now,
a decline of almost 50% in only three reports. Little wonder that projected average
cash price has jumped 25 cents or 15% in three months.
The point of all this? CFTC Position of Traders reports show that large specs are essentially neutral, currently
having shed their very large previous short positions since September. They can now quickly move either way. Fundamentals
as outlined above would suggest they could be swayed to the buy side. Moreover, the marked move lower in the New
York Stock Exchange as the U.S. economy slows would suggest spec funds are likely actively seeking alternative
investment opportunities. While the trend higher since June in the U.S. Dollar Index (up more than 10%) would suggest
U.S. corn exports (hampered by the StarLink mess, especially in Japanese markets) might not be able to achieve
the growth projected by the USDA as indicated in the table, strong domestic usage and a smaller crop with lower
stocks would suggest Chicago corn futures will continue the grind higher through the winter.
Ontario
The Canada Customs & Revenue Agency announced a provisional duty of U.S.$1.58/bushel November 7 on imports
of U.S. corn into western Canada. U.S.$1.01/bushel was levied to offset dumping (i.e., selling below cost of production
in the exporting country), and U.S.$0.57/bushel was levied to offset subsidies in the U.S. The Canadian International
Trade Tribunal now has 120 days to assess injury and will make a final ruling on the size of the duty on or about
March 7, 2001.
It is projected that an additional 500,000 - 600,000 mt of western feed wheat and barley usage on the Prairies
will fill the void left by the 10 - 12 million bushels of U.S. corn previously projected to move north but now
no longer cost-competitive. It is also projected that some Ontario corn may move west in the interim on cheap rail
car backhauls.
In Ontario, 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.” Although the CGC does not license primary elevators
in Ontario, and does not inspect imports of U.S. corn, the Memorandum makes clear that it is the importer’s responsibility
to ensure that StarLink corn, which is not approved for food, feed or industrial usage in Canada, does not enter
the country.