By Brian Doidge, Market Analyst, Ridgetown College, University of Guelph
U.S. & World
USDA’s February 11 Supply & Demand report was a non-event to corn markets
with carryout stocks up only 5 million bushels and average price unaltered at
US$2.35/bu.
Export usage was reduced as expected by another 25 m bus. That’s down 100
m in the last two monthly reports, and down a whopping 275 m since the first 2002/03
crop year estimate last May. Even this reduction may not be enough. U.S. export
sales are running an anemic 86% of last year’s pace, which itself was the
worst performance in the previous four years.
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Corn, Chatham
WKLY AVG ADJ TRACK BASIS
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Partially offsetting
export sluggishness is continued strength in industrial usage, especially ethanol
usage which was raised by 20 m bus. Monthly ethanol production records continue
to be set and it appears certain that U.S. production will easily exceed the USDA’s
2.2 billion gallon projection. In fact, U.S. ethanol production seems set to eclipse
the target set for next year some time this summer.
Droughty conditions across the U.S. Great Plains and western corn belt are becoming
more of a concern to Chicago markets and providing some support. Illinois, Iowa,
Nebraska and Kansas are all enduring record dryness. In fact, virtually the entire
U.S. west of the Great Plains is in the grip of extreme to exceptional widespread
drought according to weekly NOAA drought monitoring maps (torrential rains in
southern California excepted). All of southern Michigan is recorded as enduring
moderate to severe drought. The pattern, of course, carries into southern Ontario.
As spring planting season approaches, this condition will play an increasingly
important role in production and price outlook. The current 90-day forecast through
May for the Northeast (Ohio Valley, Mid-Atlantic, Great Lakes and New England)
calls for “turning milder than normal after a cold winter ... precipitation
patterns favor drier than normal climate away from the coast and westward through
the Ohio Valley and eastern Great Lakes.”
However, most observers are still penciling in a rather sharp expansion in U.S.
corn acreage this spring due to economics. At current USDA price projections,
U.S. Ag Economist Bill Tierney projects 2003/04 returns to corn of negative US$14.78/acre
(before subsidies) and negative US$41.65/acre (before subsidies). This US$27/acre
advantage for corn is expected to translate into at least a 1.2-1.5 m acre expansion.
However, as pointed out last issue, if corn prices fall to or below the loan rate,
the advantage for corn shrinks dramatically as subsidy levels are relatively higher
for soybeans below the loan rate.
On the subject of U.S. subsidies, late in January the U.S. Senate passed a $3.1
billion disaster aid package to aid drought-affected crop and livestock producers.
In accepting this Republican bill, the Senate defeated a $6.1 billion Democratic
disaster aid package. The bill now goes before a Conference Committee of Congress
to resolve differences between the House and Senate versions. For U.S. crop producers,
the new proposal provides a top-up to fixed direct payments already distributed
under the 2002 FSRIA (U.S. Farm Bill). Producers in counties designated as disaster
areas in 2001 or 2002 and producers with losses of 35% or greater in other counties
are eligible. Top-ups are based on 85% of historic base acreage and yield as follows:
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FSRIA
Direct pymts + Disaster top-up = Total Direct Pymts
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Wheat
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US$0.52/bu
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$0.22/bu
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$0.74/bu
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Barley
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$0.24
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$0.10
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$0.34
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Corn
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$0.28
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$0.12
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$0.40
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Soybeans
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$0.44
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$0.19
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$0.63
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Under the terms
of the FSRIA, U.S. corn producers were essentially guaranteed a price of $2.60/bu
no matter how low prices fell; and they were guaranteed to receive no less than
$0.28/bu in addition to the market price no matter how high prices rose above
$2.60. Now, assuming the Senate disaster top-up is enacted as proposed, the
guaranteed floor price for affected U.S. corn producers will be US$2.72/bu (Cdn$4.13),
and the guaranteed top-up to the market price will be $0.40/bu (Cdn$0.60), no
matter how high prices climb.
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