By Brian Doidge, Market Analyst, Ridgetown College, University of Guelph
U.S.
& World
USDA’s March 11 Supply & Demand report confirmed weakness in export sales
by reducing the export projection for the 2002/03 U.S. corn crop yet again. Exports
were reduced 75 million bushels to 1.75 billion, the lowest in the last 9 years.
No other changes were made. Carryover stocks were increased 75 million bushels
to 1.004 billion, just over the psychologically important 1 billion mark. Average
cash price was dropped another nickel to US$2.30/bushel. As mentioned in previous
issues, this is important because the new counter-cyclical support program will
begin payments to growers if cash prices are less than $2.32 (i.e., the target
price of $2.60 minus the fixed payment of $0.28/bushel).
Offsetting weakness in exports is continuing growth in domestic usage, particularly
expansion in the U.S. ethanol industry.
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Corn,
Chatham
WKLY AVG ADJ TRACK BASIS
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U.S. ethanol production
in January was a new record 177,000 barrels/day, the sixth consecutive all-time
monthly record and up 35% from January 2002. U.S. ethanol production has doubled
in the last 5 years. Food, seed and industrial usage in the March 11 S&D report
was a new record 2.265 billion bushels, now 24% more than exports and the gap
is widening.
Trade wars are heating up. On March 4, the U.S. Commerce Department imposed a
preliminary ruling assigning a 3.94% tariff on Canadian Hard Red Spring Wheat
and Amber Durum Wheat. Hard Red Spring Wheat from Ontario is also affected although
little is exported to the U.S. A final decision is expected July 14, although
the big decision is expected shortly with a ruling on dumping (a question of whether
Canadian wheat is being sold at less than cost of production).
On March 6, the U.S. requested the WTO to convene a dispute settlement panel to
look into U.S. allegations against the Canadian Wheat Board (CWB) after the two
parties failed to reach an agreement. The U.S. alleges CWB pricing and trading
practices harm U.S. farmers; that mandatory CWB and Canadian Grain Commission
segregation of any imported U.S. grain is an unfair trade barrier; that CWB and
Canadian government policies that prevent U.S. grain from being shipped on
Canadian railways and government-owned rolling stock constitute unfair trading
practices.
On March 13, Carlos Perez del Castillo, Chairman of the WTO General Council, predicted
publicly that current Doha Round WTO negotiations to further liberalize international
trade will fail because of an inability to “solve agriculture”. Acting
Chief
Canadian Agricultural Negotiator Steve Verheul also publicly predicted failure
at the 36th annual Canola Council of Canada Convention in Ottawa March 11. All
major groups (the EU, the U.S., the Cairns Group and the developing nations) are
sticking to entrenched positions and rejecting Agricultural Chair Stuart Harbinson’s
proposals for moving negotiations ahead. Failure to comply with the March 31 deadline
for agreeing to a schedule of reductions for tariffs and domestic support as well
as increased market access may doom the Round and certainly puts increased pressure
on the next Ag Ministers’ meeting in Cancun Mexico in September.
As energy costs soar, agricultural input prices soar too. This factor has prompted
some observers to begin shaving projections for corn planted acreage this spring.
SPARKS recently reduced its U.S. corn acreage guess to 80.67 million acres from
almost 82 million compared to just 79.1 million actually planted last year. SPARKS
compensated by increasing its soybean acreage to 72.9 million, higher than the
USDA’s guess, but still lower than last year.
Ontario
The big news, of course, is the sudden strength of the Canadian loonie which
picked up an astronomical 3 cents from February 10 (US$0.6531) to March 10 (US$0.6823).
While such a move would ordinarily drive basis offers for corn down in Ontario,
basis adjusted for exchange rate was actually stronger on March 10 than on February
10.
Part of the reason has been the delay in the opening of the Seaway. Originally
scheduled to open March 27, the start to the shipping season has been delayed
at least until April 1 because of ice. Lakes Superior, Huron and Erie were completely
ice-covered this winter for the first time since 1976. Ships remain ice-bound
in port, in particular the Cuyahoga in Port Stanley which has been the main
vessel for import of U.S. corn into Sarnia and Port Colborne. As a result of
this delay in shipping, thus postponing the resumption of cheap importation
of U.S. corn by ship, processors have had to scramble for corn supplies. Basis
offers for immediate delivery to Port Colborne and London has remained firm.
Corn stored on-farm and scheduled for delivery in June has been moved out already.
Higher input costs of late in Ontario, especially nitrogen and energy-based
products, seem to be shifting some potential corn acreage to soybeans instead.
Reports suggest an increasing number of producers cancelling or returning corn
seed and replacing it with soybean seed purchases. Time will tell, but the previously
better budgeted returns from corn have eroded over the last two months in favour
of soybeans. Main factor will be spring planting weather.
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Ontario
Corn Producer April 2003
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