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

U.S. & World
On Thursday, June 6, the Organization of Economic Cooperation and Development (OECD)released its annual survey of agricultural policies and reforms. While boring enough to serve as a replacement for sleeping pills, there nonetheless are some interesting data.

Support to agricultural producers in Canada declined in 2001 versus 2000, dropping 5.4% to US$3.9 billion. By comparison, support in our NAFTA partners was essentially unchanged (down 0.7% in the U.S.)or higher(up 8.4% in Mexico to US$6.5 b). Producer Subsidy Equivalents (PSE: gross monetary transfers from consumers and taxpayers to ag producers as a percentage of gross farm receipts) show a similar pattern, with Canada declining 2 points to 17%, Mexico unchanged at 19%, and the U.S. down only marginally to 21%. Total support to agriculture averaged 1.3% of Gross Domestic Product (the total value of all goods and services produced in a country) for all OECD countries, 1.1% in Mexico, 1.07% in the U.S., but only 0.78% of GDP in Canada.

Comparisons with our NAFTA partners are the most telling, because agriculture in North America has emerged as a massive trading bloc dominated by the U.S. 2001 marked the first time that U.S. ag exports to Canada and Mexico combined surpassed exports to Japan and the EU combined. As recently as 1995, Japan and the EU combined were double Mexico and Canada combined.

A level playing field for agriculture within this rapidly emerging NAFTA ag trading bloc is essential. All political rhetoric aside, this latest OECD report confirms an even field obviously does not exist and, in fact, is getting more distorted.

On the production side, corn planting on both sides of the border this season has been late with delays caused by frequent rains. The eastern corn belt, in particular Indiana and Ohio, has been behind normal all spring with emergence at only 36-40% versus 90% normally as of June 3. Estimates are that perhaps 1-1.4 million acres in the U.S. did not get planted to corn as intended. Initial crop condition ratings were the worst ever, with only 43% of the crop rated in good to excellent condition. Subsequent weekly assessments improved the rating, and weather forecasts for mid-June suggest probable continued improvement. However, USDA computer models suggest that average yield could be reduced by as much as 4 bushels/acre as a result of late planting and surplus moisture.

Chicago markets don’t buy the theory that production might be reduced a bit. Longer-term weather forecasts hold nothing threatening, and rains now make grain not mud. Since peaking mid-May, the nearby JULY contract has lost a dime and looks set to re-test support at $2. Despite the erosion in the value of the U.S. greenback since January and the subsequent spurt in U.S. ag export sales ahead of year-ago pace, Chicago markets currently suggest no change from recent trading within the range $2-$2.25. It looks like a long, dull drift lower into harvest.

Ontario
Serious rain-induced corn planting delays in the Niagara region and north of Lake Ontario have likely reduced the acreage planted to corn in the Province, perhaps by 50,000-75,000 in total. This would take us down to just under the 2 million acre mark for grain corn. Moreover, we are behind normal in accumulated heat units everywhere. We need heat to catch up, and unless we do, achieving the average provincial yield of the last 5 years of 115 bu/acre might be a stretch. Combined, the total probable crop size is likely shrinking from our previous 233 million bushels down to perhaps 225 million.

Basis in Ontario has been stagnant or eroding. The strength in the loonie, which has gained an amazing 3 cents since late January, is starting to weaken basis offers. Even though new crop production may be easing lower, new crop basis has not jumped because of this depressing effect of the stronger loonie.
Don’t look for basis on either old or new crop to show much life. Demand remains firm, but the dollar is sapping any strength from a thrust higher.

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