By Brian Doidge, Market Analyst, Ridgetown College, University of Guelph
U.S. & World
USDA’s June 11 Supply & Demand report once again reduced export projections
for the 2002/03 crop year (marking the 8th consecutive monthly reduction), by
another 75 million bushels to only 1.6 billion bushels. Carryout stocks moved
up by the same 75 million bushels to 1.084 billion and average cash price was
left unaltered at US$2.30/bushel. For new crop (2003/04 crop year), acreage and
production estimates were left unaltered from the initial May report at 79.0 m
acres planted, 72.0 m to be harvested, average yield of 139.7 bu/acre, production
of 10.06 billion bushels. No other changes were made to demand so that projected
carryout stocks were a healthy 1.329 billion bushels. Average U.S. cash price
projection for the 2003/04 crop remained $2.10/bushel.
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Corn,
Chatham
WKLY AVG ADJ TRACK BASIS
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The surprises in the
USDA’s reports were contained in its World Agricultural Supply & Demand
estimates. World ending corn stocks dropped from 91.74 million metric tonnes to
83.31 million. All the reduction came thanks to revisions in Chinese ending stocks
estimates (so are therefore suspicious to this observer). Remember that it was
only 2 months ago that the USDA increased Chinese corn export projections to 13
mmt, a new record. Regardless, Chicago markets reacted higher as funds were caught
by surprise and did some buying. A short-term low is likely now in place.
Weather remains the dominant feature in corn pits. Benign forecasts had traders
marking time, but assessments that perhaps 1 million acres of corn did not get
planted in the Eastern Corn Belt due to soggy soils caught some attention. 54%
of Ohio soils are currently rated in the surplus moisture category. Since April
1, most of southern Michigan has had at least twice as much precipitation as last
year. Same thing for northeastern Ohio. Moreover, the entire U.S. mid-west continues
(as it has all spring) to run behind average growing degree days. Long-term drought
monitoring maps for the eastern U.S. have turned from dry to wet across a broad
band sweeping up the Ohio River valley across the entire eastern corn belt.
Both 30 and 90-day forecasts call for 125% or more of normal rainfall for the
central and eastern corn belts (of course, these are even less reliable than my
price projections). What all this suggests is that the U.S. corn crop is somewhat
late and in need of heat. However, crop condition ratings so far are good with
69% of the U.S. corn crop rated in good-to-excellent condition versus 59% at the
same time last year. All in all, most observers think an average yield is entirely
possible, but also think the USDA’s 139.7 bu/acre average yield projection
is optimistic. We will see.
In related weather news, the U.S. National Oceanic & Atmospheric Administration
(NOAA) said that a ‘La Nina event’ is either developing or in effect.
This is a colder than normal sea surface temperature across the eastern Pacific
Ocean and is the opposite to the El Nino event. However, this current La Nina
event (which is usually associated with dryness across the western mid-west) is
perhaps too weak to have a major impact this growing season. NOAA says the outlook
is mixed.
In other news, the U.S. Senate passed its version of the Energy Bill maintaining
the mandate for 5 billion gallons of ethanol to be blended into gasoline by 2012.
This is the same requirement as in the U.S. House of Representatives’ version
and as contained in the previous bills that died on the Congressional floor with
dissolution last December.
Ontario
This has been a hard spring for many producers, especially those in a band from
Niagara through the London area, as well as around the western end and across
the north shore of Lake Ontario. Heavier soils are hardest hit with soggy conditions.
As a result, we are estimating that perhaps 8% of intended acreage did not get
planted province-wide. This translates into about 120,000 acres and drops our
planted acreage guess down to 1.8 million acres of grain corn. Given an average
yield of the last 5 years of 115.5 bu/acre, we are projecting a crop of 208
million bushels versus a crop of 218 last year.
What has most Ontario corn market participants talking (or shaking their heads
if they got caught on the wrong foot) has been the tremendous surge in the loonie.
Up fully 6 cents since the end of February, the Canadian dollar has at times
moved sharply above the 74 cent mark (recent peak at 74 2/3 cents, a 6 1/2 year
high). The loonie gained a full 2 cents in 2 days when the European Union reduced
interest rates and financial markets projected that the U.S. Fed would do likewise
before the end of June but the Bank of Canada might not. What is impressive
is that corn basis offers did not plunge as the loonie soared. This suggests
underlying demand strength.
Of course, what really is on most producers’ minds is the impact of BSE.
As cattle and beef exports back up, feed demand is temporarily increased. But
this is far from a good thing because it cannot continue for very long and the
adjustments when they come will be substantial and painful, more so the longer
the border remains closed. Longer term, BSE will almost certainly ensure that
the Country of Origin Labeling requirements of the 2002 U.S. Farm Bill, voluntary
until January 2004, will become mandatory as scheduled at that time. This will
impact all livestock, but has considerable potential to sharply cut exports
of Ontario weaner pigs in particular commencing this November. Scaling back
pig production in Ontario in response to discounting of price for Canadian pork
in the U.S. marketplace (where 42% of all pigs born in Canada end up in some
form) could well reduce corn feed usage. This whole episode clearly demonstrates
the enormous impact (unfortunately usually detrimental) of U.S. policy decisions
(in this case closing the border) on Ontario and Canadian ag sectors.
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Ontario
Corn Producer July 2003
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