September/October, 2004

by Brian Doidge, General Manager, OCPA

U.S. & World
The USDAs September 10 Supply & Demand report increased the 2004 U.S. corn production estimate yet again, this time to 10.961 billion bushels. The 38 million bushel increase from the August report came thanks to a one half bushel increase in projected average yield to a new record 149.4 bushels/acre.
But, you have to look carefully at the data. While corn production numbers for Iowa (1.988 billion bushels), Illinois (1.963), Indiana (.832), Minnesota (1.043), Nebraska (1.240) and other states across the mid-west are all up substantially from last year, Michigan and Ohio are down. Michigan's corn crop projection of 237.9 million bushels is down a whopping 25.4 million, down 9.6% from last year. Michigan's average yield continues to drop, down another 2 bushels per acre to 122 from 124 in the August report and down from 126 last year. Ohio's crop is slightly different; while the corn crop, at 468 million bushels, is down 10.9 million from last year, the average yield at 156 bushels/acre is the same as last year. What this means is that Ontario importers of corn will have to fight harder to attract supplies, and will have to pay higher transportation costs to get corn from farther away.

The USDA's projection of the 2004 U.S. corn crop has risen steadily from the first guess of 10.425 billion bushels in the May report (May: 10.425; June: 10.425; July: 10.635; August: 10.923; September; 10.961). Not coincidentally, Chicago corn futures prices have plummeted as the production estimate has climbed. Compounding that damage to price in the September report was a 40 million bushel increase in carryin stocks to start the 2004/05 marketing year which have likewise climbed steadily since May (May: 806; June: 806; July: 896; August: 914; September 954). Increased production and carryin stocks means that ending stocks projected for August 31, 2005 have jumped 63% to 1.209 billion bushels from the initial guess of 741 million estimated in May. An increase of only 215 million bushels in total usage over that same May-September time period has not kept pace with burgeoning supply. Average projected cash price has dropped from U.S.$2.75/bushel in the May report to only $2.20/bushel in the September report. Not surprisingly, in the May-September time frame, Chicago Board of Trade December futures prices have dropped more than US$ I/bushel.
Is there a bottom? With U.S. subsidy and support programs kicking into high gear, the real answer is 'no'. Loan Deficiency Payments, Marketing Loan Gains, Counter-cyclical Program payments, and of course the fixed payment per acre U.S. growers received regardless of price, are all at play. The net result is that U.S. corn producers do not care where price goes once it falls below U.S.$2.60/bushel (the counter-cyclical support level). U.S. cash prices are well below that level now, and actually below $2/bushel in many regions. LDPs are 10 cents or more/bushel in Michigan. At the end of the day, all that cash price below U.S.$2.60 determines is how much money per bushel comes from the marketplace versus how much comes from Uncle Sam. Buyers know that U.S. corn producers are now in a totally different mind-set. They have become 'bottom-pickers' whose objective is to pick the bottom so as to maximize U.S. government support payments. Buyers, seeing a record crop about to pour in, are more than willing to help them find that bottom.

Ontario
In Ontario, basis has moved up at all points. FOB feed mill bids for immediate delivery are in the $1.60 - $1.68 over DEC range, up a dime for the week. U.S. corn is pouring in by truck, rail, and boat as processors are short corn for the early October period due to the late, and uncertain, Ontario corn crop. $4/bushel delivered to processors is not unheard of under the table, but you have to deliver now. Quebec FOB bids jumped sharply of late to the $1.60 over DEC range as well. But these strong basis offers for old crop will disappear shortly as the trade rolls bids to new crop near the end of September.
New crop bids gained a nickel in mid-September to run 90 cents over DEC for harvest delivery, the first move up since late July. The trade can see the extreme variability in the corn crop as well as everyone else and are trying to attract good quality corn when it comes off. The trick is that with Ontario's summer coming in September (thank God), a large segment of the 2004 provincial corn crop seems to have been granted a reprieve. Corn matured quickly in the benign weather from Labour Day onward. Yields may turn out very well for a sizeable chunk of the crop that looked extremely vulnerable at the end of August. Time will tell; but although the crop is likely to gain test weight, it is expected to remain high in moisture. Not a very nice prospect given very high energy and drying costs. What producers might gain via improved yield prospects, they lose in terms of lower prices and higher costs. The net dollars per acre may not change.

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