November, 2003
by Brian Doidge, General Manager, OCPA
U.S.
& World
Poor yields and early frost well south into the U.S. midwest combined to blast
soybean prices higher in Chicago with the NOVEMBER contract picking up more
than a Si/bushel in the month of September alone. Not so for corn where continued
improvements in weekly crop condition reports have traders anticipating a good
U.S. corn crop. The result has been that in the month of September, while soybean
prices were rocketing higher, corn prices in Chicago lost more than $0.25/bushel
in the DECEMBER contract. The marked difference in Chicago price trends for
corn and soybeans reflects the marked difference in yield results with soybean
yields eroding as harvest progresses, while corn yields edge higher.
As suggested
last issue, corn prices in Chicago tested resistance and have fallen back to
test support in a sideways trading range that will likely define price into
full harvest in the U.S. Harvest activity is running slightly slower than normal
with about 20% of the U.S. corn crop harvested by October 1. However, the bulk
of the crop will be in the bin by mid-month and Chicago prices should then begin
to edge higher in response to the tightest stocks-to-use ratio since 1997. Another
monthly record for U.S. ethanol production in August (just shy of the all-time
monthly record) keeps a fire burning under demand.
U.S. corn export prospects
are improving (of course this improvement is from an abysmal level) aided by
tight stocks of coarse grains world-wide and by the collapse of the U.S. greenback
over the course of 2003. The U.S. dollar is at 3-year lows against the Japanese
Yen and moving lower thanks in part to OPEC's announcement late in September
that crude oil production would be reduced by 3.5%. One key indicator of improving
export prospects is that corn basis at U.S. Gulf terminals has steadily gained
ground over the last 2 weeks aided by slow country movement, higher barge freight
rates, and improving weekly export sales. Traders in Chicago were greatly impressed
by much better than anticipated export sales the last week of September, but
want to see several weeks of such buoyant reports. Rumours of China reducing
its corn export program and the European Union cutting the import duty on corn
also tweaked Chicago trader interest. The EU move could be significant because
the extreme drought of 2003 cut grain production by more than 15%, with the
French corn crop reduced by 27% from 2002. European feed users want the EU to
eliminate corn import duties in an effort to cap feed costs and drive them back
down at least until next year's crop is harvested. Of course, European grain
producers (at least those who have a crop to sell) have a somewhat dimmer view
of the desirability of eliminating import duty protections.
On a down-note, both EC. Stone and Sparks increased their estimate of the U.S.
corn crop with both edging the production estimate back above the 10.l billion
bushel mark.
Ontario
Frost (and snow) the first of October ended the growing season in many areas
of Ontario. But we got through September. That's the key. The great bulk of
the provincial corn crop black-layered prior to the frost which means physiological
maturity was achieved (but just barely). This means the crop will likely be
higher in moisture, certainly higher than producers would like, especially with
natural gas and electricity costs driving up drying charges. However, if we
can get a co-operative October, dry down in the field might reduce harvest moisture
levels. The problem is that stalk rot, winds, corn borer pressure, and weak
standability are forcing some producers to harvest earlier than they would like.
Leaving the crop in the field to dry down naturally is not an option if the
crop is going down.
The current wide spread between offers for corn for immediate delivery versus
offers for delivery at harvest (more than $0.80/bushel as of early October)
will shrink soon. But in the meantime, with the trade having great difficulty
sourcing Ontario old crop corn, imports of U.S. corn have surged to fill the
void. Train loads are moving into feed mills and processors. Boat loads into
Goderich, Port Stanley, Port Colborne, and Cardinal are covering immediate needs
of processors and end users. This influx will taper off as the Ontario corn
crop comes to market and the spread between offers for immediate delivery and
harvest delivery will evaporate
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