By Brian Doidge, Market Analyst, Ridgetown College/University of Guelph
April 7, 2000
U.S. and WORLD:
When the initial euphoria of the USDA’s March 13 drought warning wore off, Chicago futures contracts settled back after testing resistance levels from late last summer at $2.40 in the MAY and $2.49 in the JULY. All contracts then tested support at $2.30 in the MAY and $2.34 in the JULY. Support held, but spec funds “ran the stops,” triggering an exaggerated down move a couple of cents lower. Less-than-expected rains and dry forecasts late in March fostered another rally to test highs again, which held, before more profit-taking set in again (this time partially triggered by worries over wildly fluctuating stock markets).
So, we’ve had a wild ride driven by spec fund interest in weather outlooks... and it’s only early April! This is most likely a taste of market action well into early summer. Overall, broad uptrending channels formed following the new year remain intact with the trading channel at least 15 cents wide on most contract charts.
A couple of important reports the last week of March turned out to be mostly neutral. The March 30 USDA Planting Intentions report was a bit of a surprise with corn acreage projected at 77.881-million acres, up slightly from last year and about a half-million acres more than expected. Soybean acreage was likewise slightly larger at 74.87-million acres than pre-report average guesses around the 74.58-million acre mark. The Grain Stocks report was almost bang on guesses, and no surprise.
A couple of interesting reports came out of Washington the first week of April. The USDA released details of a Planting Intentions report survey which showed U.S. acreage of biotech crops could be down noticeably in 2000. GMO corn as a percentage of all U.S. corn acreage is projected to drop to 25 per cent from 33 per cent in 1999 and 30 per cent in 1998 with the study suggesting some ambiguity over export-market channel acceptance as the rationale. Percentage of Bt corn (the lion’s share of GMO acreage) is projected to drop to 19 per cent from 25 per cent last year. GMO soybeans are expected to constitute about 52 per cent of acreage this year in the U.S., down from 57 per cent in 1999 and 42 per cent in 1998. No such market channel ambiguity seems to exist on this side of the border, perhaps because Ontario is far less reliant on export markets either for bulk corn or corn products than the U.S.
Sticking with the genetically enhanced theme, the U.S. National Academy of Science’s National Research Council released a report on biotechnology the first week of April as well. The report called on the EPA, USDA, and FDA to do a better job of coordinating their efforts at regulating plants that have been genetically modified to resist pests. However, the report emphasized that the committee had no evidence to suggest foods from genetically modified plants are unsafe, confirming the strength of the existing regulatory system governing transgenic plants. It also stated that no distinctions exist between the health and environmental risks posed by plants genetically engineered through modern molecular techniques and those modified by conventional breeding practices. Most importantly, for the current debate over labelling, the report emphasized that “it is the properties of a genetically modified plant – not the process by which it was produced – that should be the focus of risk assessments.”
Ontario:
In Ontario, stocks of corn are accumulating in transfer elevators, especially Hamilton and Montreal. During March, stocks in the whole system grew by 22,000 tonnes despite export shipments. One shipment scheduled shortly which bears close monitoring is a proposed shipment out of Port Stanley on the ship “M.V. Cuyahoga.” The harbour, especially the harbour mouth, has been desperately in need of dredging for several years. However, the federal government, which still is responsible despite ongoing efforts to divest itself of the port, has refused to dredge. As a result, there is only about 16.5 feet of depth at the mouth and the ship will draw over 16 feet when loaded. With sharply lowered water levels in Lake Erie this spring, we might have the sorry sight of a ship stuck hard due to federal inaction, despite repeated calls for dredging. And the West thought it was the only place where transportation problems hindered exports of grains and oilseeds!
In another development, W.G. Thompson & Sons have introduced a version of forward contracting for harvest delivery. From now until the end of the sign-up period May 12, growers can sign a harvest delivery contract which will pay the average of the harvest Chicago futures contract during the period May 15 - August 15, plus a basis fixed on a day of the grower’s choosing. Growers have until October 30 to fix a soybean basis and November 30 to fix a corn basis. A two-cent fee is charged for administering the contract.