This morning my twitter feed had one analyst saying that corn was going to go up $.20 on the open. There was much optimism this morning as the USDA caught everybody leaning a little bit the wrong way. The USDA actually cut corn-ending stocks for all crop down to 1.63 billion bushels from 1.738 bu in May. The cuts were also evident in 2010/11 with ending stocks fixed at 1.573 billion bushels down from 1.818 billion bushels in May.
I had to laugh when I read Pat Hill’s Market Matters Blog after a long day on the sprayer because she described it this way, “wow—so much for a sleepy lockup”. It seems Pat is always at the USDA lockups just before all the major reports. Of course I have no idea what it’s like in a lockup, I always envision everybody dancing on the tables while the USDA puts the numbers up by neon screen. So it must’ve caught Pat leaning the wrong way too. I guess we can thank ethanol for this and the lower prices for spurring that demand.
It always seems to be a double-edged sword when it comes to corn pricing. There seems to be a corn pricing sweet spot where ethanol manufacturers ramp up production. However, it surely has to fit in with oil prices and gasoline prices to make it work. It would seem over the last month that once corn gets down to the $3.30 range that we have some type of boost in demand. These lower prices encourage demand and that’s why we had the surprise, which we did today. The secret will be to see if prices can stay where they are during the summer and continue building demand. Maybe, with that I’m just hoping for a little bit too much.
It would seem that analysts had picked the soybean numbers right. The USDA is now projecting the old crop carry out 185 million bushels. New crop carryout is 360 million bushels, which were within the trade expectations. There is lots of risk left in the production fields going forward, so who knows if there will be any supplied blips to upset this applecart.
Still, there are onerous supplies on the market and this seemed like just temporary bullish news. At least you could say that for corn, with soybeans and wheat not necessarily getting the same boost. For Canadian producers, the challenge will be to price this crop with the best combination of futures and basis to make things work. I know a lot of you would argue that that time was about six months ago.
There is also trouble on the Canadian prairies. All spring I have heard about the rainfall in Saskatchewan and Manitoba. There is also been some strange weather going on in Alberta. This is certainly put into flux the production numbers for Western wheat and canola. One of my editors told me it will make for a very subdued Farm progress show next week in Regina.
Meanwhile our lovable loonie has gained a few cents over the past week to push over $.97 US as I write this. This is having the effect of reducing Canadian cash prices. However, at least for Ontario corn it would seem that the gyrations in the Canadian dollar aren’t having much effect on basis. End-users seem to be quick to drop the basis when the dollar goes up but when it goes down the basis is not raised as quickly. You might argue that is not right and I might agree with you but in reality it has to do much more with market structure. The end-users are a small club in Ontario and with burdensome supplies of corn on their doorstep there is absolutely no incentive for a reactive basis.
There are other issues such as the importation of American corn to keep prices down. Over top of all this is a continued lack of an agricultural safety net for Ontario grain producers. It is all building toward a year of lower prices, higher costs and a bit of struggle. The good thing is at least in Ontario crops look very good at this time of year. In fact I would not be surprised based on how the corn crop looks now that we have a record yield in Ontario passing through the previous record of 165 bushels per acre of corn.
Should we all pull the trigger? DTN analyst John Sanow asked that exact question in his last column. Of course many of us have already pulled the trigger on both old crop and new crop and many of us have yet to do either. Market action has certainly been bold over the last few weeks. The next major market mover will be that actual planted acreage report from USDA on June 30th. Will there be a bullish surprise then too? I dunno, but I’m sure by then many traders will have decided the 2010 crop has been made.