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Farmers who watch U.S. corn and soybean prices may have noticed an irregular autumn boost last week, and positive ripples into Canadian feed grain and canola markets.
The U.S. Department of Agriculture came out with some “shockingly bullish” crop production reports, said analysts at the Chicago Board of Trade.
Corn and soybean production moved up, but not as high as traders expected. But more importantly, the USDA is projecting strong demand and tighter carryouts for 1997-98.
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USDA pegged corn end stocks at 781 million bushels, below its September forecast for 864 million. And this year’s American corn production was pegged at 9.312 billion bushels, below expectations for 9.393 billion.
At this time of year, especially when production is bountiful, prices are usually dropping as U.S. farmers sell corn off the combine, said Mike Jubinville, an analyst with Pro Farmer Canada.
“This is fairly unusual to have the markets moving stronger,” he said.
Aside from the USDA report, strong demand is pushing the market.
China has reportedly stepped back from exporting corn to Asian markets because of drought-tightened stocks and domestic prices higher than current world prices.
“The thinking is that the U.S. exports should pick up to backfill the gap,” said Duncan McKinnon, an analyst with Agriculture Canada.
“China’s so important, because when they have a little hiccup, world trade for corn can really move one way or another.”
USDA said China would export 2.5 million tonnes during 1997-98, above the 1.5 million it predicted in September. But the agency cut five million off its previous 110 million tonne forecast of China’s 1997-98 corn production.
U.S. analysts saw the news as bullish. Livestock numbers are up in the U.S., said Jubinville, and the domestic industry is expected to use more corn than last year.
“The cut in the carryout for corn can only be bullish, the increase in domestic feeding is the prime positive this morning,” said Jack Scoville, a U.S. futures analyst, after looking at the USDA report.
McKinnon said it’s a bit of a stretch to expect barley prices to automatically follow corn prices.
But Jubinville said given the relationship shared by feed grains, farmers can look for some improvements in the longer term.
“A strong feed grain market is going to translate into better feed grain prices both for feed barley and feed wheat, and likely oats as well,” he said.
Feedlots forced to pay
Alberta feedlots have been operating hand-to-mouth this year, and farmers have been reluctant to commit barley at low prices. As the mercury drops and cattle need more energy, feedlots may have to pay up, he said.
But Jubinville noted the Canadian Wheat Board will need to aggressively export feed barley to draw down huge stocks by the end of the year.
He said the board will need to offer farmers some financial carrots to get them to sign contracts.
USDA pegged soybean production at 2.722 billion bushels, below expectations for 2.771 billion bushels. The 1997-98 U.S. soy carryout was estimated at 270 million bushels, below the September outlook for 285 million bushels.
Jubinville said U.S. exporters and crushers are keeping up to the big crop. And even soybean oil stocks, an important factor in canola prices, are dissipating.
“I think right now, that the market really has little choice but to respond to this bullish demand data that keeps coming out every day now,” he said.
Farmers who held off selling canola may feel some sense of victory, said Jubinville.
“It does appear with the strong level of usage of our own canola, that better oilseed prices seem to be on the offing,” he said. He expects nearby futures contract prices to reach the $400-per-tonne area this winter.
Farmers who need to sell canola now may want to consider buying call options, giving them the opportunity to catch later price rallies, he said.
