There's a bit of a buzz in Twitterland these days about Canadian corn movement into the United States. Reuters ran a story on it yesterday, suggesting Canadian exports are to reach 1 million metric tonnes, which is more than double 2011/12 exports of 474,000 metric tonnes. Tight U.S. stocks and historically aggressive pricing in the U.S. combined with a large Canadian crop has made the north-south movement an attractive option for Canadian producers.
The fact that exports are forecast in the million metric tonne range is not fresh news. In fact, Agriculture and Agri-Food Canada (AAFC) has held on to a 1.2 mmt export forecast through most of the crop year, while trimming this forecast by 200,000 mt in February to leave the current forecast at 1 mmt.
Week 32 Canadian Grain Commission data showed that year-to-date exports through licensed facilities were 90,000 mt as of March 10, 2013. This was up 207% from the 29,300 mt recorded for the same week last year. In addition, the report footnotes an additional 339,200 mt shipped to the U.S. from unlicensed facilities in Canada from August to December. The total movement is 429,200 mt PLUS shipments through non-licensed facilities from January 1 forward. While it is conceivable that total movement is pushing a half a million tonnes, this data is further complicated by the CGC's reporting of data in an August through July crop year, while AAFC is basing their supply and demand tables on a September through August crop year.
Movement out of Canada will come largely from Ontario, which produced 63% of Canada's 13.1 mmt corn production. Normally a corn importer, this year will prove a challenge to the province given limitations in the rail infrastructure and the time and expense involved with truck movement. Fellow DTN contributor (Under the Agridome), Ontario grain producer and tireless advocate Philip Shaw compares the movement of corn to the passing of salt through a salt shaker, while understandably showing frustration over the fact that the province sits on the cheapest supplies of corn in the continent due to basis levels which fail to arbitrage with prices in the northern U.S. States due to logistical bottlenecks.
Movement will, however, pick up with the opening of the lakes this spring as corn makes its way through terminals and south on water. Week 32 data shows visible supplies in licensed facilities at 183,600 mt, which is up 22.5% from the same date last year. This inventory should continue to grow as shippers prepare for the spring season. The movement of larger tonnages may also act to firm basis levels as the grain companies seek to put together volume for shipment.
DTN's cash bids across Ontario today suggest basis levels ranging from 35 to 80 cents under the May future. This range of basis levels is somewhat consistent with levels being shown by monthly reports from the Grain Farmers of Ontario, where basis levels have largely been in the 25 to 75 cent under range since last November.
Future pricing opportunities for old crop supplies will be affected by estimates of old-crop supplies and domestic usage in the U.S. as well as prospects for the 2013/14 crop. With some highly respected analysts in the industry suggesting a price potential ranging from $4/bu. to $9/bu. for new crop corn based on various circumstances, which gives them a lot of wiggle-room, one certainly has to be prepared with a plan. This is especially so when transportation is a bottleneck, such as in the case of Ontario.
While there may be some bullish technical signals on the corn chart, the old crop May/July spread is weakening, sending out the signal that the commercial players, those closest to the physical commodity, are becoming less bullish. The March 28 USDA report could play a role in the future direction of the market.
Cliff Jamieson can be reached at email@example.com
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