By Patrick Meagher
We get a wet spring and we still get impressive corn and soybean yields.
Despite awkward weather conditions this year, Ontario overall is expecting high yields for corn and soybeans. The USDA forecasts that this year’s corn, soybean and wheat harvests will be the second-largest worldwide.
Last year’s harvest was the world’s most abundant.
As the world grows more acres of corn, soybeans and wheat using hybrid seeds that just keep getting better at pushing out higher yields, is the world producing too much?
Some people think so. After all, why has Potash Corp., the Saskatchewan company that is the world’s largest fertilizer supplier, merged with Agrium? Why has ag giant Monsanto merged with BayerScience? Why has grain handler Bunge Ltd. announced an informal merger with Glencore, a commodities giant?
Analyst Jonas Oxgaard at investment management firm Bernstein raised many eyebrows when he told Reuters news agency: “The mergers are absolutely driven by oversupply because their growth is gone. They just keep breeding better and better seeds every year.”
According to Oxgaard, seed companies are just too good at what they do.
It was 1985 when Ontario broke the 100 bu/ac ceiling for corn. In 1985, the average Ontario soybean yield was 37 bu/ac. Thanks to breakthroughs in genetic modification in the 1990s, the provincial five-year average for corn is now above 160 bu/ac and about 46 bu/ac for soybeans.
Seed companies are also finding new ways to grow in what was once thought of as impossible places. In 2015, an Alaskan research plot fewer than 190 kilometres from the Arctic Circle, grew a corn seed that was germinated in a greenhouse, transported outside and the plants matured in 60 days.
Monsanto is hoping that in about two years it will commercially market a corn variety that will mature in 70 days.
Genetically-modified super seeds can fight off insects and disease and still ensure great yields despite weather factors that can shorten the growing season. Farmers hoping for a weather hiccup to rally prices found that the global market last winter were sitting on the largest-ever grain stockpiles. This is now the fourth year of declining income among U.S. crop farmers with another projected decline this year.
But Western Ontario crop farmer and agricultural economist Phil Shaw thinks blaming innovation is too simplistic. He notes that when it comes to wheat, China now holds 48 per cent of world supply, while Russia is now a huge exporter and these new factors affect the economics. And there’s weather. “In the last three or four years we’ve had really good weather. This will change some day.”
While seed innovation might have been a contributing factor in the oversupply of corn, it’s not true of other grains and there are many factors that determine price, Shaw says. “A few years ago we saw the price of corn go to $8 and what we found out then was that the world loved to grow corn at $8. So, you’ve got increased competition from places like the Black Sea area and Brazil in the corn market.”
He also argues there are many reasons for company mergers. “There would be corporate motivations that I don’t know about that wouldn’t have anything to with (crop production). It probably has more to do with share price and opportunity and things of that nature. I think it’s much, much, much, more than agriculture productivity.”
The dean of business at Dalhousie University, Sylvain Charlebois, who researches food policy and distribution, agrees. “It is always challenging to correlate both (innovation with oversupply) but evidence seems to point at higher production efficiencies in agriculture, and biotechnologies are likely helping,” he says. “Yields are increasing while the use of nutrients and fertilizers is stagnating. Better pest resistance is one aspect which is helping. Drought-resistant seeds are also making a difference in many parts of the world.”
He adds, however, that “I’m not suggesting that the correlation is strong, but might be. It is very difficult to prove in the end, so Phil (Shaw) is correct.
Essentially, farmers are opportunistic and will always try to grow crops they can make money with. Opportunistic behaviour in the system will always influence prices and supplies. It’s a never-ending cycle.”