Steve Kell
Market Minute
In addition to record high prices for corn during the 2021 harvest, Ontario farmers have also been able to enjoy higher than expected yields. While it’s not news to Ontario grain producers in mid-December that they harvested a pretty big crop, from a market forecasting point of view it is critical to understand who else harvested big yields as we look forward to how the corn market may unfold over the coming winter and spring.
While southwestern North America had a drought in the summer of 2021, the Great Lakes basin did not. In the same way that Ontario farmers harvested high yielding crops this year, several of our neighboring U.S. states also saw massive increases over last year’s results. The USDA has estimated Ohio’s corn yield at 193 bu/ ac, up 22 bu/acre from last year’s 171. The same report put Illinois’ 2021 average corn yield at 214 bu/ac, up 22 bu/ac from 2020. Michigan’s 2021 corn yield is currently estimated to be 171 bu/ac, up 18 bushels from last year’s 153. Regardless of the Americans’ corn production numbers across the whole continent, everyone within our freight and logistics region has had a substantial increase in harvested crop over the last year and will have a lot more corn to sell over the remainder of the crop year.
The good news is that if we did have to have a region with a surplus corn supply, this might be the best place to have it. When a market has surplus supply, the overflow ultimately flows to exports. This year the region with dramatically higher yields also has the geographical advantage of being in close proximity to the Great Lakes – St Lawrence Seaway, which provides us with cost effective access to end-use markets in other parts of the world. While it might not be perfect, a farmer anywhere along the Hwy 401 corridor has a lot better access to the global marketplace than his competitors in Nebraska or Wyoming.
There is also some positive news on the demand side. Ethanol is back. During the tightest period of pandemic lockdowns, ethanol production was cut significantly because people simply were not driving very much, but through the summer and fall of 2021 travel has bounced back, and so has the demand for ethanol. In one week in October, U.S. ethanol production set a record of 1.1 million barrels per day, surpassing the previous record of 1.08 million barrels per day set in the pre-pandemic summer of 2019. It also doesn’t hurt that oil prices have shot up over the past few months as petroleum production struggles to catch up to the economic recovery. While there is a minimum amount of ethanol that needs to be blended into gasoline in order to meet the renewable fuel standard, there is no maximum. If ethanol is cheaper or easier to get than gasoline, there’s nothing to stop fuel retailers from blending slightly above the 10 % minimum, and all of that comes back to the farm gate as a slightly increased demand for corn.
At some point in mid 2022, the price of corn in Ontario is going to fall in line with global export values. It’s a bit like how the depth of water in a mill pond will level out at the height of the top board in the dam, if the excess supply of corn in the Great Lakes basin has to move out into export markets, the cash price has to balance with international demand. The market will not get there quickly because the winter ice closes the St. Lawrence Seaway, cutting us off from international markets. But in the April to August shipping window, exports will be a key driver of price. The key components of export prices are still developing. While the crop size in some major competitive markets like the Black Sea are known, (Ukraine’s coarse grain production is up nearly 25% from last year), in other competitor source regions like Brazil and Argentina, planting of the crop is still in progress. Monitoring South American crop progress is going to be key to understanding where our prices are headed.
To say that we are not going to run out of corn is both over-simplified, and entirely predictable. We never actually run out of corn in the North American marketplace.
However, in some years, we run ending stocks low enough that price has to rise up and ration demand. (We actually saw this occur in August and September.)
Any hope of a similar cash market this coming summer will rely entirely on an active export market in the spring and early summer.
Steve Kell is a Simcoe County farmer and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.
