2019 is going to go down in the collective memory of Ontario farmers as one of the most challenging years that we’ve seen.
An unusually wet spring delayed seeding, and completely prevented planting anything on several million acres in the Great Lakes basin. Cooler than normal summer temperatures compromised crop development, and delayed corn harvest, and when we finally got corn down to moisture levels which made sense to combine in early November, snow and rain delayed the process even further. While these conditions have been frustrating for producers, they’ve also been exasperating for the market, and it’s having a really unique impact on price.
Ontario’s end users consume about 705,000 metric tonnes of corn per month. Since corn harvest started roughly a month later than normal this fall, it means that essentially all of the surplus old crop stocks which might have been carried over have been used up, and that the new crop price for farmers who were able to deliver some corn early were pulled up into line with old crop values in order to close the supply gap. Quite often we see old crop corn values slide down towards new crop prices as we approach a big harvest, but in the fall of 2019, it’s been the exact opposite as cash bids try to pull corn into the market in order to keep up with demand.
Ontario farmers needed to harvest roughly 40,000 acres of corn each week in order to keep up with feed and commercial usage. There have been at least of couple of weeks in the 2019 harvest when we’ve barely been able to exceed that pace of supply, and as a result, no supply glut has been able to form in the corn pipeline.
Corn harvest is not going very quickly anywhere. In its Nov. 18 Crop Progress Report, the USDA pegged American corn harvest at 66 % complete, compared to the average of 92 % complete on that date in the previous five years. Since the United States produces about 90-million acres of corn each year, being
26 % behind on the pace of harvest means that there were about 3.8-billion fewer bushels of corn in the supply pipeline at the mid-point of November than there would have been on a more typical year. To put that in perspective, the supply shortfall in the U.S. in mid-November was equal to about 10 years worth of Ontario’s entire production.
We are seeing the results of the slow harvest pace manifest itself in two places. The significant delays in U.S. harvest have supported the Chicago futures markets as 2019 crop supply is drawn into question, and in our local Ontario markets, basis values have firmed as end users struggle to fill demand, and commercials struggle to fill storage.
There are two ways in which grain storage pays for itself. The first is that it provides the capacity to avoid having to make sales in the harvest period when the surge in supply overwhelms demand and prices slump as the market struggles to get the crop put away.
The second source of value from grain storage is the ability to supply reliable quality on a consistent schedule to end users throughout the year. (Farmers can use a good forward contracting strategy to sell the highs of the market, but it takes storage capacity to hit the non-peak delivery periods.)
The fact that the Ontario corn market is not going to have a supply glut coming through this fall’s harvest has all but eliminated the “harvest low” in prices, and all of the return from storing corn this year will come from the ability to sell forward carry delivery slots.
Grain storage capacity is long-term capital infrastructure, and the 2019 crop production year is a “one-off” anomaly. I don’t want to imply that there’s no value in corn storage. It’s simply that the rate of return is going to be compromised in the 2019–2020 marketing year due to unusual weather during both the growing season and harvest period.
There’s an old saying in the grain trade, that “short crops have long tails.” With reduced acres planted and lower yields, the 2019 corn crop is most certainly going to turn out to be a short one. The decision for Ontario corn producers is how we market around the long tail. There’s no question that supplies are going to be tight, and buyers will need to be aggressive in order to maintain supply, but if we all hoard corn until September of 2020, it simply won’t work.
Our best bet is to capitalize on the market’s necessity to cover their forward needs and look for a January-February rally to sell June and July deliveries, or a spring seeding weather rally to sell the August and September slots.
While it’s great that prices didn’t fall apart during this fall’s harvest, there’s still a nice bit of upside as we look forward to the 2020 markets.
Steve Kell operates a Simcoe County crop farm and is an independent market analyst.
