One of the curious things about Ontario agriculture is that we become so clearly focused on market intelligence coming in from American sources that we often forget to monitor our own backyard. A great example occurred when Statistics Canada released its March 31 on-farm grain stock estimates last month and reminded us that eastern Canada is still sitting on a pile of corn.
According to Statistics Canada, Ontario farmers were holding 3.7 million metric tonnes of corn in their on-farm storage as of March 31. To put that in perspective, that’s 940,000 tonnes more than the 2.76 million tonnes that farmers were holding one year earlier, (a 34 % increase), and about 450,000 tonnes more than our 5-year average. The government report only estimates farm-stored inventory but even if we assume that commercial grain elevators are only holding a similar corn inventory to what they had last year, there’s a million tonnes more corn sitting in the Ontario marketplace.
We had no cause to be surprised. Last fall, as harvest wrapped up, we knew that Ontario’s corn production was near the largest levels in history, and since eastern Canada’s agri-food industry hadn’t added any significant end-user demand over the past 12 months, there was really no place that the corn could have gone. It had to sit in the bins where it was placed last harvest.
Since there is no chance that we’re going to create enough new end-user demand for corn in Ontario to grind up this inventory before this fall’s harvest, we’re now in an export-based marketplace. Our pricing is going to become 100 % dependent on export demand.
The good news is that “elsewhere” is a really big place. It’s not entirely a laughing matter that Ontario farmers had an extra 40 or 50 ocean freighter loads of corn tucked away in their grain bins on March 31 when the ice was breaking up in the St Lawrence seaway and our 2018 export season was about to begin. But the reality is that we have excellent access to marine shipping and the spring and summer ahead of us to move this crop out.
There was never any shortage of factors that drive corn prices, and the key pillars of new crop supply such as new crop growing conditions, and currency fluctuations will still form the foundations of price. The new variables in Ontario’s old crop corn prices through the summer of 2018 are going to be things like the supply of empty ships in the St. Lawrence seaway that might be looking for a load back out, competitor corn offers coming out of the Ukraine through the Black Sea ports, and whether or not some marine terminals in the Great Lakes shift capacity over to handling wheat during wheat harvest and reduce their corn exporting capacity. Traditionally, Ontario farmers haven’t had to think about what happens to the corn basis if marine freight rates rise, or we run out of ships to load, but this might be the year that we learn a few new things.
Most importantly, if a grower’s marketing plan consists of hanging onto corn until the marketplace runs out of supply, he sets himself up for disappointment. Ontario didn’t run out of corn last year, and with 34 % more supply in inventory in 2018, it’s essentially impossible for that to happen this year. Farmers still holding corn need not panic and run screaming from the market this afternoon. There’s still lots of time in June and July for a drought rally over weather concerns in the major U.S. corn producing regions or a weakening in the Canadian dollar that allows domestic cash prices to sneak upwards. The opportunities are going to be the result of being decisive when these rallies happen.
The enormous size of Ontario’s corn inventory should not be the story in this summer’s domestic market. The key factor to watch is how fast we’re able to move stocks out, and whether or not that export pace has any capacity to tighten down old crop supply. The fact that southern Ontario’s corn-producing region is essentially surrounded by a navigable marine highway is an opportunity. All that Ontario corn growers need to do to succeed is to learn to see themselves as export marketers in a global marketplace.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.
