OPINION: With no corn surplus, Ontario might need to import

For people who have been watching the corn market closely, these past few months have taught us some interesting things about the size and distribution of the 2018 crop supply, and also how growers should position themselves as we move closer to the 2019 harvest.

One of the features which makes the Chicago commodity futures contracts track closely to the real price of grain is that those contracts are in fact deliverable. Without getting too much into the weeds on the procedure, you could sell corn futures, and then instead of buying your way back out of the hedge, simply deliver the physical corn to Chicago against the futures sale. On first notice day of the futures contract, the basis in the Chicago delivery elevator is “$0.00.”

That’s what has made these past few months a real head scratcher for people watching the corn market in the Great Lakes basin. At the end of August, and in the very early days of September, old crop corn basis levels in Columbus, Ohio were $0.60. In Fostoria, Ohio, corn basis was $0.70. If you converted the London and Sarnia, Ontario bids to U.S. funds they were $1.05 and $1 respectively. Why this matters is because in all four of those corn markets, it would have been cheaper to take delivery of futures and freight the corn in through Chicago than it was to pay those kind of local basis bids. Obviously, no buyer pays more than they need to, so the big spike in cash bids in Ontario, Michigan, and Ohio implies that there really wasn’t very much corn to be bought.

The United States Department of Agriculture reported that American agriculture will carry 2.444 billion bushels of corn over from the 2018 harvest into the 2019 crop year. That’s nearly 17 % of the 14.420 billion bushel corn supply produced last year. Without getting into a debate on whether or not the USDA’s estimates are correct, the message that the buyer’s bids have been sending in the Great Lakes marketplace is that, if there is a 17 % corn carryout, it certainly doesn’t appear to be here.

I wouldn’t discount the idea that there might be a lot of corn tucked away in storage west of the Mississippi River. For the 2019 crop marketing year, corn inventories in other parts of the world are not as critical because due to our smaller provincial corn crop in 2019, Ontario will not be an exporter of corn, which makes other areas with surplus stocks less of a marketing consideration for us over the next six to eight months.

The lower Great Lakes and the St. Lawrence River valley had a tough spring resulting in both lower corn acreage and reduced yield potential. We won’t know until harvest is wrapped up whether or not Ontario will need to import corn in order to meet our domestic market’s requirements. That’s an enormous shift from previous years where Ontario has exported corn into the world market.

The takeaway message for Ontario corn growers from the late summer and early fall of 2019 is that there isn’t a great surplus of corn in Ontario or the nearby U.S. states. If the 2019 crop turns out to be a small one, it wouldn’t be wise to assume that there are big warehoused inventories to fall back on. The question at this point is whether we will end up importing corn into Ontario, or whether we will simply shed our export demand and squeeze through.

Either way, the value of corn in the Ontario marketplace will be the cost of bringing it here from some other production region. The freight spreads to areas of surplus supply will be the benchmarks for local prices.

Twelve months ago, a steady parade of ocean vessels were hauling corn out of Ontario’s lake ports. This year will be entirely different.