ONTARIO — Surging inflation has one Ontario grain grower feeling like an Argentinian farmer reluctant to trade his harvested crop for ever-eroding pesos unless absolutely necessary.
Grain merchandiser and cash-cropper Steve Kell highlighted that producer’s observation while warning about inflation-related challenges at the annual Ontario Crop Conference in January.
“I know he was being a bit sarcastic, suggesting we hold inventory as if we’re in Argentina — but not entirely wrong,” Kell added, noting how inflation has increased the risk of forward contracting beyond the current year.
“You have to be really careful about getting too far out over the handlebars,” he warned.
“I would be really careful about sticking my neck out to 2023,” he said, “because, yes, there’s plenty of end users with bids out for 2023. But if inflation continues at this pace, we have no real idea what our costs are for 2023, and going two years out is potentially a problem in this marketplace.”
He noted the example of growers who, in 2020, pre-sold soft red wheat for $8 a bushel delivered in 2022. The price seemed great at the time but is “no longer all that sexy” in light of current wheat prices, about $9.50, and the cost of fertilizing the 2022 crop. “Nobody thought in 2020 that urea in the spring of ’22 was going to be $1,000 (a tonne).”
Pre-selling this year’s crop is fair game at this point, according to Kell. “We know what our land costs are. We have a pretty good idea idea what our seed and our fertilizer and our land is going to cost for this year. Most of the equipment we’re going to use is already in the shed…. No doubt fuel is going to cost more by next harvest. We can make some rational marketing decisions about ’22, but ’23 might be too far out.”
Backdrop to Kell’s presentation was continued strong demand for both corn and soybeans, despite near-record North American production in both of those commodity crops, thanks to adequate rainfall in the Great Lakes basin. The 2021 U.S. corn crop is tied as biggest ever while soybean output is only a fraction of percentage point lower than a record.
China’s appetite for corn and soybeans has helped ensure high prices. That country bought 1.2 billion bushels of U.S. corn in 2021, up 2,000% from 2016. The Chinese also consume 50% of the world’s soybeans.
While soybean prices in the $15 to $17 per bushel range have been “a real treat,” Kell suggested the market will struggle to reach even sweeter numbers as South American soybean producers are statistically unlikely to face a third consecutive year of La Nina-related drought. That continent accounts for just over half of global soybean production.
Kell was also revved up about the continued positive impact of ethanol production on corn demand as the motorized public returned to pre-pandemic driving habits. Blended into almost all gasoline, weekly ethanol output reached a new high of 100 million barrels in the final week of October 2021. With a smile, he couldn’t help but note the irony of this record coinciding with the 2021 Climate Change summit.
“So while all the politicians were gathered in Glasgow talking about how we weren’t going to burn fossil fuels, all the motorists in North America seemed to be driving their cars around, burning more fossil fuels than ever,” he said. “It wouldn’t be the first time there’s a disconnect between political rhetoric and reality, but it was comical, and as a corn producer, pretty encouraging to see that market as strong as it is.”