When I plant corn I often think of the journey it will undergo to reach maturity. In Canada, the winter snows are still fresh in our memories when corn planters head to the field. Often times, the weather is cold as the seed is placed in the soil in some precision way.
After the corn seed hits the cold soil and germinates it emerges to face another six months of weather before combines roll through. Along the way the spring chill, summer heat and fall drydown will present lots of production risk. Getting to payday in late fall often can be challenging.
One such challenge took place in the 2018 cornfields of Ontario. After a good growing season, farmers were looking forward to a record corn crop only to have to deal with large vomitoxin (DON) levels in their corn. This was met with large discounts from end-users as every- one in the industry struggled with how to handle this crop.
As we headed into 2019, everyone was looking forward to leaving that behind. Increasing scrutiny in variety selection was certainly part of that process.
In 2019, Statistics Canada expected 2.2 million acres of corn to be planted in Ontario and 3.1 million acres of soybeans. Quebec has the next largest corn acreage at 945,100 acres and Manitoba has 459,800 acres. Total Canadian corn acreage for grain was expected to come in at 3.7 million acres. Of course, in many areas of Canada corn is grown for silage for livestock. In Western Canada there is grazing corn in some of the more northern climates.
Clearly, corn acres have advanced in Canada significantly, but our Canadian winter puts limits on corn production across our country. Frost dates in early fall are very important litmus tests for successful production.
A successful corn economy in Canada is based on good production methods but also the dynamic market where end- users can utilize the corn. In a nutshell, corn is used for feed for livestock and to
make ethanol. Ontario is one province that has a 10 per cent ethanol blend requirement for gasoline sold in the province. That takes approximately 35 per cent of Ontario’s corn production.
There are also food and residual uses for corn as well as the export market offshore. Simply put, corn is a very dynamic crop, which dominates large parts of Eastern Canada and is utilized in a large way domestically.
Profitability is always the goal for successful corn production. Using corn for ethanol in Ontario and Quebec is one example of how value can be added to corn and how those profits can be kept in Canada. Over the past two years Canada has also enjoyed tariff-free access for our corn into the European Union. This has meant that large quantities of Ontario and Quebec corn have been shipped to Ireland over the last two years. This is set to continue, but of course there is always tough competition in the international market from places like Brazil and Ukraine, new players in the global corn market.
Keep in mind we grow corn in Canada, but we are a small fish in a very big pond. The United States is the largest corn producer in the world. In 2018-19 the United States will produce 366.29 million metric tonnes (mmt) of corn. China is the second-largest world producer of corn at 257 mmt. In contrast, Ontario total production in 2018 was 8.7 MMTs of corn.
Corn is traded on the commodity markets at the CME in Chicago. Cash prices in Canada are based on futures prices plus or minus a basis level which reflects local supply and demand with foreign exchange. Basis is the value which determines when grain is moved, bought or sold.
On August 12 the cash price for corn delivered for fall 2019 in southwestern Ontario was $5.18 based on a December 2019 futures price of $3.92 plus a $1.25 positive basis value.
Corn prices have been dominated over the last six years by very good crops in the United States that have boosted supply. For instance, last year’s total corn production in U.S. came in at 14.609 billion bushels. This has been a consistent supply benchmark over the last several years, keeping corn futures prices range bound at approximately the $3.75 futures level.
This year the growing season of 2019 was extremely difficult in the Eastern Corn Belt of the U.S. This resulted in much uncertainty in the market in early spring as farmers struggled to get their crop planted.
This difficult spring resulted in a corn price rally, which topped out on June 17 with December corn reaching $4.73 per bushel. Since that time the market has ratcheted back to $3.92 on August 12. On August 12, USDA predicted a U.S. national corn yield of 169.5 bushels per acre on 90 million acres planted. This will result in a total crop of 13.9 billion bush els, not as big as last year, but still a very healthy crop especially considering the problems earlier in the season. This has had a negative effect on prices.
The planting problems in the U.S. Eastern Corn Belt extended northward into Ontario. Despite the Statistics Canada projections of 2.2 million Ontario corn acres to be planted, the reality on the ground was much different. Rain inundated Ontario and parts of Quebec in April and May 2019, which impeded corn planting.
A more realistic figure of how much corn was planted in Ontario would be 1.7 million acres or less. Conditions were less than ideal for planting and this has continued into August. It may put Ontario at a corn deficit situation this fall, depend ing on the rest of the growing season. Ontario corn basis levels are higher going into August than past years. That may continue into the fall with a deficient crop.
There were marketing opportunities that came from these production problems earlier this year. For instance, farmers were able to forward contract cash corn for fall delivery and in 2020 at $5 and $6 per bushel in many locations. However, nobody knows what the future holds and the most recent machinations in the market have called for lower prices based on the 13.9 billion corn bushels apparently in American fields.
The bottom line is there is still production risk going forward into September and October, which may affect market prices. Once combines start rolling in the United States, that will be the truest measurement of yield versus all these other estimates.
There are a myriad of other factors, which may affect the corn market. For instance, there has been erosion in the renewable fuel standard south of the border, which was instrumental in putting ethanol into every car on the road. Many small refiners have been granted exemptions from the rules. U.S. exports of corn have also fallen from previous years. The ongoing trade war between the United States and China does not affect the corn complex as directly as it does soybeans, but it is not helping either.
For Canadian corn producers all of this is a challenge. When you export corn you are in competition with others in a global marketplace, and that usually means the lowest price. Brazil, Argentina and Ukraine are increasingly gaining market share in the world’s corn trade.
The reality for Canadian corn producers is their cash corn market is different depending on where they are. For instance, local cash basis levels are different in Manitoba versus southwestern Ontario versus eastern Ontario versus southern Quebec.
What it does mean is there are different marketing realities for all of us with the corn futures market as our default. Standing sell orders are often a good way to capture these marketing opportunities, which happen when you least expect them. The challenge, of course, is to mar ket our corn profitably. As this corn crop gets closer to harvest, the market picture will come more into focus.
Harnessing our corn marketing realities will continue to be a challenge. Our corn payday is almost here.
This article was originally published in the September 2019 issue of the Corn Guide.