Ontario Corn Crop Now Compromised, Import Basis Our Future

Today, I had fungicide applied to my corn crop.  It cost me $25 an acre to get that done so I’ll need about 6 bushels of corn extra to get my investment back.  Of course I’m hoping for more, sometimes that happens and sometimes it doesn’t.  However, Dresden has been an oasis with good rainfall this summer.   My crop was worthy of taking that chance.  That pales in comparison to what I have been hearing in some corners of Ontario, where drought still stalks the land.

The comment came from a friend of mine who said that he was done spending any money on his corn crop this year as it was set for crop insurance.  Simply put, it has been so dry in his area the corn is stunted, hardly out of the ground in some cases.  So there’s no point in spending any more money on that crop.  I also heard from a farm friend in the US Western corn belt who told me not as much fungicide was going on corn this year.  He said the explanation was the new crop prices are so low, farmers didn’t think it was worth it.

I’ve been down that trail so many times, but it’s been many years since the price has been deemed too low to reach for those extra bushels.  The Canadian dollar has some redeeming value.  In agriculture you never know what you’re going to get.  My friend with the poor corn crop is because of no fault of his.  He simply didn’t get any rain.  On the other hand in the US Midwest the crop is doing so well, prices have dropped so far some of the economics of achieving that last bushel aren’t quite adding up.  In short, the corn crop in the United States is huge.

According to the latest USDA report our American friends are set to produce 14.54 billion bushels with the average yield still set at 168 bushels per acre.  I have read private forecasts that put this shield is high as 177 bu/acre.  What’s that say for new crop price direction?  It’s downright scary.  Luckily, we have mega demand set this year at 14.2 billion bushels.  Ending stocks at this point according to the USDA are 2.081 billion bushels.  Of course, as the yield projection is pushed up, that number goes up and market bears are having their day.  So should I be applying fungicides to corn?

Of course it’s always about the agricultural economics.  The problem is sometimes as farmers we simply have to have faith beyond the simple numbers.  If you think about it every spring we throw millions of dollars into the dirt, hoping something will grow.  Over my career, usually it has.  Some years it has grown better than others, but I usually get something to grow.  Being optimistic is always my mantra.  So applying fungicide on corn on July 28, 2016 is a leap of faith, one based on hopeful agricultural economics.

The price direction for all grains is not good based on such rosy production predictions.  In Ontario it’s pretty clear that the crop in 2016 will be much less than what we have become accustomed to.  For instance last year, we harvested 170 bushels per acre corn in the province putting 348 million bushels on the ground.  This year at this point with drought in many areas of the province I would estimate we’re sitting at about 145 bushels per acre putting out 317 million bushels this fall.  It is a step down and a totally different marketing environment for Eastern Canadian corn producers.

At the present time in Ontario we are importing corn.  The corn futures price drop over the last several weeks help with that.  At the same time of course with hot temperatures and dry conditions the crop is suffering and yield has been impacted.  Depending on what happens rainfall-wise the rest of the way, it will have a huge impact on our corn basis levels in 2017.  As of now it is likely that will we will import corn into 2017, unless there is a huge turnaround in this year’s corn crop.

What does that do for producers who have something to sell is raise the Ontario cash price for corn.  In fact, as long as we are importing American corn our cash price should be more buoyant.  I’m not wishing for a poor Ontario crop.  In fact, I’m hoping for a miraculous turnaround in crop conditions.  However, it is entirely justifiable as of July 28th that the Ontario corn crop is been compromised and it will eventually show up in our basis calculations.

Of course soybeans are in the mix too, but they are the great liars.  August rains will largely determine their yield.  Ditto for the United States.  The challenge for Ontario and Quebec farmers is to adjust accordingly, when you’re not praying for rain.  It looks pretty clear to me our domestic crop size will be much smaller this year.  That will make for a new Ontario cash corn economy, one we have not seen for a few years.  Basis will have new life; the Canadian dollar will help too.  As we careen into August, let’s hope the heavens open up.  However, if it’s one of those years, it is what it is.