Value Added Ag: Is Anybody Listening  

It has been a particularly good year for crop farmers across Ontario.  That was expressed to me today by one of my friends who merchandises grain across eastern Canada. He was referring to the very good crops that were grown in his area of eastern Ontario this past year. We had a good discussion on grain, the futures market and of course how different basis levels within some markets can cause consternation.

I also had another discussion with a farmer regarding the proverbial question I often get, “what’s the price of corn going do Phil”. My answer was my standard answer that nobody knows but I couldn’t help but think of corn prices this past harvest, which were about 70 cents more than they are today. Sometimes you just have to sell grain when the market is screaming at you.

Some might call that wishful thinking, and some might call that wishful arbitrage.  You don’t usually expect grain to be highly priced at harvest time but with the tumultuous events of 2022 in the rear-view mirror, we did see some of that this past year in Ontario. We had $15 soft red winter wheat prices in July, and we had $20 a bushel soybean hit last week.  All you needed to get those prices was a standing pricing order sitting at your elevator.

There are variations on these themes right across Ontario. For instance, you have heard me say many times that the corn basis in eastern Ontario is usually better than it is in southwestern Ontario. In fact, usually the corn basis values in eastern Ontario are always better than almost anywhere else in Canada and parts of the United States.  However, this year eastern Ontario corn basis is not as high as usual and many of us are scrambling around trying to figure out why.  That big record yielding crop in eastern Ontario did mean something this year and probably basis reflects that.

Whatever the case we need to arbitrage our grain just like anything else to gain value. I’ve often thought of an old stone pile I have on one of my farms.  There are stones there because I had to pile them somewhere. I cleaned up a farmyard a few years ago and I think I found every stone ever thrown into the yard over the years.  The pile is there as a monument too that past.  however, at the same time I can go on the internet and see one of those stones being sold for $190 apiece it just goes to show you that a stone in my stone pile is not worth as much there as it would be on a commercial web site.  The difference is arbitrage, putting the stone in a place where that’s value to somebody looking for stones.  The same could be said with grain.

How do we get more value for our grain or any other agriculture commodity?  There are many ways, and you see it especially in the livestock sector where individual farmers sell their products through retail locally or on their own farm. It’s a little bit more difficult to do with grain, but there are big examples very apparent across eastern Canada. Ethanol and food grade soybeans in Ontario and Quebec are just two examples.

They add value to ordinary corn and soybeans.  Ethanol consumes about 35% of the corn grown in Ontario.  Without it, corn prices would be so much lower.  Value is created in the ethanol, which is burned in fuel, DDG’s created in the process fed to livestock and CO2 sold into the beverage market.  Food grade soybeans in Eastern Canada are grown at a premium and sold into Asia for human consumption.  Next up should be biodiesel.

In the US, biodiesel (diesel derived by vegetable oil) is growing rapidly, aided by government policy which has helped.  This has the capacity to get more domestic soybeans crushed in the United States over the next few years.  It has the potential along with other biodiesel initiatives globally to disrupt current soybean trade flow.  Its increasing soybean demand big time and that’s the kind of disruption we like.

We need more of it in Ontario and Quebec.  However, oilseed crushing isn’t increasing here, in fact, it might be regressing.  No Ontario government is likely to be a supporter of biodiesel processing, especially knowing it took half a billion of taxpayer’s cash to jump start the Ontario corn ethanol industry.  Having said that, it needs to change, because adding value to our crops is one of the best ways to make a resilient provincial agricultural economy better, more sustainable and consistent into the future.

Is anybody listening?  Oh, I’m sure farmers are, but lessons on the tenants of agricultural economics are often ignored, especially by governments.  We can only hope the private sector gets more involved, but when it comes to the grain business, its often just circling the wagons. The hope of course is to get every bushel of grain closer to the consumer’s dinner plate.  The price of wheat would mean so much more.