Is The Price You Receive for Your Grain Real?

As we head into the end to February many of us are increasingly forming our ideas for our farms in 2023.  Next week we will have an exodus from Ontario and Quebec as many farmers travel to the Louisville farm show, where they will not only get a bit different farming culture but might pick up a few new ideas to practice on their farms. Your loyal scribe likes to go, the only thing that stands in front of me is the 8-hour drive and a little bit of energy.  Needless to say, I could always use some new ideas.

Nothing is ever so good it can’t be improved. That goes for our grain marketing as well. This past week we had a uneventful WASDE report from the USDA, which always provides a big data dump for the grain training algorithms. It also provides fodder for many of us to consume as we continually try to hone our marketing skills. I know that USDA reports have been vilified through the years, but we need numbers from somewhere to help us decipher where grain decides to move.

Much of that is through an American lens, With the USDA being the most convenient vehicle. However, it is more so than that because with the preponderance of grain grown in the United States it just stands to reason looking at grain prices through an American lens makes some sense. I know I really appreciate all the excellent grain analysis that goes on to the south of us.  Who knows, maybe even your loyal scribe adds to it from time to time, looking down from the north.

That is a key point.  A Quebec and Canadian perspective on grain movement and grain prices needs to have a prominent place within our agricultural psyche.  To a large extent, that means trying to understand Quebec and Ontario cash markets and the effect that the value of the Canadian dollar has on the movement of that grain.  Understanding the Canadian perspective needs also to be dissected between Eastern and Western Canada. The two agricultural economies are so different and the crops so unique to the region and the scale so vast it’s hard to compare the two.  In fact, I rarely comment on western Canadian grain prices.  I simply do not understand in great detail how cash markets work in Western Canada to even give a hint of advice

That’s one reason why I often ask my western Canadian friends how cash grain prices are determined in Western Canada.  There are futures markets for canola and wheat etc., but often I’m told the cash grain prices are determined based on an arbitrary price at a specific location. I often ask why is that and I don’t get a good answer.  The same lack of transparency in Ontario wouldn’t be tolerated.  There would certainly be conflicting opinion around that point but much of it lies in the different farming cultures we have between Eastern and Western Canada.

In Ontario and Quebec corn, soybeans and wheat are priced on a futures market and related basis value converted into Canadian dollars.  This is about the only way it can be done. The futures part of the equation is the easy part.  Every day, we watch grain prices go up and down in Chicago.  However, we do not have the same price transparency when it comes to basis in eastern Canada. Sure, the US replacement price for corn coming into Canada is always a barometer for basis values, but not always. There is also the cyclical nature of the value of the Canadian dollar versus the US dollar which has a major effect on Ontario cash prices. This is especially true for soybeans and wheat, but it is not as much for corn, which is traded in a highly oligopolistic Ontario and Quebec market environment.

Understanding the eastern Canadian cash grain market is difficult. In fact, it’s very difficult with very little information published. I’ve tried through the years, and I think I’ve got a pretty good handle on it, but just like anything it’s constantly changing.  I’d really like to see an Ontario and Quebec grain supply and demand table constructed and published for everyone to see. However, there is no such thing even though private grain companies produce them all the time.  Of course, it is all kept close to the vest and Ontario and Quebec farmers just have to deal with it.

There is nothing illegal or unethical about any of this. It is simply business and it’s the way things work. Could it work better for eastern Canadian farmers? I think so with good Canadian information being the key.

That grain marketing information vacuum needs to see the light of day. However, it’s unlikely to happen and in lieu of that the great challenge for Quebec and Ontario farmers is to balance their best marketing decisions on the futures market versus the value of the Canadian dollar. You might even add seasonality into that equation as there are times within each year the grain futures historically reached their highs and lows. Unfortunately, it’s not the same for the Canadian dollar and it is certainly not the same for the eastern Canadian cash grain market.

I have seen it where Canadian basis values have swung wildly in both directions based partly on Canadian dollar fluctuations at the same time when the grain futures market is going in the opposite direction.   Sometimes it happens where the basis volatility is more so than grain futures volatility within a short time period. It means Quebec and Ontario farmers have to understand both grain futures and how our basis behaves.

So, is the price you receive for your grain real?   Or is it something else, which could be better in an environment where cash grain price discovery information is more transparent?  The questions never end, but they continually should be asked.