Changing Market Structure: The Ontario Corn Economy Says It All

In Ontario the last 20% of the corn crop is coming off.  Or is it?  As I write this southwestern Ontario is looking at another 10 inches of snow.  So that will make getting that corn in the bin a challenge.  I’ve only done corn once in the snow.  I wasn’t very successful.  My decks soon froze over and I was pushing more out the back than I was getting in the bin.  Let me say, I was young then.  Getting corn off from now on will be a real challenge.

That was brought home to me last week as I headed back to Dresden after a short trip to London Ontario.  It had started snowing as I drove out of London.  It was getting bad and somewhere in the distance I saw some bright lights.  As I drew closer a big John Deere combine drove out onto the road with an eight row head.  A grain buggy was unloading into a truck.  However it was snowing so hard, you could hardly see.  It’s pretty obvious to me; some of this Ontario corn won’t be harvested until next spring.

When it gets into the bin, it’ll be part of one of the best corn harvests ever in Ontario.  Statistics Canada is saying final yield should check in at about 156 bushels/acre breaking the 2006 Ontario corn record of 150 bushels/acre.  With Ontario acreage at about 1.75 million acres, we’re looking at a total crop near 270 million bushels.  It reminds me of one of my favourite speaking lines.  “That’s a lot of corn!”

However, it pails in comparison with what our American friends do in the United States.  For instance in Illinois this year farmers will harvest 11.7 million acres of corn.  In Iowa, farmers will harvest 12.5 million acres of corn.  So when it comes to the Ontario crop-affecting price, forget about it.  In fact when you listen to some market analysts in the American Midwest, they talk about “fringe areas” for corn.  It took me a while to get used to that.  Of course compared with Illinois, Iowa, Nebraska and Minnesota, we are a fringe area.  Needless to say, that designation is both a hindrance and a benefit.

It’s a hindrance because we don’t affect corn prices.  In other words I’ve seen it where the Ontario corn crop has really taken a hit but we’re such a fringe player, it doesn’t affect futures prices.  For instance in 2007 many of us burned up.  At the height of the drought I took a trip to the Farm Progress Show near Decatur Illinois.  Along the way, we saw Michigan corn burning up.  However, when we got to Decatur and Champaign Illinois it was a different world.  They weren’t affected as much and the market was reacting accordingly.

The benefit of being a fringe corn area compared to Illinois, Iowa, Nebraska and Minnesota is producers can take advantage of traditionally higher basis levels.  It is especially true if you are farming outside southwestern Ontario where most of the corn is.  For instance in areas like York region, north of Toronto and points east, basis levels have been traditionally higher because of the lack of production capability.  This reality has changed things to a large extent, because corn acreage has shot up in these areas.  For instance 20 years ago you could ship corn into Quebec from Eastern Ontario for very good basis values.  However, much of that has changed now, because Eastern Ontario and Quebec grows more corn.  Add in corn’s agronomic superiority with a lack of storage facilities in Eastern Ontario and you have the 2008 formula of a more “traditional” lower basis.

The hammer for Ontario corn basis levels has always bee the threat of the importation of American corn.  It’s obvious.  Whenever an Ontario end user can get cheaper corn in Michigan, they import it.  That’s one reason why the Ontario Corn Producers Association tried to get a countervailing duty on US corn.  It would have given Ontario corn producers more power in their own marketplace.

That’s a long story, which I’m not willing to re-visit.  However, the industrial use of corn via ethanol changed everything in Ontario.  With the addition of Greenfield’s Johnstown plant and IGPC in Alymer (Grand Opening this past week) opening this year, the corn price structure within Ontario now and in the future got a big boost.  Think of it this way.  Could you imagine selling Ontario corn solely into the domestic feed trade in the age of Mad Cow and Cool requirements into the United States?  It would be down right scary.  The Ontario corn sector would be a lot smaller and a lot poorer.

It’s all about improving Ontario’s corn market structure and taking advantage of where we are in the global corn marketplace.  The proverbial question is can it be done for Ontario’s wheat and soybeans growers through similar improvements in market infrastructure?  Of course the answer is yes, yes and yes.  It would take some vision and yes, some government involvement along the lines of the Ontario Ethanol Growth Fund, but it could be done.

At the end of the day, it’s a “vision thing.”  Ontario corn country had some choices to make a few years ago.  Not everything worked out, but at least some of it did.  It should serve as a model to other provinces.  Marketing your crop is one thing, however, changing market structure can be another option.  It’s not often apparent and sometimes it takes awhile.  However, when the opportunity presents itself, it must be acted upon.  The present day reality of the Ontario corn economy is a shining example of that.

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