In Ontario many of us are getting ready for wheat harvest. For the most part that means soft red Winter wheat, which is become popular over the last 10 years. However there are several classes of wheat grown in Ontario and much spring wheat grown in the Ottawa Valley. Wheat is the only crop in Ontario that we subject to four different weather seasons. I have often said that you can lose wheat at any time, fall, winter or spring and summer. You can also lose it driving to the elevator. You never know when fusarium head blight is going to rear its ugly head.
At wheat harvest time we all like it dry. It doesn’t take long to harvest and it comes at a pleasant time of year. In Canada it seems for about nine months of the year we wear coats to keep warm. So wheat harvest always represents a time when we can do it in her shirtsleeves. The only problem with it being dry though, is that it affects the corn and soybeans in the neighboring fields.
That seems to be becoming a problem right now in Ontario. Last week I wrote my Market Trends corn price analysis for the Ontario Corn Producers Association. (ww.ontariocorn.org) At that time I made mention that bearish undertones permeate the corn market across North America. I always knew in the back of my mind that whole scenario would change if “hot and dry” came. Who knows? Maybe now has Ontario is drying out and we might be facing some type of production problem.
Of course you would not know that by looking at our commodity markets. July 4 always represents a time when the market breaks one way or another. Traders often decide, “The crop is made “around this time of year and the rest as they say is history. I read comments on DTN discussion forums about dry parched crops in some production areas but the bottom line is new crop corn looks good everywhere. For instance in the last USDA report they pegged corn yields 153.4 bushels per acre. Now there is talk in the market of 160 bushel plus like we had in 2004. I concur with those sentiments, my feeling is the American corn crop will be much higher than 153 bushels per acre.
I am not so sure how that might work out for the Ontario corn crop. Right now we are still looking at a provincial yield of about 140 bushels per acre. With parts of Ontario becoming very dry in the last week or so and with everybody gearing up for a dry wheat harvest that doesn’t bode well to keep the corn going. I guess we been here before, in fact many times but that doesn’t make it feel any easier.
The question is does it really matter? I say that because increasingly supply is becoming less and less of the issue when it comes to our commodity prices. Let’s take the wheat, which will be harvested in Ontario over the next few weeks. Everybody knows that the world is awash in wheat right now. Supply is not the problem. It is demand. At the same time corn ending stocks are growing but how about feed demand and ethanol going forward. It’s sketchy at best and it is the underlying problematic fundamental that is hurting North American farmers.
Feed demand is a real problem when it comes to using up our feed grains. In my own case I talk about corn supply and demand all the time but nailing down the Ontario feed demand is like nailing Jell-O to the wall. We can talk about ethanol all we want but declining feed demand has to stop permanently in order for “feed grain” producers to enjoy long-term good prices.
In Canada there have been just too many problems with feed demand. The H1N1 virus plus the country of origin labeling has punished the Ontario and Canadian hog industry severely. It has been punished so severely you could make an argument that it is permanently compromised. We all know how difficult it has been to be a Canadian beef producer in the shadow of the Mad Cow problems. Even our supplying managed sectors of the agricultural economy have reduced their uptake of feed grains based on the prices of the last few years. This has been so negative for grain demand and it needs to be recognized for what it is.
At the same time one of my corn broker friends sent me an article about Exxon Mobil Corp. Investing $600 million with biotech company Synthetic Genomics to develop transportation fuels from algae. So what about ethanol? It’s way too early to put the death knell on ethanol but as you can see it’s lost some of its luster. Who would’ve ever thought algae would be on the same stage with ethanol two years ago? The point being our industrial uses for corn are finding some real competition and this is dampening demand despite US renewable fuel mandates.
So as wheat harvest starts and ends in Ontario and our row crops continue to grow remember, it’s not all about supply. In many ways our present malaise in commodity markets has everything more to do about demand. Getting it back, healthy and robust again is paramount to our future prosperity.