The corn challenge
2014’S PRICE DECLINE
FOR ONTARIO CORN farmers, 2014 was a real challenge. The price of corn declined from a futures level of $4.95 on May 13 to $3.18 on October 1. This price decline, along with late planting, a cold summer, and a very difficult fall harvest season with low test weight corn, led to a very difficult year overall for corn producers.
With that as a backdrop, Ontario farmers will be looking ahead to 2015. The hope is for early planting, a warm summer with adequate rainfall, and a fall which lives forever. Of course the corn price wildcard will also be important and producers will surely be hoping for the return of higher prices.
The price decline in 2014 came about mainly because of the record crops in the United States. In a year when planted acreage of corn declined to 91.64 million acres from 95.37 million acres in 2013, U.S. corn producers took advantage of early planting and a moderate summer to produce a record 14.407 billion bushels of corn. This record crop also produced a very big ending stocks figure of 2.0008 billion bushels. This compares to a smaller figure in 2013 of 1.236 billion bushels. So as we look ahead into 2015, these large ending stocks will surely be weighing on the market.
Optimism for 2015 can come from the dynamic nature of corn demand. Demand for U.S. corn stands at 13.660 billion bushels based on the November 2014 USDA report. Demand has continued to grow through 2014 and shows no sign of retreating. Lower prices always serve as a stimulus to corn demand and that will continue at these lower levels. For corn producers, “demand” is the trump card in our back pocket, because when a supply issue invariably comes along, solid demand will raise prices.
In Ontario, corn acreage dropped to 1.9 million acres in 2014. This acreage number is key, because generally big yields and a crop size of over 2.1 million acres bring export pricing (lower cash prices) year round for Ontario corn. If the Ontario corn crop is less than two million acres, there is a much better chance of “import pricing”, boosting Ontario cash prices, which in the past has happened as a matter of record in spring and summer.
Of course, the planning for 2015 corn production has already begun in Ontario. Much will depend on how much corn gets planted in the spring of 2015. For instance, with 600,000 acres of winter wheat planted, there is quite a “flex acreage” which will swing to corn or soybeans in the spring of 2015. Much of that 600,000 Ontario wheat acres are suspect. My assumption, based on current prices, is we will see soybeans gain more Ontario acres next year versus corn. The corn acreage and yield in 2015 will greatly determine both cash basis values and future import pricing. Corn acres of less than 1.9 million acres are a distinct possibility.
In the United States, there will be a similar debate about corn acres in the United States in 2015, which will surely impact prices. Will the U.S. plant less than 90 million acres of corn in 2015, and if they do, how will this impact futures values this coming growing season? Part of that puzzle will have to do with new crop soybeans prices, but also U.S. basis levels. Transportation issues on the northern plains have reduced cash values into the $2 bushel range and lower throughout 2014. It stands to reason, there will be a lot less corn in this area in 2015 helping to reduce U.S. corn acres. This, combined with any production problems in the U.S. corn belt next year, sets us up for less acres, less bushels, and higher corn futures values.
The challenge for Ontario corn farmers is to measure these market factors and balance the futures values with our cash market opportunities. Risk management never gets old. Change is our only constant. 2015 will surely have some profitable corn marketing opportunities. •
Philip Shaw farms near Dresden, Ontario. He is the author of the Grain Farmers of Ontario Market Trends Report published 14 times a year. He speaks on grain prices across Canada and his commodity commentary can be read regularly in several publications. across the United States and Canada.