Market intelligence
UNDERSTANDING THE COMMODITY REPORTS AVAILABLE CAN HELP BOOST YOUR BOTTOM LINE
quick, reliable and up-to-date access to market pricing information is an important aspect of grain farming. The Ontario Commodity Report from Farm Market News, available via email or online at www.gfo.ca is an excellent source of pricing information.
Gathered by John Jordan, based at Ridgetown Campus University of Guelph, the reports feature a group of 60 price points for corn, soybeans and wheat across Ontario, Quebec and neighbouring states. The specific points chosen represent a wide variety of selling options for Ontario farmers and highlight many of the premium delivery options. Knowing the price at elevators connected with rail, such as Kent Bridge, or those within areas of highly concentrated production, like Hensall, can provide a better understanding of the prices across the province.
digging out market signals
Within the daily report, there is pricing information for both old crop and new crop along with basis and adjusted basis. The two different basis numbers are incredibly important but are often and easily confused.
“Basis in all marketplaces is the difference between the futures marketplace and the local marketplace. Within a basis is exchange rate, transportation and handle – which include administration costs and profit,” explains Jordan.
What the basis does not take into account is the fluctuation of the Canadian dollar. According to Jordan, “the adjusted basis is a mathematical calculation where the Chicago price is converted into a Canadian price using the exchange rate and subtracted from the cash price.”
Jordan cautions that it is unwise to look solely at the basis without taking into account the exchange rate. “You could see basis going up and down and doing all sorts of odd things,” explains Jordan, “a farmer may look at that basis and think it’s really strong but in reality it may mean the Canadian dollar is really weak.”
If you are looking for a true market signal, Jordan recommends utilizing the adjusted basis as it allows easier comparison by incorporating the vagaries of the Canadian dollar.
understanding the spread
By providing a cross-province look at daily commodity prices, Jordan’s report also reveals interesting trends. Most notably, many question why certain parts of the province hold higher prices than others for different commodities.
“The processing points for soybeans are in Windsor and Hamilton and they set the market,” explains Jordan. “You can take a tape measure and pretty much determine what the basis should be for soybeans depending on how far away you are from those places,” he continues.
Despite the seemingly reliable change of soybean basis across the province, there is a lot of day to day fluctuation within the price. Unlike corn end-users, who are reluctant to change their bids too often, soybean processors apply the Canadian exchange rate every day to their bids and as a result, the soybean prices can vary wildly from one day to the next.
Unlike soybeans, corn is much more varied in price across the province but does not fluctuate as fiercely day to day. “The values for corn seem to grow higher as you go east,” says Jordan. However, Jordan does point out that with the rise in ethanol production over the past decade, he has seen the development of intense demand points in the middle of corn country. “You get mini-markets in circles surrounding these ethanol plants,” he explains.
In addition to demand points, corn basis is also more strongly related with transportation costs than soybeans. “There is more value in a bushel of soybeans than corn so it takes more trucks to move the same amount of corn compared with soybeans,” says Jordan. This reality, he continues, results in a lot of discounting for transporting corn that isn’t normally seen with soybeans.
Similar to both corn and soy, wheat basis across the province reacts to the centres of processing. “The milling industry is in the central part of the province and the basis tends to get lower the farther away you are from those centers,” says Jordan.
Another centre for wheat basis is Kent Bridge as it has rail capabilities that send wheat directly to the well-established markets in Toledo and Michigan.
In addition to these processing centers, terminal bids are also important for wheat. Jordan explains that, “nowadays, a lot of growers are delivering direct to terminals as more own large trucks. In the past, these bids would only be important to elevator managers but now farmers are taking advantage of them too.”
making the most of the reports
“I find the basis that I quote to be the starting point in the negotiation process,” explains Jordan. Depending on quality and quantity, there is usually room to go higher. “But,” he continues, “if quality is questionable, as in last year’s corn crop, there is absolutely room to go lower.”
With nearly 20 years of price data collection in his command, Jordan recommends that farmers spread out the risk as much as possible when they market their crop. “Divide your crop up into 10 or 12 and see if you can capture the best price within each month,” he says. On his own farm, located near Chatham, Jordan follows this exact plan. “With this process, I’ve always been above the pack.” •
