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Corn’s new appeal to Canada’s prairie farmers

Nov. 9, 2012 - U.S. farmers in the Midwest, the center of corn cultivation in North America, have watched helplessly as the worst drought in more than five decades has devastated their crop. Canadian farmers in the prairie provinces of Manitoba, Saskatchewan, and Alberta, long one of the greatest wheat-growing regions on earth, have started planting corn.

The new corn zone reaches to Dan Mazier's farm near Justice, Manitoba. It may literally end on the road dividing his property. "Manitoba's crop insurance won't insure corn north of the road, so I only plant it south of the line," says Mazier, who planted corn for the first time this year. "I told them the sun shines on both sides of the road, but they haven't caught up to the weather yet."

Corn's new appeal to Canada's prairie farmers is based on two things: climate change and price. Growing seasons in the prairie provinces—which border Minnesota, North Dakota, and Montana—have lengthened about two weeks to up to 120 days in the past half-century. The mean annual temperature is likely to climb by as much as 3C (6F) in the region by 2050, according to Canadian researchers.

A temperate climate and longer growing season are ideal for corn. An acre of farmland produces more corn than wheat, making corn the more profitable grain, while the higher yields drive up land values as well.

Corn has long grown in southern Ontario's mild climate, but for Canadians to be big players in the crop at a new order of magnitude, they must plant in the vast farmland of the prairie provinces. Farmers planted a record 121,400 hectares (300,000 acres) of corn in Manitoba, Saskatchewan, and Alberta this year.

Global corn demand has outstripped supplies three of the last four years. That shortfall, along with the more hospitable growing weather and the introduction of seed varieties from Monsanto (MON) and DuPont (DD) that make plants mature faster, is transforming Canada's grain mix, says Danny Blair, a professor of geography at the University of Winnipeg. "The winters have warmed and shortened dramatically," accompanied by more rainfall that allows for earlier planting and greater soil moisture that helps crops.

Global warming will increase the frequency of drought and erratic rainfall even in Canada, says Blair, who notes that the weather creates more opportunities for Canadian agriculture, despite the risks. The anticipated boom in corn is encouraging U.S. agribusiness giant Cargill to invest in grain storage in Canada, according to Chief Executive Officer Gregory Page. The prospect of new demand from Canadian corn farmers is pushing DuPont Pioneer, a seed division of DuPont, to improve its short-season crop varieties, says John Soper, the company's vice president of crop genetics research and development.

The promise of a Canadian corn belt has helped push farmland values nationwide up 27 percent from 2007 to 2011, to $1,610 an acre. U.S. farmland prices rose 19 percent in the same period to $2,390 an acre. The northward creep of the corn belt is turning Canadian farmland into a long-term investment play on global warming, says Tom Eisenhauer, president of Ottawa-based Bonnefield, a farmland investment firm that owns 15,000 acres across the country. "You can do a lot of different things here with a longer growing season," he says.

"Every day I field calls from potential investors, from pension funds, from family businesses that want to buy" from inside and outside Canada, says Doug Emsley, president of Regina (Saskatchewan)-based Assiniboia Capital, the largest farmland investment company in the country, with some 115,000 acres under management valued at about C$90 million ($90 million U.S.). With Saskatchewan farmland selling for at least 18 percent less than in Montana and North Dakota, the U.S. drought has heightened interest as the risks of too-warm weather weigh on buyers' minds.

A major sticking point is the availability of the land to foreign investors. Ontario, British Columbia, and other, smaller Canadian provinces have no restrictions on foreign ownership of farmland. The prairie provinces, though, keep individual foreign investors from owning any more than 10 to 40 acres. In Saskatchewan, where restrictions are the toughest, the idea is that land is a natural resource that should not be controlled by outsiders, says Mark Folk, general manager of the provincial Farm Land Security Board. In some cases, says Folk, interest in Canadian land has spurred would-be buyers to establish Canadian residency. Unless these restrictions are loosened, says Emsley, Canadian farmland won't reach its full investment potential.

Outside Canada's prairie, opportunities are easier and drawing attention, says Eisenhauer, who adds that, as in the U.S., the bulk of land sales are still made by farmers to each other, not to outside investors. Corn farming is expanding north in Ontario. Even in northern British Columbia and Alberta, smaller grains such as barley and oats are thriving thanks to the increasing warmth. "You're going to see more of it with climate change," Eisenhauer says.

Mazier says his options are expanding with the milder temperatures. "Our winter last year was beautiful. When you see that, and you see the prices, you have to try something a little bit newer."

The bottom line: With 300,000 acres of corn planted in Canada's prairie provinces, a major change in Canadian agriculture is under way.

November 9, 2012  By BloombergBusinessweek


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