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No worries with more corn

Few concerns about higher volumes.


November 13, 2007
By Ralph Pearce


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6aWhen the corn harvest of 2007 is complete, industry watchers, marketers and
growers will look back and assess whether the final analysis measured up to
the hype earlier in the year.

By most accounts, the final 10 or 12 weeks of 2006 marked an incredible turning
point for agriculture in Ontario. In a very short period of time, the general
outlook reversed itself from continued despair to an unprecedented sense of
optimism. The booming biofuel economy, particularly ethanol production, pushed
the market for corn to a place previously thought unlikely in the near-term.
Aided by a wet fall that hindered growers from planting winter wheat, industry
pundits began spreading the word on the possibility that many of the missed
wheat acres could be planted to corn.

The question becomes, is Ontario ready to handle more corn?

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Most indicators are favourable
From an economic and agronomic perspective, the answer is an overwhelming 'yes',
with a few provisos to keep in mind. Steve Kell, grain merchant with Parrish
and Heimbecker, in Mississauga, Ontario, sees little downside to this rapid
turnaround in the industry. In fact, he regards the early excitement about corn
and a suggested jump in acres as a sign of a paradigm shift in agriculture,
from growing grain to feed people and animals to growing energy. "With
the renewable fuel policies in North America, we have to start growing agricultural
crops for energy and that's never happened before, so we have this brand new
market," he says.

Kell adds the Ontario marketplace can consume a relatively large amount of
corn, over and above what is presently grown. In fact, the province has been
a net importer of corn for many years and all indicators favour a substantial
increase in production. Such a trend would push the province back to the situation
seen in the early 1980s when acreage typically sat at or above the two million
acre level. "The market is really telling us it wants more corn,"
says Kell, reasoning that before ethanol boomed into other regions of North
America, Ontario would import roughly 35 million bushels of US corn. "By
November 2007, we'll have four ethanol plants in Ontario and a couple more under
construction. We can easily consume 100 or 150 million bushels more than we're
already using."

Added to that domestic scenario is the progress of the ethanol industry in
Michigan, where four plants are either in operation or under construction. That
means less US corn being imported into Ontario or corn needed for Ontario must
travel farther.

Feed, fuel or food?
Another benefit of an increase in corn production is the prospect of more bidders
lining up for corn in the future. The fuel trade will feature different companies
lining up for raw materials, as will grain millers, feed mills and the food
trade. All will vie for domestic corn, possibly paying a higher price to secure
their supplies.

Will this create shortages in the food industry? Not likely, says Kell, who
works with several key food companies. Although they may be forced to step up
in the bidding process, doubling the three cents worth of corn in a box of breakfast
cereal would have little, if any, lasting effect on consumer purchasing habits.

Dave Gordon, a merchandiser who works with corn and rye with London Agricultural
Commodities, also believes more corn is a good thing for Ontario. Like Kell,
Gordon believes provincial growers are capable of growing two million or more
acres of corn. "You don't go back that many years when we were growing
2.23 million acres in Ontario," says Gordon. He disagrees with some who
insist a return to more than two million acres in 2007. "I say we're going
to go back to 1.7 or 1.9 million acres in the coming year and financially, it
would be good."

If he has any concerns, Gordon says it is in the areas of infrastructure and
marketing. Although Ontario has a history of higher corn acreages, those came
at a time when yields were at or below 100bu/ac. "We're not really prepared
to handle some of these larger yields, especially when it comes to corn,"
says Gordon. According to Statistics Canada, yields for grain corn from 1981
to 1985 averaged 96.9bu/ac (Ontario Ministry of Agriculture, Food and Rural
Affairs figures show a 126.6bu/ac average for the same period). "Wheat
is a 90bu/ac crop, but corn is a 150 to 160 bushel crop now and we just don't
have the infrastructure here, and that's the downside and it needs to be rectified
quickly."

Gordon also urges growers to recognize the increasing need for discipline in
marketing. With solid pricing, there may be the perception that knowing the
cost of production and smart, diligent marketing are unnecessary. Gordon disagrees.
"Just because prices are up and going higher doesn't mean you forget what
your costs are," he says, adding that increased diligence when times are
good will help growers navigate the rough times when prices cycle lower.

Field conditions solid, too
Is there a concern, though, that with more corn acres, growers will opt out
of their rotations to make the most of these high times? Or will diseases or
insect pests become a more-pronounced challenge?

Pat Lynch also sees considerable advantages to increasing corn production in
Ontario, but does not expect growers to opt out of their rotations, entirely.
The wet conditions of autumn 2006 meant at least 500,000 fewer acres of winter
wheat, which likely will be the first option for corn come the spring of 2007.
Yet with that anticipated jump, growers will need help from the weather. In
2006, the crop was planted in time, but increasing the number of acres by an
additional 50 percent will stretch planting dates even under the best of conditions.

Another concern centres around vomitoxin levels, although it is not a new issue.
"In 2006, we saw a difference between and among hybrids as to their vomitoxin
levels, which I don't expect to be such a big issue in 2007," explains
Lynch, field agronomist with Cargill. "In 2005, we had a bunch of corn
that had vomitoxin levels above 2.0ppm and we dealt with it. To have levels
above 2.0ppm every year is normal. What was different in 2006 was that there
were so many acres of it, people were talking more about it."

Building a better sector
A silver lining will come out of the 2006 vomitoxin situation, however. Growers
will become more aware of what hybrids they planted, where they planted it,
and a growing awareness of traceability will take shape all the way to the end
user. "We're seeing some of that in wheat, we're certainly seeing it in
the IP beans and now that has to go to the corn crop," says Lynch.

Following that, growers will develop a better understanding of which hybrids
are more susceptible to moulds and ear rots. "We know there is a higher
probability of fusarium vomitoxin in non-Bt refugia hybrids than in the Bt hybrids.
That means the refugia hybrid has to be planted in a block so it can be harvested
and stored separately."

Accepting this segregation process will benefit growers greatly, maintains
Lynch. Recognizing that some hybrids have better end-use properties than others
will grow, as well. "It's not unrealistic to say, 'Processor A wants 'this'
hybrid or Processor B will pay a premium for this group of hybrids' and that
has occurred in the past," says Lynch. As the price of corn increases and
end users want a higher percentage of an extractable product or trait, there
will be opportunities for those hybrids that perform according to specification.

There will be those who resist this evolution within the corn sector, but Lynch
insists they will miss out on the opportunities that are starting to emerge.
"We've just taken the first step on this journey of IP corn because of
the high price, new end users and the vomitoxin issue, and all three things
are coming together," he says.

Springtime will be 'crunch time'
By spring 2007, however, Lynch says some growers will be disappointed to find
their favourite hybrids are sold out. Despite assertions that they are ready
for spring, many growers will be left with the options of their first alternates,
then their third or fourth choices. "Once you go to your third or fourth
choice hybrids, you typically give up something," cautions Lynch.