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Supply of small grains becoming an issue

Economic turmoil, market volatility and rising input costs may lead to a resurgence of the small grain crops in Ontario.


December 22, 2008
By Blair Andrews

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Demand for ‘big three’ leaves others short.

Economic turmoil, market volatility and rising input costs may lead to a resurgence of the small grain crops in Ontario. Crops such as oats, barley and mixed grains have been overshadowed since the mid-2000s by the “big three”:  corn, soybeans and wheat. While there are several reasons to justify a modest increase in small grains, there are just as many factors to limit the gains.

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Oats is a crop that may enjoy a renaissance in Ontario, courtesy of the healthful eating campaigns by many agencies and food companies.

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The small grains have lost more ground to the big three in recent years because of the dramatic rise in prices for corn, soybeans and wheat. In two of those years, 2008 and 2006, winter wheat acreage surpassed the one-million mark, with a record 1,225,000 planted in 2008, according to statistics from the Ontario Ministry of Agriculture, Food and Rural Affairs. Corn acres for 2008 have been pegged at approximately 1.8 million, soybeans at 2.1 million, and spring wheat at 170,000. Of the small grains, oats have suffered the greatest decline: 75,000 acres in 2008, 100,000 in 2007 and 132,000 in 2006.

As for 2009, more acres will likely be available for spring planting because the winter wheat acreage will be hard pressed to get close to the one-million-acre mark again. If the acreage is closer to 800,000 acres, then another half-million acres will be available for other crops. There is also speculation that farmers who have fresh memories of disease problems in the spring wheat crop will be looking for alternatives. “I know that in eastern Ontario, and parts of Quebec, fusarium was a major issue in their spring wheat,” says Martin Harry, SeCan marketing manager for Eastern Canada. “Warehouses are full of this feed wheat. So farmers may look at barley and oats from a disease standpoint.”

Although it is too early to make a prediction, Harry is optimistic that oats and barley will make a comeback in 2009. Those who share his optimism cite the price of input costs as a key reason.   

Cost of inputs is a factor
Should fertilizer and energy costs remain high relative to the prices for corn, soybeans and wheat, the option to grow more oats and barley will become more attractive. “Both oats and barley require a lot less in the way of inputs,” says Peter Johnson, cereal crop specialist with the Ontario Ministry of Agriculture, Food and Rural Affairs. “If fertilizer stays up in price; instead of putting 150 pounds of nitrogen on the corn crop, we can grow an awesome oat crop in most of the province on 45 to 50 pounds of nitrogen. The spring cereals require far less herbicide inputs as well.”

The next consideration, and possibly the toughest to gauge at this point, is crop prices.

The market meltdown in the fall of 2008 took the lustre off all commodity markets, with significant hits suffered by the corn, soybean and wheat futures. “We’ve seen the price of corn drop $100 per tonne and we’ve seen soybeans drop by more than that,” says Steve Kell, grain merchandiser with Parrish and Heimbecker Ltd. “Oats and barley, because they’re more relatively tight in a local market, won’t go down as fast.”

Kell estimates that the price of oats dropped by about $15.00 per tonne at harvest. Looking ahead to spring planting, Kell thinks the lower input costs will help boost the acreage of the small grains but only by a modest amount. He does not expect a big increase in cereal crops in the high heat unit areas of the province.  In the areas below 2700-2800 heat units, however, he says cereal crops might get more attention. As for corn, Kell says it all depends on the financial picture. “When cash flow is good, guys grow corn. If fertilizer costs ratchet up, they go back to lower cost grains. It has to do with austerity.”

Dave Kohl, a trader with Huron Commodities Inc., in Clinton, Ont., says the grain markets are coming off last year’s cycle of high prices, inferring that the prices are entering the low cycle. He believes corn and soybeans will be in a better position to quickly rebound, with soybeans getting the edge over corn. “They need to buy acres. I would suspect the outlook for oats and barley might be a little difficult,” says Kohl, adding that fertilizer prices may not be as harsh for farmers in the coming months. “My opinion is that fertilizer has peaked and it will be substantially lower this spring.”

Longer-term indicators
In addition to the near-term marketing considerations, there are some longer-term trends that have worked against the small grains. Kohl says advances in crop technology have helped farmers to grow soybeans in more areas of the province than 15 years ago.

A second trend relates to the move away from small acreages and mixed farms to larger and more specialized operations. “We’re not going to get back to the heyday of bigger acres where most growers grew a few acres for feed. With fewer farmers having less livestock, demand for small grains has gone down,” says Martin Harry.  “But it can grow back when demand increases for specialized products – like those in the health food market.”

While there may be a difference of opinion about the resurgence of small grains, there is agreement on Harry’s point about a solid market for the crops. Peter Johnson says there are two good niche market opportunities for oats. The first is the Quaker Oats plant in Peterborough. “Quaker has made a real concerted effort to use locally grown oats. From that perspective they have really offered a nice marketplace.”
 
Johnson says the other is the horse market, which has provided good, local demand for the crop.

Steve Kell agrees that growing oats and barley for human consumption is an important opportunity. For those growing the crops for those markets, Kell says crop management is vital. “Quality is paramount in those crops because we’re selling groceries and not commodities. Twenty-five years ago the feed trade used a lot of barley. Now, a majority of the barley goes into human consumption. And it’s the same thing with oats.”

Echoing Kell’s assertion, Dave Kohl says farmers have to meet the minimum quality requirements if they want to receive a decent return. “So if you end up with a slightly lighter oat crop than what is required for that end use, you can end up with a tremendous amount of product that will have a hard time finding a market.”