Overview of the Market

Corn is a major crop in Canada, with most corn production occurring in Southwestern

Ontario. This region is known as Corn Belt 1. Similar acreages are grown in Eastern Ontario and Southwestern Quebec, also known as Corn Belt 2. Corn acreage is fairly stable from year to year; however the overall trend in the past decade has been a slight acreage decline in Corn Belt 1, with acreage increases in Corn Belt 2 and in the West, particularly in Manitoba. Overall, acreage and total production are increasing.

Statistics Canada 2006-Cat. 22-002-XIB; Census of Agriculture 2001 Table 95F0301XIE

Notes to Table 1: Small amounts of grain corn are grown in PEI, NB, SK, and BC.

Structure and size of the market

Canada is a net importer of corn, with the domestic supply at about 85% of usage. About

80% of the corn supply is used for animal feed. Cattle, (beef and dairy) and hogs each

consume about 40% of the feed corn. Poultry consumes about 20%. Overall the total feed-grain market in Canada is supplied by corn, barley, oats, and wheat. There is some degree of substitutability among these grains, and among differing qualities of grains. The remainder of the corn is used in food and industrial products. The major food products are starch and fructose; the major industrial product is ethanol. There are countless minor uses for corn, from cosmetics to pet food.

Major markets for corn such as hog production and ethanol plants are located in the “corn

belts”, in close geographic proximity to the major growing areas.

Market Characteristics

Corn is usually harvested from late October to mid-December, with kernel moisture content at harvest generally in the range of 20-25%. Significant amounts of grain corn are grown by livestock feeders and stored in silos and bins on the farms where it is fed directly. Corn may be sold by private treaty to neighbouring livestock feeders. A significant percentage of the corn grown in Canada does not enter into commercial channels.

Corn is harvested at moisture levels well above safe storage tolerances and therefore must be dried before storage. A grower may or may not have on-farm storage and drying available. If corn cannot be handled on-farm, growers have two choices: corn may be delivered to a licensed elevator, or delivered directly to a local user such as a beef feedlot or a hog finisher.

Elevators, dealers and processors

The term “elevator” refers to a commercial establishment that holds a license to store grains and oilseeds on behalf of another party. The term “dealer” refers to a commercial establishment that holds a license to buy and sell grains and oilseeds. “Processor” refers to a commercial establishment that physically transforms grains and oilseeds to some distinctly different product.

All elevators have facilities equipped to process grains (i.e. dry, clean, clip, etc.), but do not transform grain. In almost every case, holders of an elevator license also hold a dealer license, and processors such as feed manufacturers may hold an elevator and dealer license as well. Some establishments are corporations; some are co-ops and may have one or several locations. Some offer a complete slate of grower services including seed, fertilizer and chemical sales, pesticide application, crop scouting, harvesting, trucking, On the marketing side, elevators offer marketing assistance, advice on pricing strategies, and a range of pricing and selling options.

In Ontario, Agricorp delivers the Grain Financial Protection Program on behalf of the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA). The program protects the financial interests of Ontario producers of grain corn, soybeans, canola, and wheat who sell their crop to Ontario licensed dealers. Most Ontario dealers do not hold a Canadian Grain Commission (CGC) license. Dealing with an elevator with an Ontario license protects owners who store grains and oilseeds. In Western Canada, elevators are regulated by the CGC. Most dealers who accept corn are also holders of a CGC license, but it is not mandatory. It is up to the grower to protect his own financial interests when choosing to do business with a grain dealer.

Buyers include major grain companies, animal feed manufacturers, elevators (licensed grain dealers), livestock feeders, food processors and ethanol plants.

Commodity corn

Growers sell corn using any or all of the following:

Store on-farm - growers may have facilities for drying and storing corn. As with all grains and oilseeds, corn in storage must be monitored regularly to ensure quality maintenance. Delivery can be arranged as the grower sees fit. Growers may be able to take advantage of prices some distance away at any time until the bin is needed for another crop.

Spot or cash market - corn can be delivered to the elevator directly from the field and sold subject to grading discounts or premiums. Some years this is a good strategy, as there is no price risk, and payment is received promptly. In years when bin space at elevators is at a premium, prices at harvest at certain localities may be under pressure.

Store corn at a licensed elevator - corn can be delivered and stored, and sold as the grower chooses throughout the year. In this scenario, the corn is like money in the bank. There is no concern about storage loss and the corn can be sold with a phone call.

Sell on target price contract - typically the elevator will sell the corn when the price reaches some target price. If the target price is not reached, the corn is not sold. This type of contract frees the grower from constantly guessing and second-guessing the best time to sell. On the other hand, a target that is too high will leave the grower with unsold corn towards the end of the crop year, when cash flow demands are highest, and selling options are few.

Sell before harvest - some growers sell a proportion of the crop if prices for future delivery are strong. Elevators may offer advance payment options for certain percentages of the expected selling price.

Specialty corn

Specialty corn includes popping corn, white corn (used in flour), and waxy corn. These are minor use specialty products that are segregated and make up less than 5% of the total crop. Specialty corn is usually grown under contract, meaning that a buyer agrees to take all of the production from certain acreage at a certain price, providing certain quality criteria are met.

Corn may also be segregated if it is non-genetically modified (GM) to supply markets that do not permit GM products.

Key Changes or Recent Issues

The major story of the past year has been the spike in energy prices, which affects the corn market in several ways. First it increases costs, particularly of nitrogen fertilizer, which alters the economics of growing corn. Second, high energy prices have precipitated announcements of new ethanol plants to be built in Canada and the United States, to the extent that up to 40% (some forecasters predict as high as 55%) of the North American corn crop will be diverted to the fuel stream by 2015. This will create a new demand for corn and increase acreage at the expense of oilseeds and wheat.

Market support programs, domestic and foreign, may have a considerable effect on corn supply and hence on prices.

Price Discovery

The base price of corn is established by markets at the Chicago Board of Trade (CBOT).

Prices at the CBOT reflect supply and demand in the U.S. Midwest, where most of the corn in North America is grown and used. Since corn is a freely traded commodity in North America, corn prices everywhere work back from this price. Differences between the CBOT price and local prices (basis) varies with changes in local demand, lower if corn is in surplus supply locally; higher if the region is in a deficit position.

Futures prices in corn give some indication of the trend in corn prices. Futures are traded in large volumes by speculators and hedgers who study developments and trends all over the globe. Futures prices reflect the collective expectations of corn supply and demand, and are an important indicator for the corn grower as marketing and production decisions are made.

Key Quality Issues

Quality is defined at grading. Corn must be cool and sweet, free of insects and chemical treatment, is graded 1, 2, 3 or 4 according to its test weight. These are the only criteria. There is no premium for kernel size. Dockage (cracked kernels, fines and foreign material) is calculated at grading, and discounts are imposed if dockage exceeds the allowable minimum. Corn prices are quoted for #2 yellow dent corn, 56lbs/bu.

In some years, mycotoxins are a concern, and corn is tested for specific toxins. Corn with higher than acceptable levels of mycotoxins for commercial channels may be acceptable for ethanol production, or for ruminant livestock.

Risk Factors

Corn is an unregulated commodity in North America, which is to say that the price is determined by free market interaction of supply and demand. Anyone is free to rent some land and plant corn. Also, the market for corn is tied to the overall economy in so many ways that there is scarcely an event that does not affect the price of corn.

Major factors affect price including:

• Supply;
• Number of cattle and hogs on feed in North America;
• Trade conditions;
• Political conditions;
• Dollar exchange rates;
• Supply of substitute grains e.g. barley, feed wheat;
• Overall economic conditions;
• Consumer trends; and
• Energy prices.

Growing conditions in the U.S. Corn Belt are a major determinant of price. For example, good spring rains in Iowa are generally positive for corn supply and drive prices down. However that would depend on the relative economics of corn and soybeans, and how the weather might affect farmers’ planting decisions. If wet weather persists to late spring in the Corn Belt, forcing acreage out of corn and into soybeans, corn prices may begin to rise due to a perceived shortage.

Closing Comments

Overall, it is important to understand that corn is a major commodity whose price is set in the U.S. Given its importance in the U.S. farm economy, U.S. farm policy is a significant determinant of supplies and ultimately price.

Consider carefully all the options as you decide when to sell corn. Remember that there are always a multiple set of risks when selling. Your ability to manage these risks will influence how quickly you choose to sell or hold on to your corn at any particular time. Markets can be volatile. Also be accurate and realistic in calculating costs and risks of storing corn. There is no substitute for using accurate information, sourcing good advice, and making good judgments.

Finally, it is very important to have a well-developed network of fellow producers, and other sources that have an interest in your success. This network is invaluable in lending inside knowledge and expertise in the development of a successful marketing strategy.

Stay current, learn as much as possible about the marketing environment locally, nationally and internationally. Know about the marketing options and communicate regularly with buyers. These are aspects of marketing that a grower has the most control over.