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Under the Agridome
Philip Shaw 2/15 8:23 PM

One of my favorite topics of discussion is agricultural price discovery. It's not as sexy as a new tractor or cover crops, but to me it is one of the most fascinating things to think about in the realm of agricultural marketing. When does the price of corn make sense? When does the price of soybeans make sense? Is the price of corn and soybeans the same 10 miles down the road versus at home? Is the price of corn and soybeans real?

For those of you who live in an intense agricultural area, you must wonder what I'm talking about. For instance, here in deep southwest Ontario we all know what the price of corn and soybeans is. It is listed on internet sites and before that it was put up on chalkboards across the many grain elevators throughout the country. Ditto for many other places across the Midwest. For many of us who farm, commodity prices have complete transparency, but it's not true in some places. If you have read this column over the last 33 years, I often cite Quebec and the Maritime provinces where cash grain prices get a little wonky. Sometimes a price is not necessarily a price, but more a wild guess in the dark.

That is changing in our modern marketplace as internet technology has helped spread the word of what prices are doing in different geographic locations. I just got back today from a four-day sojourn to eastern Ontario, where I was talking on the grain markets in that part of the world. With its close proximity to Quebec, it still has some interesting grain marketing dynamics, specifically the highest corn basis in Ontario.

Since I was invited to speak in eastern Ontario, I thought a good discussion would be why corn prices in that part of the province are typically much higher than southwestern Ontario. I'm sure the people of eastern Ontario might get a bit weary hearing about agricultural futures prices without any explanation on why their prices are so much higher. Needless to say, it has lots to do with the dynamic livestock demand in that part of the province, as well as the black box, which is called Quebec. There is grain flow into Quebec and out of Quebec into the eastern Ontario market. However, it is very difficult to know how the grain flows.

Interestingly enough, without me knowing I had one of my Twitter followers from Quebec, Doug McColm, travel to hear me speak last Tuesday. I've known Doug for years on Twitter, but I'd never met him when I was speaking in Quebec. Little did I know the last question of the session was directed to me from Doug regarding planting intentions for 2019. He intimated to me that with American farmers planting more corn in 2019, maybe you should be planting more soybeans? I responded to Doug by repeating to the group all the bearish fundamentals with regard to soybean prices. The meeting soon ended, where I left to beat the impending blizzard that was predicted that day. Unfortunately for me, Doug contacted me after the meeting on Twitter where I found out he was the one doing the questioning. We exchange messages, where he told me the current cash price for December 2019 fall delivery for corn in his part of Quebec was $5.58 a bushel.

When I saw the price figure Doug was quoting me, I thought he should grow quite a bit more corn, too. It's at least $0.60 higher than I would be offered here in deep southwestern Ontario. Of course, Doug is sitting in Quebec, where price transparency doesn't have really good historical consistency. However, if that is being offered to Doug, it is what it is? However, in Quebec should the price of corn be higher than what Doug was being offered? How do we answer that question?

Generally speaking, you judge that price against what you know. For instance new crop corn in eastern Ontario can be contracted today for approximately $5.15 a bushel. Add about $0.20 on top of that for FOB off the farm. That would mean eastern Ontario farmers are approximately $0.20 less than the Quebec farmers in Doug's neighborhood of Godmanchester, Quebec, which is south of Montreal in some of the nicest farm country in Quebec.

There are ethanol plants, starch plants, export facilities, livestock abundance, but not a lot of corn supply compared to the rest of Ontario and the American Midwest. In fact, we aren't too far away from the frozen tundra. OK, that's a bit of a stretch but, really, grain corn production as we move north and east through Quebec becomes more difficult. Of course, as you move north and east through Quebec the cash price of corn should rise accordingly. However, does it? How does this relate to eastern Ontario and is there good transparency of value?

These are questions that we don't have every day in southwestern Ontario and they certainly don't have them in Iowa and Illinois. However, it is one reason that the eastern Ontario corn basis is higher than anywhere else in the province. For eastern Ontario and Quebec farmers, it represents opportunity to market crops in a more profitable way. For the rest of us, we can only look from afar and admire. Are those prices real and why?

**

Thank you for your all your correspondence.

Email: philip@philipshaw.ca

Website: www.philipshaw.ca

Twitter: @Agridome

Regular Mail: Philip Shaw M.Sc., 29552 St George St Dresden Ontario N0P 1M0

The views expressed are those of the individual author and not necessarily those of DTN, its management or employees.

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