It’s harvest time and Henry Van Ankum is about to bring in the corn, as he has every fall since 1989.
Corn crops across North America are abundant after farmers reacted to 2012’s high prices by seeding a record amount of land in a year that saw plenty of rain and temperatures that were just right. But this year is also notable for a second reason. The price Mr. Van Ankum’s corn fetches is about 40 per cent lower than last year’s, and he will lose as much as a dollar on every bushel he harvests.
The price of corn that goes into animal feed and industrial uses has plunged amid expectations for a large North American harvest, said Jerry Klassen, manager of the Winnipeg office for GAP SA Grains and Produits, a Swiss grain trader. Also weighing on prices are signs of slowing growth in demand for ethanol, the gasoline additive that consumes about 35 per cent of the Canadian crop and helped push up corn prices by 75 per cent between 2010 and 2012.
The drop in prices has farmers looking for ways to cut costs, weighing carefully the purchases of new machinery and renegotiating land leases that were signed when prices were high, said Mr. Van Ankum, who is chairman of the Grain Farmers of Ontario.
“The current market prices have dropped below my cost of production,” said Mr. Van Ankum, who grows corn, soybeans and wheat on 1,200 acres near Guelph, Ont. He figures it costs him $4.50 to $5 to seed, grow and harvest a bushel of corn, and he expects the local feed mills will pay him less than $4 for each of the 60,000 bushels his fields will yield.
Corn prices on the Chicago Board of Trade have fallen by 35 per cent this year to $4.40 (U.S.) a bushel after peaking at more than $8 amid the 2012 drought that damaged much of the U.S. crop. (There are 40 bushels in a tonne.) Prices dropped again this month on reports the U.S. Environmental Protection Agency might reduce the required amount of ethanol in gasoline amid worries the ever-increasing use of the biofuel is damaging car engines.
Ottawa requires gasoline to contain an average of 5 per cent ethanol, a renewable fuel that has become a popular way to reduce harmful tailpipe emissions.
While much of the corn grown in Manitoba is used for animal feed, Husky Energy buys the rest and makes ethanol, said Morgan Cott of the Manitoba Corn Growers Association, which represents 1,000 farmers. Other uses for corn include food additives and resins for carpets and counter tops. The sweet corn eaten at the dinner table is 5 per cent of the crop and is harvested in the late summer.
“A large portion of our ethanol is sold to other major oil companies in Western Canada for their ethanol blending requirements,” said Husky spokeswoman Kim Guttormson, who would not comment on speculation about changes in U.S. requirements for the fuel.
The doubling in Canadian ethanol production since 2008 has had two effects on the corn market: it has lifted the price by 50 per cent, and made it more sensitive to bad news, such as last year’s drought.
GAP’s Mr. Klassen said this is because there is steady, year-round demand from factories that produce the alcohol-based fuel.
But domestic ethanol production is flattening, rising just slightly in 2013 amid fears the auto-fuel market cannot absorb any more. Gasoline retailers say many drivers believe gas that contains more than 10 per cent ethanol is harmful to their engines.
In response to cheaper prices for corn, growers will likely plant less of it in the spring and look to other crops. “It certainly looks like soybean could get a bit more acreage, but it’s a few months before farmers make the final decision,” said Todd Austin, marketing manager for Grain Farmers of Ontario. “There is a lot of risk in growing grains.”
In Guelph, Mr. Van Ankum has two ways to limit his losses this season. He pays for production insurance that covers smaller crops due to bad weather or pests. And he can make an insurance claim if the prices of his commodities plunge.
Both will lessen this year’s sting of low prices, but he’s not sure if they will cover all his losses. And he knows making any claim will likely drive up the insurance premiums he pays next year.