US ag media reports indicate that yields will be at bumper crop levels in several US corn and soybean growing states. That’s good and bad for Alberta livestock, oilseed and cereal growers. For those in the feeding business, record corn crops mean lower prices and negative price pressure on barley and wheat. With feed being one of the highest livestock production costs, feedlot operators and others will try to lock in those low prices with timely futures purchases. Barley growers will pay the price of a giant corn harvest; profits will prove elusive. Wheat may not be as impacted as most is exported and is subject to global market variabilities. The only hope for prairie cereal growers would be their own bumper crops, but according to Alberta harvest reports, that’s not likely in most of the province.
Feedlot operators seem double blessed as slaughter cattle prices continue to be profitable and beef demand continues to be strong. The latter is surprising considering the high price of beef in retail stores. Your beef-loving writer can’t help but notice quality prime roasts have reached the hundred-dollar level and higher – which would seemingly discourage grumpy, price-sensitive consumers. Pork remains more affordable, hopefully, lower feed costs will provide financial relief to hard-pressed pork producers – who have been on the losing side of markets for the last decade.
US soybean production in several states is also close to record levels, which will pressure market prices. The downside of low US soybean prices is that canola prices will see a negative trend before the crop is harvested. That situation favours hog producers as soybean and canola meal are their primary sources of protein. Milk producers should also see their feed costs reduced; however, one wonders if that will see lower retail prices of dairy products. Dairy marketing boards always blame increased feed costs as the reason for milk price increases. It would seem that lower feed prices should lead to lower milk prices at the producer level and, by extension, at the retail level. But that’s not likely, as processors and retailers usually find ways to capture those lower farmgate prices before they reach consumers.
It’s an old story in agriculture: one sector’s misfortune is another sector’s boon. The solution is always to produce more at less cost. Agronomics, genetics, consolidation, and technology contribute to lower per-acre costs. Corn production has been particularly successful in increasing per-acre yield over the past fifty years. In 1970, the goal was a 100 bushel per acre corn yield; the average was 70 bushels. Since then, yields now average 150 with 200 being quite common. The US corn report stated that Iowa and Illinois will average 220 under exceptional growing conditions.
Other parts of the US midwest have not fared as well with drought and flooded crops in the Dakotas and Minnesota. However, the corn growing area of the US midwest is so vast and has expanded so much that yield losses on a couple of million acres have little bearing on total bumper crop production. It’s interesting to note that corn growers in some states now consider a 120 bushel crop as a disaster.
A big market for US corn is ethanol production, which is mandated and incentivized by the US government. It’s hard to determine whether low corn prices will increase ethanol production; in any case, it will mean a lower cost for an ethanol production byproduct – distillers grains. That byproduct has become a feed ingredient for feedlot operators, and countless tons are shipped annually to Alberta.
The present market is what it is – but most marketers know it can radically change within days due to global events. The Ukraine/Russia war and the Middle East are the most volatile regions in the world, and any escalation in hostilities can cause market prices for crops to skyrocket. Then there is that other global event – the US election this November. Although marketplace futures contracts generally bake in events like election results, there is always the unknown factor as to what a new US administration will do compared to what it said it will do.
The big immediate event in Canada will be the Chinese trade reaction to recently imposed high tariffs on EV cars, steel and aluminum. The last time China was upset with Canada, it imposed an embargo on canola and meat imports, which cost the Canadian ag industry billions in lost returns. The next few months will be anxious indeed.
Will Verboven is an ag opinion writer.
