RECOGNIZING
REALITY
Ontario
corn producers were being paid $2.24 for a bushel of corn delivered to their local elevator on Friday,
November 19, 2004. From that would be deducted drying costs of perhaps $0.30/bushel or more, depending
on moisture content. That leaves less than $1.94/bushel net! Even with a good yield such as 150
bushels/acre (the provincial average is currently projected as only 127 bushels/acre), revenue of
$29I/acre doesn't come close to covering costs of about $500/acre.
That's reality!
Bureaucrats are fond of saying farmers themselves are to blame because they should have done a better
job of marketing. They say new crop corn could have been forward contracted at $3.95/bushel on June 14,
2004. That's true, but consider this. We had a wet, drawn-out spring planting season. A large portion
of the crop didn't get planted until late May or early June. The five-year provincial average yield is
115 bushels/acre. Let's say a gutsy producer forward contracted 100% of this historical average yield
on June 14 at $3.95 ($3.65 after drying deduction). You have to realize that would have been an
heroic move, given the lateness of the crop because as late as Labour Day, we thought we had a
disaster in the making. Even this producer loses money because after marketing the balance of his
crop (35 bushels) at $2.24 ($1.94 after drying deduction), his revenue of $487/acre leaves him in
the red. And he marketed 76% of his crop at $3.95/bushel! Current forward contract offers of
$2.85/bushel (perhaps $2.55 after drying) for next year's crop hold little prospect for hope and no
chance to cover costs.
That's reality!
The point is that current prices are so low that government assistance is essential for the vast
majority of Ontario grain corn producers to even have a chance of paying bills. What can our producers
expect? CA1SP has currently paid out $47 million; but let's say bureaucrats are right and we eventually
reach the annual target of $200 million in 2003 CAISP payments. That's a 4-fold increase from the
latest data. To date, CAISP has paid out $7.95 million to field crop participants. A 4-fold increase
means perhaps $31.8 million might be paid out eventually to field crop participants. However, there
are 5 million acres of field crops in Ontario, which means the average CAISP assistance (government
portion only) might be $6.36/acre. And a 4-fold increase in 2003 CAISP payments from current rates
looks hopelessly optimistic.
That's reality!
But at least for this year, we might expect a MRI payment to finish off the program. $90 million
perhaps in the MRI pot after 2003 payments means an average payment of $18/acre over the 5 million
acres of 2004 field crop acreage. This means a total of perhaps $24.36/acre in government
assistance to be received through CAISP and MRI combined over the next year. That would mean our
extremely gutsy marketer has $11.36/acre above costs to put toward feeding the family, but likely has
nothing left to pay normal living expenses. That's only $5,680 on a typical 500 acre cash crop farm.
Our other farmer, if he can stay around for the year to collect the final MRI payment in late 2005,
still owes $184.64/acre on his 2004 crop. That's a $92,320 debt on a typical 500 acre cash crop farm.
That's reality!
How does that stack up against producers in Michigan and Quebec, both of whom are shipping corn into
Ontario? Had either our gutsy marketer or other producer had access to support programs as in Michigan,
they would have essentially been guaranteed a price of U.S.$2.60/bushel (or about Cdn$3.10/bushel).
The combination of fixed payment per acre of corn (U.S.$0.28/bushel) on program yield (105 bushels/ac,
plus Counter-cyclical program payment (U.S.$0.37/bushel, plus Loan Deficiency Payment (LDP)
(currently U.S.$0.24/bushel in Michigan) would provide about U.S.$93.45/acre in government
assistance, or about Cdn$111.36/acre. Under U.S. programs, our producers would already have received
the fixed payment, the initial payment under Counter-cyclical program, and could trigger the LDP
payment whenever he thought prices were at their bottom. Had either our gutsy marketer or other
producer had access to support programs as in Quebec, they would be guaranteed a price of
Cdn$4.70/bushel. After premium payment is deducted, our producers would each net about $130.77/acre
in government assistance through the ASRA program. Under Quebec programs, our producers would each
receive 40% of the 2004 payment (i.e., $52/acre) in December 2004, another 30% in April 2005, plus
the final 30% of his 2003 payment in January 2005. The bottom line is that producers in Ontario
might receive $24.36/acre in government assistance, while producers in Michigan receive
Cdn$111.36/acre and producers in Quebec receive $130.77/acre. The producer in Michigan could
already have all of this government assistance, the producer in Quebec will have most of it by
April, but the producer in Ontario will have to wait until December 2005.
That's reality!
The reality is that the collapse in prices since June 2004 has evaporated opportunities in the Ontario
grain and oilseed sector. Price prospects for 2005 and beyond are far below costs. Even absurdly
aggressive marketing could not have prevented losses. Government assistance is now absolutely
essential to stave off a complete meltdown. Unfortunately, currently available assistance in Ontario
does not stack up against assistance in Michigan and Quebec, both of whom are supplying corn to
processors and dealers in Ontario.