In the 10 years that I have been commuting from the farm to Mississauga every day, I have seen some ridiculous traffic jams. Maybe it’s just me, but after I’ve wasted an hour creeping along stop-and-go, I actually want to see some horrible calamity, (like a collapsed bridge), that would justify the horrible waste of time. The sad truth of the matter is that it’s usually nothing more than too much traffic all trying to go the same way at the same time, and the only real problem is the corridor’s lack of capacity. The grain freighters in the Amazon are a lot bigger than the cars on the 401, but the congestion at South American ports is no less severe, and since North American ports are nowhere near as over capacity, it has created an opportunity for us to make grain sales.
In this column back on February 15, I had a satellite image of the grain ships waiting in queue at the Brazilian port of Paranagua waiting to load soybeans. The current situation in South America is not the tail end of a five-month traffic jam, but rather a second logistics crunch created by the significant harvest of double-cropped corn grown after soybeans. A recent report by the University of Illinois suggested that Brazilian grain storage is 34% too small to adequately handle all of the soybeans that they produce, so the infrastructure issue becomes dire when 10% of those soybeans acres are double-cropped in corn.
In terms of our market, the situation is one of seizing the opportunity. Our ability to make export sales of corn for the summer months was initially poor because European buyers were sizing up the potential size of the South American corn production and making the assumption that supplies would be abundant and prices would be low once combines started to roll across the Matto Grasso. They were right about everything except that you can’t physically get into the Amazon ports, get a freighter loaded, and get home again fast enough. The windfall for Ontario corn producers in all of this is that through late June and early July, we’ve had European buyers in the North American market buying smaller freighters of our corn in order to hold them over until the big shipments from South America finally start to arrive. The Great Lakes – St. Lawrence Seaway is blessed with un-congested shipping, adequate grain infrastructure, and a surplus of 2012 crop corn. The ability to cleanly execute small lots has enabled the Ontario market to capture export values which are in fact higher than the world market price.
This sales opportunity is a closing window. Like every other traffic jam that I’ve ever been in, at some point the vehicles start to move again. The South American corn crop is there, it is a significantly large crop, and it is going to move; our opportunity is in doing the business while they can’t. Secondarily, in a few weeks, the Ontario grain pipeline starts to fill up with wheat, and we will create a little traffic slowdown of our own by tying up terminal space, grain trucks, and available freighters, making it tougher for us to continue executing corn exports. The fit for Ontario corn in the world market is much like the fit for a convenience store in the same town as a Walmart. South American grain is clearly like the Walmart – huge volumes at very competitive prices; our fit is to pull higher values on smaller volumes and build our fit around quality and service. While the traffic jam is on in South America, we have a market that is prepared to pay for service.