There are very few things to be excited about in the way that the harvest of 2014 has unfolded for farmers in Eastern Canada, but one positive result of the long drawn out harvest period is that the industry never reached a combining speed where the supply of grain outstripped demand, and as a result, basis values rallied rather than crashing to the “harvest lows” which typically accompany the harvest of large crops.
Ontario’s end-use demand for corn is about 22,000 tonnes per day, so by the weather delaying harvest by three to four weeks in most parts of the province, the slow harvest pace has effectively created 500,000 tonnes of storage space for Ontario corn simply by using it up instead of trying to put it away. A harvest low typically occurs because suppliers are compelled to sell grain in order to create the space to store the entire harvest. With this year’s harvest coming in so slowly, there is no chance that values will need to break in order to create space.
The space available for storing this province’s 2014 corn crop was also much improved for this year’s harvest as opposed to the previous two crop years for a number of reasons. The most obvious of these is that the corn acreage this year was 300,000 acres smaller than 2013, the late start to harvest meant that the carry over of last year’s corn into this year’s harvest was extremely small and certainly not taking up enough space to negatively impact the new harvest, and finally, cooler weather and early frost reduced the size of the corn crop in some regions well below its potential. The weather delays of this past week only serve to grind stocks lower. Every day that Ontario does not harvest 866,000 bushels of corn, demand is actually reducing inventory.
There is of course a flip side reality to prices not dropping under harvest pressure, and that is that it limits the size of the recovery bounce coming out of harvest. Farmers earn a return from their investment in grain storage when it eliminates the need to sell when prices are below the level where the market is in balance. The way that the price pendulum swings is lower when the storage system needs to create space, and higher when demand needs to pull grain out of a secure position. With the unusual weather effectively eliminating the requirement to move grain during harvest, there is very little reason to believe that sellers will find any new motivation to ship grain any time over the remainder of the tax year.