Under the Agridome

Higher Oil Can Infuse A Bubbling Corn Market

Thursday, August 9th, 2018

My corn crop looks good. However, getting there is always a bit of a journey. In 2018, I employed some management strategy that at one time was the things dreams are made out of. For instance, just this past week I had my 10 to 12 foot corn sprayed with fungicide and insecticide. Back in the day, when we hoped for 150 bushels per acre, either one of those things was literally impossible at this stage of the year. You simply walked by the corn and listened to it grow.

Last year I had one of my fields yield 233 bushels per acre. In this area of Ontario that was pretty common and of course I’m hoping for more this year. Needless to say, I owe much of that extra productivity to the genetics but also to some of our new machinery technology that lets us manage plant disease like we have never done before. We have found out that plant health matters and we spend an inordinate amount of time fighting the bugs and keeping those plants green.

At the end of the day I’ll be hoping for good corn but also some good corn prices. In Ontario there was ample opportunity to contract corn for $5 a bushel off the combine. At the present time, with corn prices fluttering near five dollars for harvest delivery, it’s got me dreaming about even higher corn prices. That is, despite the fact several weeks ago I told readers we should not get too greedy.

I got thinking about this today, when I read a CBC article written by my colleague Don Pittis on our Canadian oil market. Over the span of the last 15 years I’ve talked about the price of corn and the price of oil together. With the price of oil fluttering near the $70 a barrel mark, it can be only good for corn, even though it isn’t so good for filling up your pickup truck. The price of gas currently in my local area is approximately $1.33 a litre.

My reasoning of course is that high oil prices are usually good for biofuel production. In other words, high oil prices and the threat of high oil prices always gave higher ground to biofuel development. A year ago oil prices were just under $50 a barrel. The run up to $70 a barrel has been fairly steady over the last year. The demand and supply of global oil is changing and as we look ahead, that might have a significant effect on the corn demand going into 2019 and 2020.

The implications for the Canadian economy are good with higher oil prices. We all know how that works with the Alberta economy. Investment in the Canadian oilsands sector is up 14% from last year. We also have China and India consuming more oil, while oil reserves in Venezuela remain dormant. Slowly, the demand for oil keeps churning and with the price much healthier than the $30 levels we saw in 2016.

As I wrote a few weeks ago, geopolitics matters when it comes to our grain prices in 2018. We also know geopolitics matters to the price of oil and any type of political instability in the Middle East can cause price spikes in oil. There are also those who link the value of the Canadian dollar with the value of oil. I am not one of those, even though I do think it has a small effect. If you are a believer that the oil price is going to rise with a similar rise in the loony’s value, it will have a dampening effect on our Canadian grain prices. Oh, why does it have to be so complex?

All of those factors might tempt you to take the $5 corn and run with it. Keep in mind, December corn futures sit at $3.82, a far cry from where we’d like it to be. There is a huge crop in the United States with some private estimates predicting 178 bushels per acre 2018 US national corn yield. That’s 2 bushels per acre more than last year albeit on less acres. Meanwhile in Ontario, it’s a field of dreams. Timely rains can do wonders.

The price of oil can do wonders too. Remember those predictions years ago of $200 oil? That has been disparaged ever since. However, oil has been on the rise throughout 2018. Generally speaking, that’s good for the corn price. Add a few choice early morning tweets into the narrative and you’ve got a bubbling corn market.

We’ll see, it’s been a long corn price slog over the last five years. If the price of oil continues to rise, it may slowly take the corn price with it. The hard part will be seeing it happen without corresponding loonie exuberance.