The GMC report, Opening the Throttle and Applying the Brakes, makes the conclusion that it is the growth in the ethanol sector that is largely responsible for the struggles in the hog industry here in Ontario. To reach that conclusion one would, presumably, have to assume that supplies of corn are less available today now that there is greater ethanol production than there was prior to the recent expansion of the ethanol industry.
Prior to 2005 there were two ethanol plants in Ontario, a large relatively modern one at Chatham and a small older plant at Tiverton. Since that time four plants have come on line: a retrofit of an existing starch plant at Collingwood and new plants at Sarnia, Aylmer and Johnstown, with the last two coming on line this crop year.
In the five years prior to the current ethanol expansion that began in '05, we consumed on average about 47 million bushels (with a high of 57 million and a low of 33 million) domestically more than we produced.
In the three years since ethanol began using a much greater volume of corn, beginning with the '06 crop, we consumed on average 31 million bushels (with a high of 41 and a low of 24) more than we produced.
Clearly ethanol production consumes a considerable amount of corn however corn producers have responded to the increased demand with a considerable increase in production.
The relative availability of corn in the Ontario market is also reflected in the adjusted basis, which is a numerical measure of the relative strength or weakness of demand in the domestic market. Looking back over the recent past Ontario’s adjusted basis has been flat to declining, not at all the situation portrayed by the GMC report.
The conclusion that we should have less demand for corn from ethanol and thus lower corn basis levels ignores the fact that if we have lower demand and lower prices we will also see lower production. As we have seen recently growers of corn will respond to market opportunities and also to the disappearance of opportunities.
It is also unrealistic to think that we here in Ontario can be the low cost producer of corn in North America given our slightly lower corn yields and significantly higher drying costs.
What is the most disheartening about this report is not that it offers a critical observation of the ethanol industry, which is certainly acceptable, but that instead of focusing its attention on solutions that might actually benefit hog producers the authors choose to instead try and drive an unhelpful wedge between the producers and the users of corn.
Ed note: According to Ontario Ministry of Agriculture, Food and Rural Affairs statistics (http://www.omafra.gov.on.ca/english/stats/crops/index.html), Ontario produced 1.73 million acres in 2008 (a figure that does not take into account the amount of corn left in fields last winter); 2.055 million acres in 2007, 2.03 million acres in 2006 and 1.565 million acres in 2005.