By BETTER FARMING STAFF
“It has not been an easy year for the crop input supplier or the grain elevator up to this point,” says Bob McNaughton, president of southwestern Ontario-based Sylvite Agriservices.
Over the past eight weeks the United States’ financial woes have played havoc with world financial markets. Fertilizer, grain and oilseed commodities are all affected. But those in agribusiness say Ontario’s market actually experienced more troubles in the summer when grain prices escalated.
“We bought a lot of grain as prices rose, forward contracted a lot of grain,” says Dave Gordon, a corn merchandiser with London Agricultural Commodities Inc. Elevators had to carry the (forward contract) hedges. “In some cases I think it forced some sales by those elevators or grain companies they really didn’t want to make quite so early in order to buy back their hedges and get out of their situation.”
McNaughton recalls the situation being so bad that at one point in August, “bids were just taken off the board.” Elevators couldn’t buy grain because they didn’t have the money. And it wasn’t just the “little guys,” he says. “Even the larger companies, even the Cargills and the others, there was a week in there that the bids just weren’t there.”
In September, grain dealer Inwood Seed and Grain Limited in Lambton County declared bankruptcy. Agricorp pulled the elevator’s license under the Grain Financial Protection program. Agricorp spokesperson Diane Spratt declined to comment on whether market conditions played a role. She says the company is the only source of grain financial protection claims the provincial crown corporation has received lately.
Businesses such as McNaughton’s, which sells crop inputs and operates two small elevators, have been challenged to boost credit lines and finance grain buys and stocks of next season’s crop inputs at the same time. “We all know what the banking world is like today,” he says.
Transport logistics is the main reason why suppliers must buy their stocks so far in advance. Commodity prices haven’t been the only issue. Freight and fuel prices are “bouncing around” and “you’ve also got the dollar right now heading south.” With the volatility in “all sectors of the decision making, it makes it a pretty poisonous cocktail potentially,” he says. “You can be on the wrong side of a purchase really fast.”
McNaughton says his company is coping by making smaller, more frequent buys over a longer period of time assuming the averaged price paid “will be okay.”
Grain and oilseeds price drops have since eased pressures for elevators and feed mills. “The price of our basic commodities, corn, soybean, meal, etc., they’ve come down quite dramatically,” observes Ron Coughlin, who owns Molesworth Farm Supply near Listowel, “and almost to the level that is sustainable in our opinion both for the commodity producer and the end user.”
Gordon says if elevators survived the summer crunch, they’ll be all right in the current market climate. There is demand for grain right now with end users seeking to lock in prices “for as many months out as they can because they think in a lot of cases that this is the low, ‘so we’d better get something done.’” The demand has added to the basis in Ontario although “we’re certainly not at import values by any means.” But by mid-October, there was little selling locally, “other than those with small crop grain to move.” BF
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