Whiskey Profits: Betting on Rye Pays Off for Canadian Farmers
(Bloomberg) -- When the price of rye started rising last fall in Canada, farmer Lyndon Tomblin was willing to bet big on the crop used to make whiskey.
Despite wet weather that hampered planting, he managed to get 750 acres into his fields in Mozart, Saskatchewan. That was up from 500 acres in years past.
"I saw that opportunity there where it seemed like the market had come up a bit, so I put some in based on speculation," Tomblin said.
Tomblin wasn’t alone. Farmers in Canada, the world’s biggest rye exporter, seeded 419,200 acres for the 2019 season, according to government data. That was up 25 percent from 335,100 acres a year earlier. Growers were enticed by prices that climbed to about C$5.50 ($4.18) a bushel during fall planting, compared with C$3.75 in 2017, after bad weather hampered yields for the previous crop.
Now, just as the spring emergence is about to get underway, it looks like the bet will pay off. Tighter supplies mean prices have increased to about C$7.50, according to data from LeftField Commodity Research.
"We have rye prices that are extremely higher, and I think acreage would have been higher had seed been available or the fall been a little more favorable" for planting, Chuck Penner, owner of LeftField in Winnipeg, Manitoba, said in a phone interview.
The majority of Canada’s rye gets shipped to the U.S., where it’s used in whiskey and flour. It’s also a so-called cover crop, grown in rotation with corn and soybeans to help to prevent soil erosion and add nutrients.
Last season, Statistics Canada estimates the nation produced 226,000 metric tons. Of the total, 131,200 tons, or 58 percent, was shipped to the U.S., the only export destination that year, according to the Canadian Grain Commission.
Most rye is planted in the fall and lies dormant during the winter months until warmer weather triggers further growth. The crop then gets harvested in August and September.
Penner of LeftField expects prices will likely stay flat until the summer months, when consumers will start making bids ahead of the harvest. Amid shrinking inventories, supplies will probably keep tightening until the next crop is gathered, which could then extend the rally and continue to boost farmer profits.
©2019 Bloomberg L.P.