Thunder Bay, once the world’s largest grain port, hasn’t even been Canada’s top grain port for years. But there’s hope on the horizon.
Populations are growing faster in Africa, the Middle East and Latin America than anywhere else, Rick Steinke, the Canadian Wheat Board’s (CWB) vice-president of logistics told the Fields on Wheels conference in Winnipeg Dec. 3.
“It means we’re going to see more demand out of the Atlantic and it means we’re more bullish on eastern movement and north movement than we are in western movement,” Steinke said, looking out to 2018.
Not only are those populations growing quickly, more people are leaving the countryside for the cities and that usually means more demand for food, he said.
Steinke doesn’t expect eastern grain shipments will return to the volumes seen in the heady days of the 1970s and 1980s when the Union of Soviet Socialist Republics (USSR) was buying millions of tonnes of Canadian wheat.
In 1983-84, Thunder Bay moved 18.9 million tonnes of wheat, durum, barley, canola, oats, peas, rye and flax – 60 per cent of western Canadian exports, according to data from Canada’s grain monitor.
Vancouver moved 35 per cent of grain exports that crop year.
Fast-forward to 2008-09 and the results are almost reversed – Vancouver handled 56 per cent of the exports, while just 24 per cent or 6.2 million tonnes went through Thunder Bay.
There are a lot of reasons for the shift. Not only did Canadian wheat exports to the USSR dry up when it collapsed, but some of its former members – Russia, Ukraine and Kazakhstan – have since surfaced as major wheat exporters competing against Canada, Louis Dreyfus Canada president Brant Randles said.
In 2000, Russia and Ukraine exported 780,000 tonnes of wheat. Last year together they exported 28 million tonnes.
“The flip in terms of production and consumption is mind boggling,” he said. “They are a formidable low-cost producer of medium-and low-quality wheats.”
Freight and related handling costs are another factor. While it costs a farmer shipping from Winnipeg about the same to move grain east, south or west, the eastern corridor costs a farmer in Regina about $20 more per tonne than going west, Randles said.
Markets matter too. Raw canola is mainly exported to Japan and other Asian nations, which is much cheaper to reach via Vancouver.
Most people think of Asia Pacific Rim as the region with the fastest-growing population, Steinke said. It’s growing and the region has the highest concentration of people, with China alone accounting for one-fifth of the world’s population.
While world wheat trade has been flat in recent years, world soybean and canola production and consumption are up 140 per cent since 1990, Randles said.
China consumes 25 per cent of the world’s soybeans – four times as much as it produces, he said.
In 1995, China didn’t import any soybeans. In 2009-10 it imported 50 million tonnes and it’s estimated in 2010-11 China will import 60 million tonnes.
“It’s just an amazing story and you can see why we have all this demand for transportation infrastructure at the West Coast,” Randles said.
China will continue to be a big story probably for the next 20 years, he said. One Chinese official said in 2009 China required 148 million tonnes of compound feed. By 2020 China will need 250 million tonnes – a 70 per cent increase.
FALLING WHEAT ACREAGE
Canadian wheat acreage has fallen and exports are down 2.7 million tonnes since 1990, Randles said.
Canadian barley and oat plantings have also declined, but canola acres continue to rise.
Canola yields are increasing and closing in on wheat. And canola prices are usually higher, and sometimes much higher, than for wheat.
Randles predicted Canadian farmers could plant 20 million tonnes of canola in 2011.
American wheat exports are down 5.1 million tonnes ver- sus 20 years ago, also because farmers are switching to more profitable crops, especially corn.
Corn drives all agricultural markets, Steinke said.
The demand from the ethanol market is helping to keep prices strong, with current prices up 70 per cent from last year.
In 2005, the U.S. used 40 million tonnes of corn to make ethanol; now it uses 125 million tonnes, almost matching feed demand, Steinke said.
“It’s very stable, it’s very inelastic,” he said. “It has created a tighter environment for corn. Tighter stocks mean more volatility and more change.”
Erratic weather related to climate change, increased speculation by large funds in futures markets and currency fluctuations have all added to market volatility, Steinke said.
“I don’t think the volatility is going any time soon,” he said.
Global markets are changing rapidly; everyone in the grain supply chain needs to be open in their thinking and collaborate so the industry as a whole can prosper, he said. [email protected]
– BRANT RANDLES