Farmers will need to sharpen their marketing skills, while the grain industry works hard to keep the grain moving
Western Canadian farmers are smiling as they harvest a bumper crop, but grain shippers are nervous about getting it to market in a timely way.
Grain prices are also down as stocks build globally.
“This year is going to put the logistical system to the test,” Mike Jubinville, president and lead analyst of ProFarmer Canada said, noting he’s seen projections of a 17-million tonne canola crop, 33 million tonnes of wheat, and six million tonnes of durum.
“It looks to me like it’s a bin-buster of a crop coming off … I’m getting numbers from growers that are off the charts. God help us if we run into some kind of transportation issues.”
The railways are ramping up, said Mark Hemmes, president of Quorum Corporation, the firm hired by the federal government to monitor the West’s grain handling and transportation system.
“Canadian Pacific is ready for the 2013 crop year,” company spokesman Ed Greenberg said in an email. “We are well positioned to access major gateways in North America for Canadian wheat farmers looking for new domestic and export markets.”
The issue isn’t so much if the railways can move the crop, it’s whether they can work with the grain companies to get the right grain at the right place at the right time, Hemmes said.
Grain shippers are nervous, said Wade Sobkowich, executive director of the Western Grains Elevator Association, which represents the major elevator companies.
“This year with a larger crop… it stands to reason that there could potentially be greater logistical problems,” he said.
“We hope the railways have put in measures that deal with winter that comes every year and… are prepared.”
What a difference a year makes. Last year it was a demand-pull or grain seller’s market, this year it’s a supply-push or buyer’s market, said Greg Kostal of Kostal Ag Consulting.
With grain companies at full capacity they’ll widen their basis (difference between the cash and futures pric
e) and earn higher margins because of a lack of competition, he said.
Last year with strong grain prices companies had to coax the grain from farmers by cutting basis.
Farmers need do more market planning this year, Kostal said.
John De Pape, president of Farmers Advanced Risk Management Company, agrees. Farmers can get paid to store grain by locking in higher deferred prices, he said.
Sometimes farmers feel forced to sell grain early to pay bills despite poor prices. Cash advances are a tool to avoid distress selling, he said.
Jubinville said basis levels have widened to reflect the surge of “off-the-combine” sales.
“The transportation flow is locked up tight over the next three months,” he said.
According to one industry official it’s over sold.
“I think the first hiccup is already happening,” said the official who asked not to be named. “The number of orders being placed with the railways is far exceeding what they can get done.
“Everybody is desperate to sell, markets are falling and I think capacity is going to be really constrained, especially at the West Coast, but also to the east. It’s going to be tougher to move grain this year.”
The railways will be blamed, but the real story, according to the official, is grain companies selling more than the railways can handle.
A poor quality wheat crop will just compound logistical problems, said De Pape. So far wheat quality is good, but the CWB’s pool manager David Przednowek, expects lower than average protein levels.
“Watch out for grade and protein discounts,” he said.
Last fall the Canadian Wheat Board’s monopoly ended creating an open market. Grain movement was relatively problem-free for the first few months, but between January and April 2013 there were times when grain shippers received less than half their car orders, Sobkowich said.
Record snowfalls were partly to blame, but grain shippers say the railways should’ve been better prepared.
Farmers who were able to deliver wheat straight from the combine for $9 a bushel last fall are in for an unpleasant surprise if they are looking for quick cash this fall, Jubinville said. Wheat prices have dropped to around $6 a bushel, and while that’s historically good, it’s still a lot lower than what they were receiving this time last year.
While many believed prices were up because the board’s monopoly ended, Jubinville said it had more to do with global forces, including the historic drought in the U.S. pushing corn prices to new highs.
Last year’s wheat was also high protein, which is unlikely to be repeated this year. Many farmers have contracted wheat at 13.5 per cent protein and while protein premiums have yet to resurface, there could see some huge discounts on wheat that doesn’t meet specifications.
The marketing story isn’t all doom and gloom, Jubinville said. He anticipates markets will take a post-harvest bounce once the size of this year’s crop is known, but pricing and delivery opportunities could be short-lived, so farmers will have to be on their toes to make the best of their options.
“There is money to be made farming this year and good money at that,” he said.