Contracts, economics complicate calls for alternate-use crops

Livestock producers and grain buyers have found themselves in a kind of tug of war over the province’s marginal crops

“I think most of the grain companies will work with us, but if they hear we’re putting stuff to alternate use, are they going to be as forgiving as they might be?” – Fred Grieg, Manitoba Crop Alliance.

Livestock operations desperately want their neighbour’s marginal crops, but even with incentives to divert acres into the feed stream, economic realities might have growers balking.

Why it matters: Manitoba’s livestock sector is in crisis, and with more to come if they can’t source winter feed, but filling in that gap with marginal annual crops may run into serious obstacles, especially if those bushels are already committed.

On July 22, the province and Manitoba Agricultural Services Corporation (MASC) announced a 60 per cent quality adjustment factor for assessments on all wheat types, oats, fall rye, barley, and triticale being put to alternate use. Yield in those fields will be valued at 60 per cent of what adjusters assess at seed set. The move is retroactive to include all cereal acres put to alternate use this year.

According to MASC, the adjustment is meant to account for quality downgrades those grains are likely to see in the market.

“What happens in a year like this is most of the seeds don’t fully develop and they’re a lot lighter than what they would normally be,” MASC chief product officer David Koroscil said.

Samples, especially in barley and oats, tend to be lightweight according to Canadian Grain Commission standards, he noted.

MASC compared market value of lightweight samples of wheats, oats and barley versus guaranteed grade over the last five years to arrive at the 60 per cent adjustment.

At the same time, however, the announcement has been framed in terms of an ongoing push to get marginal grains into the feed stream.

Manitoba’s dire feed situation has been looming pretty much all year — first with concern given a dry spring, and then with more alarm as first hay cuts did, in fact, come up almost unanimously short and pasture supplies started to run out. By early July, when the RM of St. Laurent declared a state of agricultural disaster (at least 14 other municipalities have since followed suit), the grim outlook on the Prairies, and Manitoba’s Interlake in particular, had become national news.

With forage so short, many livestock producers put hopes on annuals. The call went out for grain growers to both bale any crop residue possible, but also to switch marginal crops to alternate use. The Manitoba Beef Producers (MBP) said in early July it was collaborating with MASC on that issue, while MASC later sent fact sheets to policyholders outlining the process.

Complications

But with commodity prices sky high, and with some of those marginal acres holding contractual obligations, alternate use may be a hard sell.

Fred Greig, a mixed farmer near Reston, Man., and chair of the Manitoba Crop Alliance, estimates about 90 per cent of crops in his area will be harvested for grain, although he has heard of a few who have opted for alternate use.

“It’s hard on everyone’s psyche when you see your crops drying out, but when you have to worry about mouths to feed and running out of water, yeah, that is just even more pressure than anybody needs,” he said, noting that he, as a mixed producer, sits on both sides of the issue.

“Almost every grain producer,” has likely been approached by a livestock producer, he said.

The adjustment factor may, in fact, tip the balance in favour of alternate use if the economics of that field were already toeing the line, he noted. Some producers in his area expect to harvest just enough to cover their contracts, however, he said, and the economics of alternate use, even with the added revenue of selling that greenfeed, more than likely don’t cover the hit if a producer has to buy out a contract.

“I think most of the grain companies will work with us, but if they hear we’re putting stuff to alternate use, are they going to be as forgiving as they might be? I’m not sure. I think it’s an issue, for sure,” Greig said.

Jenneth Johanson, Prairie Oat Growers Association president, says drought-stricken areas are seeing yield assessments around 20 bushels an acre, before the adjustment factor is applied.

“In those cases, I would assume that the producers are taking a very hard look at what the value of a greenfeed bale is, versus what the cost is going to be to actually have to harvest and take the crop all the way to the end of the season,” she said.

Between current circumstance and a producer’s past production history, the choice will be highly individual, she added.

She hasn’t heard of any rush of producers buying out oat contracts, she said, although the issue has cropped up in canola.

“It is definitely a hurdle, because if you’ve sold yourself to a certain position, there is going to be either a cost associated to buy yourself out of that contract, plus — not just the administrative cost — but the spread in the price of where they potentially would have priced earlier in the year versus where the price is right now,” she said.

The province’s weekly grain and oilseed market report July 23 put oat price at $319.02 a tonne, up $31.12 from the week before. A month previous, oat prices sat at $253.53 a tonne, according to the June 25 report.

“We’re seeing bids of $5.23 a bushel for harvest delivery, which is a pretty unheard of price, historically, for oat production,” Johanson said. “It is definitely complicating the scenario for producers.”

Producers will more than likely harvest in the hope of covering off their contracts, even with a low-yielding crop, she said, “which would make it less enticing to take their oats off for greenfeed.”

Both Johanson and Greig said there was need for more government programs and creative incentives in light of the drought.

Buyers’ perspective

The grain buyers are not unsympathetic to the plight of the livestock sector, said Wade Sobkowich, executive director of the Western Grain Elevator Association.

“Nobody wants to see cattle or any livestock without feed,” he said. “That’s a terrible situation. If there are opportunities to get feed to those animals through some sort of an arrangement between crop farmers and livestock farmers, I think it would be folly not to explore that.”

At the same time, he said, the grain buyer has their own contracts to fulfil, and that grain must come from somewhere if the farmer can’t deliver.

“The grain company has sold those tonnes, so they have been contracted to a buyer somewhere in the world, and it was sold earlier on. It was sold roughly around the time it was contracted with the farmer at prices of that time,” he said. “The grain company needs to figure out how to get those tonnes in order to satisfy that contract, their sales contract, because there isn’t a buyer in the world today that is going to let a Canadian exporter out of their contract.

“They’re going to begin with a conversation with that farmer saying, ‘What are your circumstances?’ and then they’ll probably send somebody to the field and take a look at it and see, does it look like there’s a crop there or not?” he said.

From there, the conversation likely moves to what the producer might have in their bins, or anything else they can do to boost deliverable tonnes.

If the farmer still falls short, they might secure tonnes from someone else, or, failing that, the company will replace the grain and have a conversation with the farmer about replacement value, Sobkowich said.

Scope

It’s hard to determine how many contracts have been bought out this year, and will depend on location, company and how much the farmer forward contracted, Sobkowich noted.

“There has been a lot of conversation out there between farmers and the party that they’ve contracted with,” he said.

One representative from a Manitoba grain-buying company, who requested to not be identified, said “a couple” of their contracts had seen buyouts, although only one was outright switching to alternate use.

The company also bought less grain this year, however, the same representative noted.

Koroscil, likewise, says there is no data yet on how many acres have been switched to alternate use.

It does look like claim acres are higher than the five-year average, he said, and he expects heavy claim numbers to continue over the next few weeks.

On the other side, the group representing producers most desperate for that feed says they have been encouraged by the stories of grain growers making poor crops available.

There are “a lot of barriers,” including contracts, to switching that grain to the feed stream, Manitoba Beef Producers general manager Carson Callum said, but added the adjustment factor should drive some decision-making that way.

“A lot of producers are doing their best and make it work for their business decisions but it’s not going to work for everyone,” he said.

Greig, meanwhile, said that while there will be some crops going into the feed stream, he doubts it will be enough to fill the gap.

It’s a “fairly narrow band that it’s poor enough that (the grower) can bale it, but still good enough that they will get something,” Greig noted. “They’ve expanded that band a little with this crop insurance announcement.”

About the author

Reporter

Alexis Stockford

Alexis Stockford is a journalist and photographer with the Manitoba Co-operator. She previously reported with the Morden Times and was news editor of  campus newspaper, The Omega, at Thompson Rivers University in Kamloops, BC. She grew up on a mixed farm near Miami, Man.

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