Canadian millers could be forced to import wheat from the U.S. if they can t forward contract with the Canadian Wheat Board or private trade during the transition to an open market, industry officials say.
Millers and other food processors routinely forward contract wheat up to a year in advance but the pending end of the board s monopoly on Aug. 1, 2012 is causing a problem.
We fully expect to see provisions in the government s pending legislation to expressly permit farmers, grain companies and millers to enter into supply agreements upon passage of legislation for delivery after July 31, 2012, said Gordon Harrison, president of the Canadian National Millers Association. If such provisions are not in the bill, the only certain risk-management option is to book and import U.S. wheat.
The millers face a catch-22. The wheat board, uncertain it ll even exist, never mind attract supplies, isn t expected to forward sell new-crop wheat. And until the wheat board act is amended or repealed, it s illegal for grain companies to buy or sell wheat.
I can confirm that the regulatory constraint to forward contracting is real and is presenting an unacceptable business risk to wheat-milling companies and their customers, Harrison said in an email last week. Forward contracting and related price risk management are an integral part of wheat marketing in Canada.
The board is working to help millers, said spokeswoman Maureen Fitzhenry.
I can t talk about what those ways are or whether we re being successful… because of commercial confidentiality, she said. The bottom line is the industry is in considerable turmoil right now and I think it s incumbent on everyone to try and find ways to make sure they can continue to do what they need to be doing.
The industry hopes Ottawa s legislation to end the board s monopoly, due to be tabled this fall, will fix the problem. But no one can say when it will become law; the opposition says the bill will need a thorough review and a lawsuit from board supporters is also possible.
New legislation is unlikely to become law before the new year, Greg Meredith, assistant deputy minister of Agriculture and Agri-Food Canada, told the University of Manitoba s Fields on Wheels conference Sept. 30 in Winnipeg.
Even that would be cutting it close, said Owen McAuley, a farmer from McAuley, Man.
We need to know very quickly what s happening here, he said. We almost need to know by Jan. 1, 2012 so we can be writing contracts, so we can start filling customer demands. We just need some clarity.
Agriculture Minister Gerry Ritz said he is aware of the concerns.
We are working with the entire value chain to ensure that any transition to an open market is done with clarity and certainty for farmers, the market, and the entire industry, he said in an email.
The board and Ritz need to co-operate, said McAuley. The board can t come up with a business plan if it doesn t know what concessions the government will extend, and Ritz can t go to cabinet if he doesn t know the board s plans.
This fight needs to be over one way or the other, McAuley said.
If a voluntary board fails, the government will be criticized for not providing enough help and if the board gets what it needs, grain companies will complain it s unfair competition, McAuley said.
The railways, grain companies and ports are confident they can make the open market work, but not all farmers believe they ll benefit, he noted.
As well, concerns have been raised about the viability of the Port of Churchill and that railway that serves it, OmniTRAX, as well as the fate of smaller country elevators and producer cars.
An open market may also see more grain pushed through Vancouver, Mark Hemmes, president of Quorum Corporation, told conference attendees. Companies will want to use their individual terminals in Vancouver instead of their jointly owned facility at Prince Rupert, said Hemmes, whose firm was hired to monitor the performance of Canada s grain-handling and transportation system.
The railways may also seek to raise prices in spite of the revenue cap.
Regulating grain-freight rates in Canada in an open North American wheat market raises many issues, said McAuley. Without regulation, rates would likely go up. Under the current revenue cap, the price charged for shipping grain has risen more slowly than for other products, Hemmes noted. But he also said the recent review of rail service suggests paying the railways more hasn t improved service.
I can confirm that the regulatory constraint to forward contracting is real and is presenting an unacceptable business risk to wheat-milling companies and their customers.