Concerns that Canada’s grain pipeline would initially struggle in the wake of ending the Canadian Wheat Board’s monopoly have proven groundless.
A record 14 million tonnes of grain were delivered to the Canadian grain-handling system during the first 15 weeks of the crop year, Cargill Canada president Len Penner told the Grain Industry Symposium here Nov. 21. (See sidebar next page.)
“We can feel good about that, but this is as good as it’s going to get.”
Penner credited good wheat yields, an early, dry harvest, good grain quality and record-high grain prices triggered by drought in the United States. Given almost ideal conditions, Penner said 2012-13 should not be used to set a new benchmark for system performance.
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It’s difficult to quantify how much impact removing the wheat board’s single desk had on grain movement, Penner told reporters following his address to the symposium organized by the Canada Grains Council and Grain Growers of Canada.
“Our (Cargill’s) volume has gone up because of our ability to manage logistics,” he said. “You could say the industry as a whole has stepped up.”
As predicted grain flows have shifted. Under the wheat board most durum was shipped east, but this year some is moving through Vancouver, Penner said.
For the first time Cargill is shipping some wheat through Louisiana, he said. The U.S. drought has freed up grain-handling capacity, but next year could be different.
Open-market proponents predicted removing the wheat board from grain transportation would make grain companies more efficient shippers.
Challenges remain in maximizing the capacity of Canada’s unique system, Penner said. Canada runs a pipeline system, with grain stored on farms until it moves to port. The rest of the world stockpiles grain in commercial storage.
Because it’s a pipeline, grain pricing must be separate from grain delivery, Penner said. “How does the farmer gain access to the pipeline on a regular basis because the pipeline moves 12 months of the year? We can’t take huge surges in our pipeline in our industry.”
CWB president and CEO Ian White made the same point.
“Farmers will have to realize they can’t deliver all their grain at one time because the capacity is not there to take it all. Grain companies are going to have to look at how they can offer farmers attractive prices throughout the year,” he said.
White predicted grain companies adopt a more “U.S. style of merchandizing,” adjusting handling fees throughout the year to either encourage or discourage grain deliveries.
That 14 million tonnes that entered the grain system between Aug. 1 and Nov. 11, represent about 21 per cent of the crop. Although there’s still almost nine months left in the crop year to move the other 79 per cent, there’s practically less time than that, according to Penner. Farmers are busy seeding and spraying crops in the spring and early summer and reluctant to deliver then.
“The other reality is we’ve already seen your foot come off the accelerator and the bins are full and the grain is in storage and now we’re entering the period when we get a lot of -40° temperatures, (when farmers are also reluctant)… to move grain,” Penner said.
The industry must take on some of things the wheat board used to oversee, such as ensuring customers continue to get a consistent supply of high-quality wheat and durum, he said. There’s value in the Canadian brand, he added.
“Our dependency on exports is huge so we’ve got to get this piece right to be successful,” he said.
When it comes to wheat, the industry must step up its focus on market development, technical support, research, policy development and regulations, he said.
Western Canadian Grain Growers Association past-president Cherilyn Nagel added to the list. Nagel wants improved rail service, lower Canadian Grain Commission service fees and more flexible wheat registration regulations.
With Saskatchewan potash exports expected at 17 million tonnes in three years and 30 million in six versus eight million now, there will be less rail capacity to handle grain, Nagel warned. Better north-south rail links and more domestic grain use through livestock-feeding and -processing is needed, she said.
The open market has given farmers more flexible grades, delivery options and predictable cash flow, she said.
There hasn’t been a surge of farmers exporting wheat to the U.S. because prices have arbitraged, as the wheat growers predicted. And the U.S. has not blocked the border to Canadian wheat as some had forecast, she said.
Nagel predicted grain deliveries will slow now since many farmers have paid their bills and the grain that’s left “is in strong hands.” Farmers expect steady-to-higher prices and want to be compensated for storing grain, she said.
“I’m very happy with how the industry has transitioned to an open market,” Nagel said. “There are still some regulatory changes that we need to see ensuring our industry is firing on all cylinders, but we’ll get there.”
