The Saskatchewan Wheat Development Commission (SWDC) says export wheat prices are similar to or higher than last October, but farmers are receiving about $20 per tonne less.
“Rail transportation and handling capacity have not improved and this is being reflected in even lower returns for producers and a lower share of export values as the year progresses,” SWDC chair Bill Gehl said in a news release.
“We were forecasting this would cost farmers $2 billion (this crop year) but it’s likely to be closer to $3 billion now if this keeps up,” Gehl said during an interview.
Recent numbers prepared by University of Saskatchewan agricultural economist Richard Gray show that even though wheat prices f.o.b. Vancouver are unchanged to slightly higher than in October 2014, country elevator prices have dropped $20 a tonne.
The excess basis cost for producers, relative to the posted costs for rail freight and primary and terminal elevator charges, is now more than $62 a tonne compared to $40 in October, the SWDC release says.
Gray says grain companies want to export almost all Western Canada’s wheat from the West Coast because that’s where prices are highest. He hypothesizes that so long as there’s more wheat than can be exported through the West Coast in a crop year, prices will continue to be discounted at country elevators.
“As long as there’s this idea that there’s going to be grain left over at the end of the year, nobody is bidding for it very hard,” Gray said in an interview.
Still, Gray said he was surprised the basis has widened given grain has been moving to export relatively well this crop year. He said that could be due to farmers expecting that not all grain will move by the end of the year, so they are taking every chance they can to deliver.
Grain buyers use basis to signal to farmers how badly they want to make a purchase. The basis last crop year widened when many elevators were too plugged to take deliveries.
More capacity needed
Gray says Western Canada needs more West Coast export capacity to reduce the difference between country and port wheat prices. But there are huge barriers to entry. Not only is it expensive to build terminals, there isn’t much room along Vancouver’s waterfront, he said. Prince Rupert has space and is a couple of days closer to a number of Asian markets, but is only served by CN. Grain shippers don’t want to rely on just one railway. However, that could be countered if the federal government allowed other railways to use CN’s line for a compensatory fee.
The SWDC wants more farmer participation and planning in grain movement, Gehl said.
“What we really need, and what we asked for in our CTA (review) submission, is that farmers be there so we can make sure that we have a good system that has the capacity and the co-ordination to make sure it’s not just the railroads and grain companies that are making all the money,” he said.
Last year the SWDC formed a coalition with the Saskatchewan Pulse Growers, the Saskatchewan Barley Development Commission and Agricultural Producers Association of Saskatchewan to fund Gray’s research on basis levels.