Canada's grain marketing freedom

by Leo Quigley
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So far, the sky hasn’t fallen. If anything, stripping the Canadian Wheat Board (CWB) of its monopoly has had a positive effect on Canada’s grain exports, the performance of railways and the time ships wait in ports to be loaded. And, so far, the legislation has had little effect on grain deliveries across the Canada/U.S. border.

This is the conclusion reached of Quorum Corp., the company hired by the Canadian government to monitor the performance of Western Canada’s grain system.

In fact, Mark Hemmes, president of Quorum Corp., told a meeting of Western Canadian farmers that concerns about disrupted grain flows, poor railway performance and delivery bottlenecks have not materialized since the elimination of single desk marketing Aug. 1, 2012 (the beginning of the crop year).

Volumes during the first 23 weeks of the 2012-13 crop year were up 2.9% at Port Metro Vancouver, 10.4% at the Port of Prince Rupert and 7.9% at the Port of Thunder Bay, compared to four-year mean volumes.

In his presentation, Hemmes said the total transit time in the system for wheat, durum and barley dropped by 9.9% compared to the 2010-11 crop year, loaded transit time dropped 6.7% and the time grain ships waited in port to be loaded dropped by a surprising 33.3% from 9.9 days to 6.6 days.

This year the CWB will take ownership of two new Equinox grain ships designed by Algoma Central Corp., and being constructed at Nantong Mingde Heavy Industries, China, at a cost of $65 million.

The new “Lakers” are part of a program to replace 30-year-plus aging vessels used on the Great Lakes and are said to be the next generation of Great Lakes bulk carriers capable of hauling up to 30,000 tonnes, roughly 5,000 tonnes more than the average Laker today. They will be able to carry more cargo, sail faster, consume less fuel, and be more environmentally friendly, the CWB said in a statement.

The planned acquisition of the two Equinox vessels has not changed since the introduction of the legislation. However, in a statement the board said that the financing of the shipbuilding program may change.

The addition of this faster, more productive type of vessel to the grain fleet will add to wheat, durum, barley and oilseed volumes through Thunder Bay, the Port of Montreal and transfer terminals in the St. Lawrence Seaway.

The board has said the two vessels will also be made available to other grain companies and to firms wanting to move products such as iron ore and coal on the Great Lakes. However, in general, the ships will carry grain eastward out of Thunder Bay, and iron ore from seaports such as Montreal back into the Great Lakes. This will maximize the CWB’s potential revenue from the ships.

Hemmes said that while grain trains were slowed by the usual winter events in the Rocky Mountains during December, such as avalanches and extremely cold weather, the total grain car cycle for Canada’s two major railways — CP Rail and Canadian National — was slashed by 2.8% to 13.9 days.

He told World Grain that while these performance benchmarks may go up or down as grain prices change and improvements are made to the delivery system, such as longer trains, those groups who warned that the grain delivery system would be negatively impacted by the loss of the world’s largest single desk grain selling agency have, so far, been proven wrong.

Hemmes said that, on the Great Lakes, several international shipping lines have invested in smaller, more efficient, ocean-going vessels that can pick up directly out of Thunder Bay while, on the West Coast, terminals saw an increase in durum wheat shipments. Also, low ocean freight rates and the availability of vessels on the West Coast have prompted grain companies to look at alternate routes to overseas markets.

“The sky has not fallen,” he said. “Is it working better? I wouldn’t stretch it that far, but there’s no signal that it’s a huge calamity and everything’s falling apart.

“Thunder Bay has had larger volumes than we’ve seen in the past few years. The West Coast is holding its own, but I wouldn’t say there’s remarkable volumes off the West Coast.”

The stars aligned

He said the 2012-13 crop year was one with strong prices and demand for wheat, durum and barley, the quality and grade of the crop were excellent, and harvesting was completed relatively quickly.

“The stars all lined up,” Hemmes said. “Guys who normally would have been pooling grain and using the wheat pool didn’t have to negate risk. And so the Canadian Wheat Board kind of got the short shrift when it tried to kick off its new marketing process.”

He said that, depending on world prices and Mother Nature, this crop year grain farmers may feel that that they need the pooling option the new CWB offers.

Hemmes understands why the large grain companies welcomed the change at the CWB. After 12 years in the job, Hemmes said he came to appreciate the sensitivity the industry had to “having so many fingers in the planning pie.”

“You’ve got an elevator that you’ve sunk $20 million into and you’re trying to make it run right. Then, every week, you’ve got to wait for somebody else to tell you what to do with half of the operation,” he said. “Now you’re not going to have that over-reaching third party that can reach its hand down from above and screw up your operation.”

Prior to the change there were warnings that without the wheat board permitting process controlling the movement of wheat, durum and barley across the Canada-U.S. border, there would be a flood of grain to American elevators, particularly in the Northern-tier states.

But Hemmes said that while there were “a couple of million tonnes” that went to the U.S. that were more than in most years, “I wouldn’t say that’s going to be the rule going forward, because a lot of it was just going into a milling market that couldn’t buy it in the states because of a crop failure.”

However, he did say that in a normal year if U.S. farmers see Canadian rail cars or trucks with Canadian licenses at their mills, “it could get ugly.”

Hemmes said according to the data collected by Quorum Corp. so far, the Canadian system is not necessarily getting better, but it’s not getting worse.”

“Time will tell,” he said.

Farmers optimistic

When the change in the board’s status came into effect, Terry Boehm, president of the National Farmers Union, which was opposed to the change, said: “Farmers know …that (Prime Minister) Harper will not be in power forever, and we will fight in the courts and start rebuilding. Meanwhile, the year full of dirty tricks will be remembered as a betrayal and sellout of western farmers.”

On the other hand, those wheat and barley farmers who had pressured Ottawa to make the change were pleased with the legislation.

“It's a fantastic day to be a freedom-loving Canadian farmer,” said Kevin Bender, president of the Western Canadian Wheat Growers Association, when the legislation went into effect. “It’s also a day to remember all those who have fought long and hard to achieve this tremendous milestone. Farmers can now look forward to a new era of freedom and prosperity.”

Bender told World Grain that prior to federal legislation coming into effect that removed the board’s monopoly powers, the wheat growers had been told that “there’s going to be a race to the (U.S.) border” and the American government would be quick to shut down the border as a consequence.

“Well that didn’t happen,” he said. “We saw the U.S. price come to Canada, so there wasn’t a need to truck it. I didn’t believe that there would be major hiccups and things have really transitioned well.”

Asked if he believes the change in the mandate of the CWB will lead to more secondary processing, such as flour milling, north of the border, Bender said it is a strong possibility.

For example, he referred to an announcement by Alliance Grain Traders Inc. shortly after the legislation took effect that it would build a pasta plant in Regina, Saskatchewan, at a cost of C$50 million.

Murad Al-Katib, president and CEO of Alliance, said in making the announcement: “We have always been focused on creating value through origin-based processing, locating our processing facilities where high quality crops are grown. We seek to create value for our farmer suppliers and our shareholders by shipping finished food products and not just the raw basic commodities to markets around the world. I think the open market now is the most favorable environment for those things to take place,” Bender said.

He also said the removal of the CWB monopoly has brought with it “a lot of optimism and positive thinking,” particularly among the younger generation of farmers.

“The optimism was there when we heard we were getting an open market,” he said. “That optimism hasn’t changed.”