By Shawn Campbell, USW Assistant Director, West Coast Office
Canadian farmers enjoyed the blessing of near perfect growing conditions this year, leading to a record wheat crop of 37.5 MMT that was 38 percent larger than last year’s crop. Combined with a record canola crop and good production for other crops, the year held great promise for Canadian agriculture.
Sadly, the bumper crops have overwhelmed the Canadian logistical system and proven to be too much of a good thing. Farmers report that country elevators are only offering low or even no bids on wheat for nearby delivery. Some farmers who signed forward contracts say elevators are pushing back their delivery dates and the CWB is not posting wheat basis prices for delivery before next October. As a result, farmers are stuck with crops losing value every day they stay in their bins. Reuters reported that some farmers have resorted to selling wheat into feed channels or trucking it south into the United States, but at very small volumes that cannot really improve the situation.
Canadian grain exporters also expected a great year but now face similar challenges, especially those moving grain through the Pacific ports of Vancouver and Prince Rupert. USDA currently projects that Canada will export 23.0 MMT of wheat this year, the most since 1991/92. As of late December, Canada had exported 8.2 MMT of wheat in 2013/14, up 8 percent compared to the same time last year. However, its December exports only totaled 1.5 MMT. That is down 18 percent compared to November and down 14 percent compared to December 2012. It is also the first time this marketing year that the month’s wheat exports were less than the same month last year.
The Port of Vancouver is especially hard hit. Analysts reported an average processing time of 17 days per grain ship compared to a normal processing time of nine to 10 days. There are also reports that rail shipments arrive at export terminals with the wrong grain at the wrong time or just don’t arrive at all. The result is a growing backlog of ships, more than the available anchorage at Vancouver, ringing up more than $10 million (USD) in demurrage fees so far. Canadian Pacific exporters now indicate they will be unable to take on any new business until after May.
Railroads and rail car shortages may have contributed to the logistical problems. Local analysts indicated that major rail carriers Canadian National and Canadian Pacific accumulated a backlog of 40,000 cars from August to December. That is eight times more than last year with grain capacity of 4.0 MMT. However, Canadian National reported it moved 12 percent more grain than its five-year average for the same period while Canadian Pacific moved 16 percent more than its five-year average. The railroads claim their challenge is not a backlog, but rather the inability to get cars to the right place at the right time. Many analysts cited archaic rail regulations, such as a rail revenue cap, the lack of a secondary rail car market and a lack of rail demurrage fees for creating major inefficiencies in the grain handling system.
The Canadian grain trade, which is still adapting to an open market, may have tried to push too much grain through the system too quickly. Given the huge crop, some analysts suggest Canadian grain traders put out discounted bids after harvest. Buyers responded quickly. In fact, the Pacific Canadian grain terminals have exported 9 percent more than last year, including 670,000 MT going to countries normally serviced by the eastern terminals that could not compete with west coast prices. Eventually, though, the bottlenecks formed in the west because the system could not keep pace with demand.
The Canadian grain market is facing a difficult lesson in open grain marketing this year. Debate over the reasons behind the logistical issues will continue as the Canadian government initiates a review of the grain transportation system. Questions remain as to whether or not Canada will achieve USDA’s wheat export projection of 23.0 MMT. If not, Canada will likely end this marketing year with its highest wheat ending stocks since the early 1990s, and that will challenge the Canadian and U.S. wheat markets well into 2014/15 and maybe beyond.
Source : uswheat.org