cancel
Showing results for 
Search instead for 
Did you mean: 
Senior Advisor

The sad story of Canada's grain bottle neck.

I'll guess some of the Prairie farmers are wishing the CWB was back. They had some clout with government and railroads when it came to shipping. And they had government granted borrowing power to tide over farmers. In this case it doesn't matter. The RR will get their money even if they don't deliver til next year. The farmers will have to just eat it. Best laid plans of mice and men.

 

ANALYSIS-In year of abundance, Canada's farmers miss the boat

 

16-Jan-2014 00:00

 

By Rod Nickel

 

WINNIPEG, Manitoba, Jan 16 (Reuters) - Canada's record canola and wheat harvests have clogged its rail arteries and overwhelmed its ports, sticking Glencore GLEN.L and other grain handlers with millions of dollars in shipping penalties and leaving farmers' bins flush with crops worth less by the day.

 

The unprecedented output from the world's biggest canola shipper and No. 2 wheat exporter has carved a sharp divide between winners and losers in the farm economy, with logistical bottlenecks threatening to last at least into spring.

 

Big grain merchants such as Cargill Ltd CARGIL.UL, which buy from farmers and ship grain to ports, face a nearly 30,000-car backlog, eight times longer than a year ago and equivalent to almost 3 million tonnes of grain, according to the railways.

 

A stream of bulk carriers off Canada's West Coast, many bound for Asia, are waiting up to 2-1/2 weeks to load and depart, a week longer than Port Metro Vancouver's target. The wait has run up an estimated C$10 million ($9.2 million) to C$15 million in penalties for shippers, said Wade Sobkowich, executive director of the Western Grain Elevator Association.

 

Meanwhile, companies that process canola into oil such as Archer Daniels Midland Co ADM.N and Bunge Ltd BG.N are reaping the rewards of deeply discounted cash prices.

 

Some grain elevators have stopped offering wheat bids until spring, signaling that they have more than they can move.

 

"It's almost impossible for producers to get it all sold this year," said Jim Beusekom, president of Alberta broker Market Place Commodities. "You can tell (farmers) are stressed."

 

If farmers produce even an average crop this year the grain glut could stretch into early 2015, he says.

 

 

 

CAN'T TAKE IT

 

Farmers erased previous Canadian records for all-wheat and canola output by 17 and 23 percent respectively last year, thanks to ideal summer weather.

 

Stockpiles by midsummer this year are still expected to be running at 21.565 million tonnes of grains and oilseeds, a record for that time of year, according to Agriculture and Agrifood Canada (AAFC).

 

Alberta farmer Matthew Stanford signed contracts well before harvest to sell more than half of his canola and wheat.

 

But two companies told him they could not accept any of his crops for November or December delivery as agreed, costing him more than C$100,000 in cash flow before the holidays.

 

Stanford dipped into bank loans, but the situation is worse for some of his neighbors.

 

"At this point, if you don't have anything sold, don't plan on selling it in this crop year," Stanford said.

 

Some are looking south, finding wheat buyers in the United States even though that country's big harvest has left it struggling with its own grain movement backlog. (Full Story)

 

Canada's crop exports rose 5 percent year over year to 12.8 million tonnes in the four months through November, according to the Canadian Grain Commission, lagging total grain and oilseed production, which surged by 27 percent, according to AAFC data.

 

 

 

RAIL CAR SHORTAGE

 

A dearth of rail cars has left grain handlers such as Richardson International and Glencore's Viterra hard-pressed to take advantage of the bounty to snatch wheat export sales from the United States and satisfy overseas canola demand. (Full Story) (Full Story)

 

Canadian National Railway Co CNR.TO, the largest railroad in the country, has built up outstanding orders for 15,385 rail cars since the start of the 2013/14 crop marketing year on Aug. 1, according to Jan. 5 company data. This represents some 1.5 million tonnes of grain.

 

Those wait-listed orders, which only started accumulating in November, were 32 times greater than at the same time last year.

 

Canadian Pacific Railway Ltd CP.TO, the No. 2 railroad, did not fill orders for 13,373 rail cars from Aug. 1 to Dec. 1, more than four times the unfilled orders from a year earlier. Those orders represent another 1.2 million tonnes that did not move as planned.

 

"The problem is everywhere, but probably worse going west (to ports) because that's where the larger markets are, and therefore the higher volumes," Sobkowich said.

 

While railway operators are gaining from the increased traffic, they also face government penalties if they exceed a grain revenue limit that is set annually through a complex formula. Agriculture Minister Gerry Ritz has hinted that the system unintentionally gives the rails more incentive to haul less regulated commodities, although grain handlers dispute this. (Full Story)

 

Railways are moving all the grain that the supply chain can handle, said Ed Greenberg, spokesman for Canadian Pacific.

 

In fact, CP has moved more grain in Canada during the August-November harvest period than it ever has before, 16 percent higher than the five-year average, he said.

 

Since the harvest, CN has delivered 12 percent more grain cars to country elevators than its five-year average, said CN spokesman Mark Hallman, adding that extreme cold weather from December into early January hampered operations.

 

"CN's view is that throwing more hopper cars into the supply chain will not work and would congest the system," he said.

 

The backlog is visible at port too.

 

Port Metro Vancouver, the country's largest port, handling more than 40 percent of Canada's grain and oilseed exports, aims to process grain vessels within nine or 10 days. But processing times in the current crop year lengthened from an average of 11 days in August to an average 17 days in November.

 

The long waits have resulted in vessels filling up anchorages at the port since December, forcing some to anchor as far away as off Vancouver Island.

 

"It puts a lot of stress on everybody," said Dale Thulin, manager of supply chain performance for Port Metro Vancouver.

 

 

 

CASH DISCOUNTS

 

With export routes clogged, farmers are accepting deep cash discounts for immediate sales, a boon for crushers and livestock producers.

 

Crushers and grain companies around Saskatoon, Saskatchewan, were paying about C$50 less for top-quality canola on Jan. 13 than the futures price, according to ICE Futures Canada.

 

A year earlier, farmers collected a rare premium from cash markets when supplies ran thin.

 

The cheap seed has allowed crushers that process canola into vegetable oil and meal to cash in on margins that are almost four times richer than they were a year ago. (Full Story)

 

"It certainly is helping and we're seeing good demand for our products as well," said Pat Van Osch, vice-president and general manager of oilseed processing at Richardson.

 

The transport backlog hinders crushers less because farmers deliver canola seed to western plants by truck, and the processors move oil in tanker cars that they own or lease.

 

Cattle and hog producers, many of whom were forced to liquidate their herds when crop prices spiked in recent years, welcome the lower prices of wheat and barley, used to fatten their animals. The cheap grain should eventually spur modest growth in the size of the cattle and pig herds, Beusekom said.

 

But for grain farmers such as Terry Betcher of Manitoba, with many bushels of crop left to sell, there's little to do but wait.

 

"I think producers will be sitting tight for awhile to see how this all flushes out in the next few months.

 

"This is a pretty new ball game for a lot of people."

 

($1=$1.09 Canadian)

 

 

(Editing by Jeffrey Hodgson; and Peter Galloway) ((rod.nickel@thomsonreuters.com)(1 204 230 6043)(Reuters Messaging: rod.nickel.thomsonreuters.com@reuters.net)(Twitter: @ReutersWinnipeg))

0 Kudos
7 Replies
Advisor

Re: The sad story of Canada's grain bottle neck.

There's no way the cwb could have prevented this. Besides the cwb takes a year to pay you anyways and makes them deliver during planting and harvesting. Usually the cwb would just lose the western farmers money anyways. The fact is that they produced a huge crop with a crappy infrastructure surrounding them

The fact is the oil field pays better than the grain. The railroad system is A poorl designed oligopoly with no twin tracks. + it's a real winter and trains can't go fast either.
0 Kudos
Senior Advisor

Re: The sad story of Canada's grain bottle neck.

I agree that the CWB could not have prevented the situation but I'll guarantee you they would have come up with transition money to ease the cash flow situation with farmers. Maybe the banks there have taken up the slack there by now. The CWB was fairly good at lobbying for services in that way. And of course there would be costs. `Seems the Canadian railroads haven't been good with long term operational plans but I don't know their history well.

 

I sure wish I had about 10,000 spare grain hopper cars on hand.

0 Kudos
Senior Advisor

Re: The sad story of Canada's grain bottle neck.

Every train company is an oligarchy in western N America. Montana is owned out right by BNSF as far as grain farmers are concerned.

 

I remember some years back when grain prices were extremely low, Montana was in the grip of a multiyear drought and they had abandoned 1000's of miles of feeder track. There was a state hearing with the governor, transportation people and the railroad trying to figure out how to keep grain agriculture alive. There was a new farm bill and the BN rep to the meeting made the mistake of telling everyone that THEY deserved some of the farmer's government payments. I guess the Montana people got pretty steely eyed at that and eventually BN had to come back and apologize. But there is no doubt they were speaking their true minds on the subject.

0 Kudos
Veteran Contributor

Re: The sad story of Canada's grain bottle neck.

Two things. One the CWB would not have provided transition money, they never have. You were able to get an advance against future deliveries which you are still able to get.
As far as the ability of the board to better move this crop I believe that is likely in terms of movement at the port. Over a year ago I spoke with representatives of the longshoremen who indicated that turn around times on a single vessel had increased by at least three days in Vancouver. We were also told to expect significantly higher basis levels as dimurage would be passed along to producers. Unfortunately this has all come to fruition.
0 Kudos
Senior Advisor

Re: The sad story of Canada's grain bottle neck.

We will never know what 'might have happened'. The federal government was empowered to give the CWB borrowing rights as I remember.

0 Kudos
Veteran Contributor

Re: The sad story of Canada's grain bottle neck.

The CWB mandate was as a marketing agent for prairie grain not as an entity that could create programs and borrow money to finance them. Furthermore there is zero chance our Federal agriculture minister would ever have approved of such a plan. Minister Ritz is on record as saying there is not an issue with rail service at this time.
0 Kudos
Advisor

Re: The sad story of Canada's grain bottle neck.

Nab what's fat cattle at in your area ?
0 Kudos