Our Farming Common Denominator: Price Transparency, Discovery and Arbitrage

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Sometimes we go out of our comfort zone.  That was a bit of a case last Wednesday when I was introduced at the Western Canadian Wheat Growers convention in Ottawa.  Its not that I cannot do it, it is just that my major market concentration is in Eastern Canada, which is just so different that Western Canada.   In many ways, it’s like stepping into a new world.

At the same time that I was speaking about Western grains in Ottawa, I got an invitation to speak on grains in Québec city.   It is an interesting challenge for sure as I believe Canada is divided up into 3 separate “countries”, when it comes to agriculture, the West, Ontario and Québec.  When you go to those 3 separate places, agriculture has its own particular spin to it.

In the case of the Western Canadian Wheat Growers, it was entirely obvious from my standpoint what I needed to talk about.  Forget my emphasis on corn and soybeans here in Ontario; I would have to talk about hard red spring and Durum wheat as well as canola.   Of course it just so happens that we had a 30% rise in the 8 major crops in Western Canada last year above the norm and that is contributed to some very low basis bids for grain across the prairies this winter.  Of course, as you read in past weeks in this column there is a lack of capacity on a railroad system.  It all came together last Wednesday when I had to tell the growers the bad news about prices.   As an Ontario guy, talking to a Western group, I checked for an escape route before I started speaking.  I wish I could give them better news.

Let’s hope that all clears up soon, although I do expect the old crop grains in western Canadian bins to hang around until the middle of the next crop year.  The lack of rail transport is so acute that we’re actually seeing a shortage of oats in the United States.  Canada is the world’s biggest exporter of oats, but that doesn’t do us a lot of good when we can’t export them.  This is taking place in a time when our actual grain exports are at record levels.  Confused?  Let’s just say that we have the challenge of abundance, too much grain to move on a short track.

Of course many might want to blame the railroads because they can an easy target.  At the Ottawa meetings, I had the pleasure of listening to Canadian agriculture Minister Gerry Ritz speak about the situation.  He told the audience during his question and answer, that the railroads did a great job of moving grain off the combine but when harvest was over the wheels fell off.  He is hoping in a couple of weeks a working group in Winnipeg will have some better answers for him.

I must say also that I was extremely impressed with agriculture Minister Ritz.  He’s a bit of an unknown in Eastern Canada with his Western roots, but he stood well under questioning.  I was expecting to hear a lofty speech from the minister.  However, he walked into the room spoke for about 5 min. and then slapped the table and said he wanted to hear our questions.  That was impressive. He answered questions for almost an hour, I only wish he would do that in Québec and Ontario.

I talked a lot about price discovery and price transparency as well as arbitrage opportunities for Western Canadian grains across the US border.  When you are breaking a 75-year marketing pattern, there are challenges ahead.  Marketing opportunities that we take for granted in Ontario are almost unknown in some parts of Western Canada.  More than one grower told me my explanation of their western problems gave him a unique perspective.  Or maybe they were just being polite?  LOL, I don’t know.

Clearly though, there are differences that are hard to transcend.   I was talking to some farmers who were cropping over 20,000 acres.  That’s a tall drink of water compared to my farm of 865 acres in southwestern Ontario.  Ditto for the 50 cow dairy herd in Quebec.  The week before I had been to New Brunswick to speak to grain farmers who were trying to build an industry from its infancy.

A common denominator wherever I go is price transparency, price discovery and arbitrage.  In the new era of “marketing freedom” my western Canadian farmers I spoke with last week are certainly poised for that debate.  It’s like a starting gun has sounded on breaking a 75-year marketing tradition. (CWB)  I came back with the impression, they are eager to tackle that next mountain.  Give them a little rail transparency and capacity and I’m sure, they’ll come out very successful on the other side.