We have a great country. It just so happens that I get to see it from time to time like this past week when I traveled to New Brunswick. It was a whirlwind trip to Woodstock, New Brunswick via Moncton and Fredericton in the middle of the night. However, this is Canadian winter and no matter where you are there will be travel challenges. Getting to bed at 3:30 in the morning before a 10 o’clock speaking gig a few hours later can be challenging. The next time I go back to New Brunswick in the wintertime, I hope the weather is kinder.
It’s always interesting traveling to different provinces of Canada to get the unique perspective. Next week I will be speaking to the Western Canadian Wheat Growers in Ottawa about their market situation on the prairies. No matter where you go in this country there are some unique challenges. It just so happens that our friends in New Brunswick and on the prairies are having some price discovery problems, which don’t happen very often here in Ontario.
In New Brunswick the cropping acres are small. We’re talking about 14,000 acres of soybeans with slightly less corn acres. There is much potential there, but much of New Brunswick is forested. Price discovery at times has been less than transparent. Transporting grain into Québec at $60/tonne represents a steep basis clip back to the price in New Brunswick. I was there to give a market presentation on how that works. Farmers are very hungry to use the different marketing tools to hedge their grain in the future.
Similarly on the prairies but of course on a much bigger scale is the new marketing environment minus the Canadian Wheat Board. Where once the Canadian wheat Board had responsibility for marketing wheat and barley, that is no longer the case. The big problem in Western Canada at the present time is dealing with the huge crop from 2013. When you get approximately 30% more volume across the board in the various crops, logistic challenges to bring that to market can be daunting. Despite record exports of Canadian grain out of Vancouver, basis levels in Western Canada have been nonexistent in some locations. As I surmised a few weeks ago, is this a marketing freedom many were hoping for?
As in any problem market there are some that point at the railroads. However, what to do? Even if there were enough cars to move the grain to port faster, would we be under capacity next year when the crop may return to normal levels? Simply put, their will always be railway questions in Western Canada. It is historical in nature and will probably remain so.
Despite that, I was quite interested in my DTN colleague Cliff Jamieson’s comments in his recent column about Canadian port congestion, where he quoted from a Globe and Mail article, “How CP engineered a smart turnaround.” In his piece Cliff documents how CP had achieved record profits in 2013 with a further target of a 30% increase in 2014. He went on to say that there was a CP staff cut of 4550 people plus a locomotive fleet reduced by 400 and 11, 000 fewer cars. He added that oil rail movement has increased by 68% and that is expected to double by 2015. After reading Cliff’s article, it’s just simply made me much more cynical. Maybe our low basis bids for grain in Western Canada have much more to do with transport under capacity and bad planning.
Arguments about that will surely rage in Prairie farm country. I’m sure they do not want an easterner to weigh in on that issue. Despite the problems, agriculture and Agri-food Canada in their most recent outlook have suggested a shift in acres from grains on the prairies into crops like canola, flax, peas, lentils and who knows what else. I even heard about Buckwheat today. The point being producers are looking to grow something other than the grain mountain out their window. There has to be hope somewhere.
It surely will come, but we may have to be very patient. Hope lies to some extent in crop genetics. For instance next week I will tell Western wheat producers that they been gaining about 1.4% in genetic yield sincerely 1990s. So like their cousins who grow corn in Ontario, those genetic gains count for something. Part of the problem lies as those genetic gains are not as high for wheat in the West as they are for corn in Ontario. However, farmers anywhere will take those productivity gains and place them firmly in their back pocket. It never hurts to have those.
In the meantime there is a complete re-education of the agricultural marketplace happening in Western Canada, as producers challenge themselves with marketing tools and marketing terms once only reserved for the Canadian wheat Board. It is a new day, but somewhat of a rocky one. Price discovery can be very challenging. That’s true also for the grain producers I spoke with in New Brunswick. Price transparency is always key. For those of you who find that puzzling, you are not alone. At the end of the day, it actually does make sense. The hard part is getting yourself accustomed to the nuances of the market.