Delivery problems | Big haul expected to result in congestion
A bumper harvest will put added pressure on Western Canada’s grain handling system and is likely to leave some farmers scrambling to find delivery opportunities.
Saskatchewan agriculture minister Lyle Stewart says logistical challenges are nothing new to prairie farmers, but this year’s unusually large crop could present unforeseen problems.
“This isn’t our first big crop but this may be a record crop,” Stewart said.
“We’ve faced logistical challenges in the past but this … will likely put new pressure on our ability to move grain to saltwater from landlocked Saskatchewan.”
By some estimates, western grain and oilseed producers will harvest more than 31 million tonnes of wheat and durum, 17 million tonnes of canola, nine million tonnes of barley and 3.75 million tonnes of peas.
Available space in the commercial grain handling system is already tight, and delivery opportunities are expected to be scarce, especially for barley and oats.
Errol Anderson, a market analyst with ProMarket Consulting in Calgary, said farmers with cash flow concerns should consider more than price when making marketing decisions.
“What I’m sensing is that we’re in a classic (situation) where we’re going to have congestion in this market right through to spring,” Anderson said.
“We’ve been encouraging growers to try to deliver where possible and to try to separate the delivery decision from the pricing decision. That will be very important because of that movement problem. It’s just going to be a grind for everybody.”
He said the magnitude of this year’s crop will put a strain on rail car capacity and grain companies. Commercial storage is already tight and will likely become tighter.
“We’re seeing depressed prices because of it,” Anderson said.
“Basis prices have weakened because of delivery issues and commercial storage is filling and is going to plug.”
Producers who focus only on price might be tempted to pass on some delivery opportunities before Christmas.
However, Anderson cautioned that the size of this year’s crop is likely to mean ongoing congestion after Christmas and throughout the spring delivery period.
“A lot of growers have the cash flow to withstand (low prices this fall), but at some point the grain will have to move and it will be after Christmas,” he said.
High protein wheat and canola will likely see better movement than other crops.
Deliveries of barley and oats are already well below last year’s pace, according to the Canadian Grain Commission’s Grain Statistics Weekly.
Stewart said the province is watching the situation and is talking with railroads and grain companies about where potential bottlenecks may arise and what steps can be taken to alleviate pressure.
Last week, delegates at the Tri-National Agricultural Accord in Saskatoon asked federal agriculture minister Gerry Ritz if Canada’s rail and grain handling systems would be able to handle this year’s large crop without major problems.
“Logistics are always the possible bottleneck,” Ritz said.
“But both of our major railways have spent a billion dollars on their main lines in Western Canada preparing for this. My bigger concern is not just one of logistics for agriculture, it’s the growing demand for oil movement.… There’s only one set of tracks and all of those oil cars are going to have to move as well, so that’s something that we’re watching to see what happens.”
Ritz said recent rail legislation puts a greater onus on railways to move products as quickly and efficiently as possible.
However, rail capacity is limited, and demand from Western Canada’s oil and gas industry is increasing.
Statistics Canada data on rail car loadings show that movement of crude oil by rail in Western Canada has doubled in the last two years.
Approximately 47,400 rail cars were loaded with crude in the West in the 12-month period ending July 31, 2012, compared to nearly 95,000 cars over the same period ending July 31, 2013.