Price disparity sparks anger

Lack of competition | U.S. durum bids are almost double the Canadian price

Growers are becoming increasingly annoyed by the huge disparity in grain prices between Canada and the United States.

“The best price I could get on my durum in Western Canada just last week was $8 a bushel at the farm,” said James Mann, a grower from Hodgeville, Sask.

“I got quotes from other companies wanting to buy my durum outside of Canada that would have given me a netback after all freight of over $11.”

He blames the price difference on greedy Canadian grain companies.

“What has happened is that the grain companies have taken advantage of the shortage in transportation and widened the basis level so that they’re earning those profits rather than farmers.”

Marlene Boersch, managing partner in Mercantile Consulting Venture, has taken track bids in the U.S. Pacific Northwest and worked them back to the delivered price at an elevator in Saskatchewan after taking out all costs such as rail freight and elevation.

The U.S. price for No. 1 CWRS 13.5 percent was $3 per bu. higher than the Canadian market as of the end of September.

“We are not reflecting the export price back and there is probably so little competition in Canada that they get away with it. I mean, the margins are unprecedented,” said Boersch.

“I have worked in the grain industry since 1983 and I’ve never seen it anywhere so big.”

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She said there is a reason U.S. grain companies are eyeing up opportunities to invest in the western Canadian grain sector.

It is the same reason why Canadian exports to the U.S. are up significantly for almost every crop.

“I have nothing against people making a good return, but it’s very, very wide,” said Boersch. “Why do (grain companies) get away with it being so wide? I don’t know.”

Glencore recently stated in its half-year report for 2014 that the performance of its agriculture segment was “striking” because of the acquisition of Viterra.

Larry Weber, an analyst with Weber Commodities, said the price for No. 1 CWAD 13 percent durum was as high as $14.80 in Montana and North Dakota last week, which was $7 per bu. higher than the Canadian price.

“We’ve still got the same disparity in prices that we did when the (Canadian) Wheat Board was there,” he said. “This is not going to be a blip. The price difference is going to be there until somebody in Western Canada who has a grain company arbitrages it.”

He would rather see farmers arbitrage prices by trucking their durum south.

“Pick up the phone. Don’t let the grain companies take that difference. Go and get it yourself,” said Weber.

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Derek Squair, president of Agri-Trend Marketing, said U.S. millers are desperate.

“They’re running absolutely empty on durum in the U.S. mills,” he said.

Last year’s supplies are dwindling, and this year’s North American harvest is late and of poor quality.

Squair expects U.S. prices to drop somewhat when new crop starts arriving at the mills, but there should be a healthy premium for top quality durum all year.

He is not sure why Canadian prices are lagging so far behind.

“That’s a great question,” said Squair.

“I don’t think that will last. I think that it will get very competitive here shortly. But for right now, the Canadian line companies just aren’t competitive.”

He believes the spread between top quality durum and poorer quality material will also narrow as mills are forced to lower their standards.

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That is why Squair is advising clients to hold off on selling durum unless they have top quality material that can be trucked to the U.S.

  • Tim

    I am curious to know where you receive some of your information. In particular the 3 dollar a bushel more for the HRSW in the US. My sources show me which are North Dakota elevator websites that we are very close to par with them in HRSW prices.

  • Clint

    The market works. If the price disparity is true, then most farmers, being smart, will be selling their crop in the USA. Then those “greedy” Canadian companies will suffer and adjust their strategy. The problem corrects.

    The only problem with the open market is that some other farmers will accept the lower prices, while whining that the government or the Wheat Board or FNA should save them. That problem also corrects itself in time….(Darwin was right)

  • ed

    Clint is right. The market works when you have producers selling directly to customers. We had that with the CWB selling cartel. Price discovery was much easier and as to be expected provided a little lower price for the customer and better availability and a much higher price for the producer and the ability to move it sooner and in an orderly manner. Once the middlemen are allowed in it is more like the street drug industry with everyone demanding their cut. Supply is disjointed, and the consumer price is higher while the producer receives far less for his product. Premiums for the good stuff is near non existence as they will be blending it down anyway.
    Don’t worry though. The middlemen will be gone when Clint and his buddy’s go broke and the land is owned by the middlemen. As Clint says it will self correct and there will once again be a market with buyers (previously middlemen) and sellers. There will be guys on their grandfather’s farms like Clint working on them with the corporate logo on the back of their jumpsuit and a little “clint” on the front. Some believe this would be better. At least the fight for better will be over. (Darwin is correct, those that do not fight will die off.)