A longtime farmer, an elder statesman in the industry, caught my eye from halfway across the meeting room. He undid his belt and cinched it up a couple notches tighter, knowing I’d catch his meaning.
I had seen him in a number of the Crop Production Week meetings in Saskatoon, and the presentations in this CWB meeting were perhaps the most poignant of all.
Leaner times will be here for a while, and it’s time for a proverbial belt tightening.
Say and think what you like about whether the new CWB should be buying grain handling assets and whether it has a viable future, but it certainly has capable and articulate people at the helm.
At this meeting, David Przednowek and Neil Townsend gave presentations relevant to every grain farmer, no matter where and how they sell their grain.
Przednowek described how railway service has dropped dramatically in the cold weather. Rail car unloads were ahead of the previous year through much of the fall, but the service crash the past four or five weeks has left movement only slightly ahead with a monster crop in the bin.
Open car orders totalling 5,000 used to be a big deal. This year, 40,000 unfilled car orders have piled up.
Meanwhile, stocks in-store at the West Coast are half that of last year at this time. The grain isn’t arriving in time to meet sale orders. The number of waiting ships has climbed to 37 with more vessels on the way.
International buyers are bidding large premiums above the Minneapolis futures price in an attempt to secure product. However, back in the country, farmers are being paid far less than the futures price. Country basis levels are record high.
With basis levels widening and futures prices dropping, the decline in grain prices has been precipitous.
No. 2 Canada Western Red Spring wheat that had a cash bid in the Saskatoon area of $250 per tonne ($6.80 per bushel) in August was $175 a tonne ($4.76 per bu.) by early January.
In Townsend’s presentation, he made the case that the commodity party is over. While corn has crashed and wheat is coming down hard, the Dow Jones industrial average is bullish. Money is flowing out of commodities and into stocks.
The carry-out of Canadian wheat was five million tonnes at the end of the 2012-13 crop year. Given average yields, Townsend believes the carry-out will balloon to more than 12 million tonnes by the end of the current crop year. Barley is set to go from one million tonnes to well over three. The canola carry-out is expected to increase from around 600,000 tonnes to more than three million.
And this won’t be a one year problem. The projected carry-out for 2014-15 remains high as well.
Townsend admits that some catastrophic event could change the direction of world grain prices. While that’s always a possibility, the probability is that stocks will remain burdensome for quite some time. Corn, he says, could drop below $3 per bu. in 2014-15.
So the prices we see now could get even worse. A November canola futures price that has declined by $55 a tonne since Dec. 1 might still be an opportunity compared to where the price ends up.
Townsend is advising producers to book new crop basis levels if they can and to even consider margin protection for 2015.
And we should also get ready to tighten our belts.