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.”
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.
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.
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.