Grain companies are struggling to keep product flowing through their facilities and that is hurting the bottom line, says an oilseed trader.
“Everybody is just getting killed now,” said Glen Pownall, managing director of Peter Cremer Canada.
“The margin structure is just getting hammered because there’s just so much excess capacity in the system without peas going out the door anymore.”
India’s punitive import duties on peas and lentils have slowed movement of the two pulse crops.
Producer deliveries of peas for bulk shipment through week 25 of the 2017-18 crop year was 1.47 million tonnes, down 41 percent from last year. Lentil deliveries were 615,000 tonnes, down 56 percent.
“It’s a pretty ugly situation for everybody out there I think for 2018. Everybody is feeling not too good these days,” said Pownall.
Farmers are also holding off on selling their canola, forcing grain companies to aggressively pursue the crop to use idle rail cars and terminals.
Pownall estimated that grain company margins have been cut in half compared to where they were a year ago.
Wade Sobkowich, executive director of the Western Grain Elevator Association, said his members don’t discuss their financial situations with one another but he does generally get the same sense about the state of the industry as Pownall.
“Margins are razor thin and they are competing aggressively to try and attract that grain from the farmer, who is holding onto it,” he said.
John De Pape, risk management specialist with Farmers Advanced Risk Management Company, said he also has been hearing about grain handling margins being squeezed of late.
Part of the problem is the new grain handling capacity that was added in Western Canada in 2017. There were 305,740 tonnes of capacity added between Nov. 1, 2016 and Nov. 1, 2017, according to Canadian Grain Commission statistics.
“The capacity is greater than it has been and with fewer exports on the pulse side, guys are searching for stuff,” he said.
De Pape tracks cash prices for the website www.pdqinfo.ca. He has noticed that the country-to-port spread for canola has been narrowing.
The Vancouver track price is $26 per tonne over the March futures, while the country price is $22 under, for a spread of $48. The spread in October was $58.
“That’s a non-transactional indication that margins are getting squeezed,” he said.
Dan Mazier, president of Keystone Agricultural Producers, said grain companies aren’t alone.
Farmers are feeling the financial pinch of reduced yellow pea and red lentil prices.
“It cuts not only your bottom line but your cash flow and that’s more concerning,” he said.
A lot of farmers have peas and lentils that are taking up space in bins on their farms because buyers aren’t buying.
“You’d be shocked just how many don’t have pea bids out there, especially the small processors,” said Mazier.
He said the situation wouldn’t be as bad as it is if the railways, particularly Canadian National Railway, had done a better job supplying rail cars when ordered earlier in the year before India’s duties came into effect.
“We’ve got to get rid of these products when we want to get rid of them. Markets close. Markets go away,” said Mazier.