Grain stocks low as demand increases

Carryout expected to be 4.5 to seven million tonnes at the end of the crop year, down from last year’s 9.37 million tonnes

Western Canada’s grain sector is heading into the new crop year with lower-than-usual old crop supplies and strong new crop demand, according to industry officials.

Mark Hemmes, president of Quorum Corp., is forecasting somewhere between 4.5 and seven million tonnes of grain, oilseed, pulse and special crops carryout in Western Canada when the current crop year comes to an end on July 31.

That is well below last year’s 9.37 million tonnes and the previous five-year average of 8.9 million tonnes.

Hemmes provided the caveat that forecasting ending stocks is a dicey game, joking that any number put out today is almost inevitably “going to be wrong.”

But at least it is an indication that supplies may be tight heading into the new crop year starting on Aug. 1 due what he believes will likely turn out to be record crop movement in the second half of 2019-20.

There is also strong demand shaping up for new crop as countries around the world continue stockpiling food during the global COVID-19 pandemic.

“Demand has been good and strong,” said Wade Sobkowich, executive director of the Western Grain Elevator Association.

He isn’t privy to any detailed grain company numbers but that is the sense he gets when speaking to industry executives.

“My understanding is that grain exporters would all have strong sales programs on the books,” said Sobkowich.

And that is a good thing because weather permitting, it appears there is a good crop on the way.

“We’re looking at a sizable Canadian crop that’s hopefully of mostly the top grade,” he said.

“It could be another good year for farmers here and we’re very optimistic about the upcoming harvest and shipping season.”

Hemmes said Canada’s grain movement has been nothing short of phenomenal the past few months.

Producers are consistently delivering one to 1.1 million tonnes of grain into the elevator network every week, which is about 300,000 to 400,000 tonnes more than normal. And it is all being moved through the system.

Sobkowich said the 2019-20 shipping season was bizarre, starting with a whimper and ending with a bang.

By the midpoint of the crop year it appeared as though carryout would be massive due to a seriously delayed harvest, rail-line washouts, strikes and blockades.

But in the second half of 2019-20 the grain started to flow as the industry played catch-up. And then came COVID-19, which vastly reduced the competition for rail cars as the forestry, mining and oil and gas sectors put the brakes on exports.

“We used as much of it as we could get,” said Sobkowich.

Spring and summer grain movement has been unparalleled, helping prove a point the grain sector has been trying to make to Transport Canada officials for years.

“Grain needs to be treated differently because it is different,” said Sobkowich.

Export volumes for other sectors of the economy fluctuate with the market. When the price of their commodity rises, so do their shipments.

That is not the case for the grain sector, where volumes are dictated by supply.

“We produce a crop and we sell a crop,” he said.

“We’ve had challenges driving that point home with Transport Canada.”

When the federal government does its modelling and predictions for rail capacity it tends to treat all commodities the same, using the assumption that market prices will dictate global demand for the product.

So if wheat prices are dropping Transport Canada assumes the industry will require less shipping capacity, which isn’t the case.

Sobkowich says that is a dangerous misconception when it comes to drafting bills or conducting regulatory reviews that impact things like the rail revenue cap and grain-specific provisions of the Canada Transportation Act.

He hopes the COVID-19 situation will help Transport Canada officials finally realize that grain is fundamentally different than other commodities because grain movement thrived during a crisis that vastly reduced shipments of other goods.

“Every other sector is looking at COVID-recovery plans and the grain sector isn’t,” he said.

“(We) don’t need a COVID-recovery plan because there is nothing to recover from. Why is that?”

Hemmes agrees with Sobkowich’s assertion that grain is “a different animal” but he wonders if COVID-19 grain movement will be an eye-opener in Ottawa.

“I’m not so certain that it will be a wake-up call,” he said.

However, he quickly added that it certainly provides proof for the argument that grain is different than other commodities shipped out of Western Canada.

“This pandemic has shown that demand is there. We have the ability to sell that product if only we had that capacity.”

He hopes that sticks in the minds of Ottawa bureaucrats when they are planning for things like what kind of residual rail car capacity is required for grain the next time there is a commodity super-cycle like 2013-14 when there was a severe shortage of cars.

Sobkowich worries that the next rail car shortage could be looming, once the global economy regains its footing and shippers of other Canadian commodities start trying to make up for lost sales.

“We’re concerned that’s going to happen at some point, it’s just a matter of when,” he said.

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