One Manitoba grain grower found prices can vary wildly on either side of the border for various grades of wheat
If he had taken what the local grain terminals were offering for his 2013-14 wheat, he would have been hundreds of thousands of dollars poorer.
That’s a reality Binscarth, Man., farmer Paul Orsak discovered after finding his lightly frosted and slightly discoloured Canadian Western Red Spring wheat was only likely to get a grade of 3 CW or feed in the Manitoba market.
However, south of the border it would be a number one U.S. grade and had the specs to be top quality U.S. milling wheat, according to a specifications-based test.
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“I think our grading system is overdue for a review,” said Orsak.
“It’s probably a relic of the past.”
Brenda Tjaden Lepp of FarmLink Solutions said she knows “probably 300” situations like Orsak’s from the past couple of years.
“This past year there was a lot of money to be made by figuring out exactly the specifications of the wheat you had and then exploring many, many markets to find the one that wanted exactly that spec,” said Tjaden Lepp.
“If you’ve got those things that matter, it’s the difference between $10.25 (per bushel) and $5.50.”
The problem faced by Orsak and spotted by Tjaden Lepp with her clients comes from the Canadian grain trade’s practice of buying grain from farmers based on quick grain grade assessments, but with much of the end-user milling market actually relying upon specifications instead. That can lead to gigantic value differences between the way a grade-judged grain and a specs-judged grain are priced.
Orsak thinks the grading system needs to “evolve,” become “optional” for farmers, or maybe be abandoned. Having both farmers and grain companies rely only on grade as a way of setting a fair price often isn’t working. Getting rid of grade-based pricing would allow true values to come out.
“In no time at all the market would start paying on end-use values,” said Orsak.
Tjaden Lepp said grade-based buying and selling still plays a big role for farmers who need to move grain quickly and don’t have the time the do more intensive marketing. She has told clients about good opportunities with U.S. buyers, but they then need to get their grain tested “bin by bin,” and then by the time the tests are done “that opportunity is gone.”
So for many farmers that sort of complicated marketing won’t cover their marketing needs, especially with big bulk crops.
Canada Grains Council president Tyler Bjornson said the Canadian system won’t work perfectly in situations where certain specs are the only things that matter, but it is a major plus for western Canadian farmers in terms of the overall value of their crops on the world market.
“When it comes to wheat in particular…as an industry we know there is value in the Canadian approach, particularly with CWRS and (Canadian Western amber durum), which are world-renowned,” said Bjornson.
“Certain of our competitors are worried that Canada is gaining a competitive advantage at least part based on the soundness of its system.”
The Canadian Grain Commission has been reviewing various elements of its system, Bjornson said, and the grains council supports those reviews and hopes that the future system contains enough flexibility that underlying values of grain can be better reflected in driveway elevator pricing.
Bill Gehl, the chair of the Saskatchewan Wheat Development Commission, also believes the present grade-based pricing system has lots of value for the average commercial grain farmer.
“That system has earned us loyal clients around the world,” Gehl said. “We shouldn’t mess with it lightly.”
Tjaden Lepp said she hopes the problems that caused such massive spreads and disjunctures in grain pricing in 2013-14 and 2014-15 were phenomena of those years, rather than a permanent feature of the present system. 2013-14 was disrupted by the logistical snarls that Orsak said made his local elevators “very, very picky” because they needed to keep grain out of the overburdened system, and 2014-15 was dominated by myriad quality and grading challenges that also led to buyers downgrading lots of grain that might have otherwise have been better treated.
Tjaden Lepp hopes the system now, even if using grade-based pricing, knows how to get better value out of farmers’ grain, and pay them better, even if there are unimportant downgrading factors.
“Every year (since the CWB monopoly ended) the trade has had to learn one thing,” said Tjaden Lepp.
“In 2014 it was the year we learned to micromanage many different qualities of wheat for many different buyers.”
Orsak said he hopes the Canadian grain trade and system takes this problem seriously, because right now it isn’t fair to farmers.
“The Canadian grading system is really not allowing farmers to capture the full value of their grain,” said Orsak.
