Price disparity with United States ends as Canada’s railways catch up with demand, but sales are slow in both countries
Canadian wheat and durum prices have arbitraged with those across in the United States.
Elevators in Saskatchewan and Alberta are buying spring wheat and durum for only slightly less than competitors in North Dakota and Montana.
“I’m not hearing anybody going across the line, and why would they?” said grain industry analyst Larry Weber, who tracks prices in his daily newsletter.
An elevator in Billings, Montana, was paying the equivalent of C$6.72 per bushel for spring wheat as of Nov. 13 compared to $6.42 in Joffre, Alta.
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Durum was selling for $8.98 per bushel in North Dakota compared to $8.11 in Moose Jaw, Sask.
At those prices, many growers figure it is not worth the trip and the paperwork.
One week earlier, elevators in Western Canada were paying more for spring wheat than their U.S. counterparts, with bids as high as $6.85 per bushel.
“Not one elevator in North Dakota was $6,” said Weber.
That has not always been the case in the post-Canadian Wheat Board monopoly environment.
Canadian grain companies were eager to match U.S. bids in the first year following the demise of the single desk, said John De Pape, president of Farmers Advanced Risk Management Co.
However, U.S. prices were far more attractive in 2013-14 because of an extreme backlog of grain on Canada’s rail lines, which widened the basis at elevators.
There were logistical problems in the U.S. as well but not to the same degree as in Canada, which led to a big price disparity.
Wheat exports to the U.S. soared to 3.11 million tonnes that year, up from 2.2 million tonnes during the first year of the open market.
Durum sales to the U.S. reached 735,000 tonnes, up from 539,000 tonnes the previous year.
“Our exports to the U.S. jumped quite a bit,” said De Pape.
That happened while the railways were focused on the east-west movement of grain, he added.
The federal government issued an order-in-council forcing the railways to transport a specified volume of grain each week to the ports to eliminate the backlog. The railways found it more efficient to move grain east and west rather than waiting for cars to return from the U.S.
So the 1.1 million tonne increase in wheat and durum shipments to the U.S. was largely moved by truck. Even conventional grain companies were trucking wheat across the border to fill sales commitments.
“It was a real problem because you have to ship a lot more trucks than (rail) cars,” said De Pape.
Wheat exports to the U.S. fell back the following year to 1.79 million tonnes, although durum exports remained strong at 740,000 tonnes because of yield and quality problems with the 2014-15 U.S. durum crop.
He does not expect Canadian farmers to move a lot of wheat and durum south in 2015-16 because of the price arbitrage that is occurring.
De Pape had a chat room ex-change with one farmer recently who was outraged that Canadian elevator companies have not arbitraged with U.S. companies, citing a 50 cents per bushel disparity in durum bids.
De Pape said the prices have arbitraged because the grower decided to deliver the durum to his local elevator.
“He is putting a 50 cents per bushel value on what I call the hassle factor,” he said.
“That’s what arbitrage is.”
Weber said not much Canadian wheat is being sold to elevators on either side of the border at the moment.
“I’ve never seen farmers cashed up as much as they are. They’re not selling a lot,” he said.
Pulses are the only crop moving well. Growers are tempted by red lentil bids of 35 cents per pound in west-central Saskatchewan, up from 20 cents this time last year.
He expects a record 4.1 to 4.5 million lentil acres next spring and plenty of yellow peas as well. The expanded pulse area will come at the expense of wheat and other crops.
