Some international prairie pulse deals are being broken because of a double whammy of plunging prices and collapsing credit.
Sellers of other grains and oilseeds are watching to see if the credit crisis spreads to them.
Special crops industry analyst Brian Clancey said he has spoken to brokers who are seeing sales fall apart.
One sent him an e-mail from a foreign country commenting on the large number of e-mails he has received from buyers, “many with cancellations or requests for delays. It’s a mess.”
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Clancey said it’s worse for those who lose sales that were made when pulse prices were far higher.
“A lot of that was new crop business (made in the middle of summer),” said Clancey, who operates the Stat Market Research service.
“Now that people are starting to ship them, the markets have shifted down tremendously, some by a third or more. Buyers are saying, ‘I can’t afford to buy that’ and walking away on those contracts.”
Buyers are being squeezed by both the fall in the price of the pulses they have contracted and by the sudden freeze in the credit market. When overseas buyers can’t pay for a purchase because they can’t get the money from the bank, the sale collapses.
At least one shipment of Canadian peas at the end of the summer saw the buyer break the sales agreement after the ship had already crossed the ocean, sources say.
Brian Hayward, chief executive officer of Aldare Resources in Winnipeg and former chief executive of Agricore United, said he has not yet seen sales of major grains like wheat derailed by credit problems. But he’s not surprised to hear that small marketers are having trouble.
“In order to load a boat, a lot of times a buyer will put in place an irrevocable letter of credit from a bank,” said Hayward.
“You need liquidity in the world financial system to be able to execute sales.”
Adrian Measner, chief executive officer of Mission Terminal, said credit worries will affect the world grain trade.
“There’s going to be some impact … on our company’s marketing efforts,” said Measner, who is the former CEO of the Canadian Wheat Board.
“At this point it looks like it is going to be manageable.”
Fortunately, most grain buyers seem to be sticking tightly to their purchase agreements.
“We’re not seeing a major shift in our customer base or what they need to do,” said Measner. “But everyone’s watching closely.”
Most sales by Canadian companies are done on a cash basis, with the buyer putting up the money before getting the grain. But credit comes into the equation when the buyer relies on credit in his own country and may not have enough of his own cash to close the deal if his bank balks, Measner said.
Within the domestic feed market, credit collapses have not occurred, according to Doug Chambers of Quality Grain.
Unlike with international sales of pulses, which occurred in a rush in the summer when prices spiked, the feed industry is doing a lot of its buying now, and getting cheaper feed than it expected.
Feedlots are in a better financial position than they were a few months ago.
“It’s a lot cheaper for them now,” said Chambers.
