Will the end of the Canadian Wheat Board monopoly speed the relentless westward march of corn?
Gary Williams, senior market manager at Scoular Canada, thinks Canadian competition could cause American wheat growers in North Dakota and Kansas, which is west of the traditional corn belt in the Midwest, to switch to corn.
Williams thinks the end of the CWB single desk will set off changes in the Canadian grain industry that will rival the transformative events that accompanied the ethanol revolution in the United States.
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“Your first year, second year, there will be a lot of crazy disruption. There will be a lot of gaps that traders will look at and say that should never happen.”
However, the new order should become clearer by the third year.
There will be a rush of new players in the grain buying and handling business. Traditional directions of grain movement may shift with more grain moving by rail south to the United States and less moving to Prince Rupert, he said.
American farmers will also see changes in theform of stronger competition from Canadian wheat.
This could reduce their wheat prices and make them look more closely at corn, which is already making inroads thanks to new varieties better suited to the northern and southern plains.
Kansas and North Dakota are the largest wheat producing states. Harvested wheat area in North Dakota fell about one million acres to 8.4 million from 2000 to 2010, while in Kansas it fell about 1.4 million acres to eight million.
Most of those acres went into corn.
In the same period, Kansas corn area rose 42 percent to 4.65 million acres and in North Dakota it doubled to 1.9 million acres.
“The U.S. wheat farmer is sitting there thinking about whether he wants to be a wheat farmer or whether he wants to be a corn farmer,” Williams said.
“He is thinking, ‘free market Canadian grain, what is that going to mean for my price?’ At the same time, looking at the stocks to use ratios … why wouldn’t you grow corn if you can get more per acre to do it?”
Williams also said the new spring wheat futures contract introduced for 2012 by ICE Canada in Winnipeg will face stiff competition.
Chicago, Kansas City and Minneapolis already have contracts. Each makes sense from a geographic point of view, but trading levels and liquidity in Minneapolis and Kansas City pale by comparison with the heavyweight Chicago contract.
The smaller contracts sometimes get out of step with each other, leading to prices that do not reflect market reality. Williams thinks trade might migrate to Chicago because of its greater liquidity.
The survival of the new Winnipeg contract and the smaller U.S. exchanges will depend on participation and support by the major grain companies.
Even so, Williams said he would not be surprised if ICE, which also runs commodity futures exchanges in New York and London, buys the Minneapolis and Kansas City exchanges.
