As a Western Canadian, it is always puzzling to read Reuters News Agency stories like the following, placelined Hong Kong, April 18.
“China, the world’s biggest beer producer, is stepping up purchases of malting barley despite high prices as its brewers prepare for the peak summer beer-drinking season, industry officials and traders said.”
What are these “high prices” of which they speak?
The Canadian Wheat Board asking price for special select two-row malting barley in store Thunder Bay is about $200 per tonne. Last year at this time it was about $218 and the year before $295.
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As all Canadian farmers know, it is not just malting barley. The prices of almost all grains are down from the past two years.
But as we’ve written before, high ocean shipping rates add a lot to the cost of grain, from the perspective of the importer.
For example, for grain going from the West Coast to Japan, ocean freight adds about $40 US per tonne or $50 Cdn, double the cost of two years ago.
Ocean freight explains part of the story, but not all.
The depreciation of the American dollar also provides context. The 2003 Canadian price of $295 per tonne was equal to $203 US. Add $20 for ocean freight and you get a landed price of about $223 US.
Today’s Canadian price of $200 is about $160 US; add $40 ocean freight and you get a landed price of $200 US. That’s lower than two years ago, but not by that much.
We must also remember that the concept of expensive is relative. World malting barley prices were a little cheaper last fall, and so they might seem more expensive today.
Also for Chinese buyers, the value of malting barley must be viewed in the context of beer prices. The same Reuters story said fierce competition keeps retail beer prices in China as low as 15 cents a bottle.
Getting back to high ocean freight costs, Asia’s voracious demand for raw material is also sparking changes that could eventually help producers a bit.
Take, for example, the hundreds of millions of dollars in railway and port investments announced in the last week.
The port at Prince Rupert, B.C., said it will go ahead with a $170 million container facility. CN Rail said it would spend $125 million on locomotives and rolling stock in anticipation of the container port opening. And CP Rail announced it would spend $160 million on track upgrades between Saskatchewan and Vancouver to increase capacity and said it is also working on plans to buy more cars and locomotives.
These investments should improve transportation logistics for bulk and containerized grain headed to Asia.
