After several years of relative stability, the net cost of moving wheat from farmgate to export vessel is on the rise.
And those costs are eating up a bigger than ever percentage of the farmers’ selling price.
The average net cost to western Canadian farmers of shipping No. 1 CWRS wheat increased by seven percent in 2005-06 to $61.81 per tonne, according to the federal grain monitor.
That represents 32 percent of the final realized price for 1 CW 13.5 percent protein of $195.14 per tonne, the highest percentage since Quorum Corp. began monitoring the performance of the grain handling and transportation system in 1999.
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The increase in farmers’ logistics costs represented the second biggest one-year increase since monitoring began.
It comes on the heels of a four percent increase the previous year, making for a two-year increase of 11 percent.
The increase from 1999 to 2006 was 13.2 percent for wheat.
The head of the monitoring agency said the upward trend is continuing this year, with an increase of about six percent in freight rate costs alone. However, final figures for 2006-07 won’t be available until well after the end of the crop year.
“This will be the third year in a row with a significant increase,” said Quorum president Mark Hemmes.
Logistics costs declined in the first two years of monitoring, jumped up the next year, then declined again in 2003-04.
“Now we’re seeing a trend that’s starting to look like a hockey stick pointing in the wrong direction.”
Every year the monitoring agency carries out a detailed calculation to come up with logistics cost figures for wheat, durum, canola and yellow peas.
For 2005-06, here’s how that calculation looked for 1 CW 13.5 wheat (prairie-wide average figures):
- Weighted rail freight cost $34.72 per tonne.
- Trucking $7.24.
- Primary elevation $11.76.
- Terminal cleaning $4.43.
- Weighing and inspection 38 cents.
- Canadian Wheat Board costs (gross) $9.16.
That works out to total direct costs of $67.69 per tonne.
Subtract from that trucking premiums of $4.56 a tonne and CWB-generated transportation savings of $1.32 and farmers pay $61.81 per tonne.
The logistics costs vary by commodity. For durum wheat it’s $72.61 per tonne, for canola $41.51 and for large yellow peas $52.94.
Hemmes said not too much should be read into the cost difference between canola and wheat, noting that the corporation uses different methodologies to calculate the respective bases for the two commodities.
“It’s apples and oranges,” he said.
Another factor is that variety distinguishability issues with wheat result in higher handling and shipping costs than canola.
Trucking premiums for wheat have increased from an average of $3.14 a tonne seven years ago to $4.76 last year, a reflection of increased competition among grain handling companies to draw in grain to their high-throughput facilities.
By contrast, trucking premiums for canola have virtually disappeared, from $2.48 per tonne in 1999-2000 to 43 cents last year, which reflects grain companies’ preference to provide delivery incentives by adjusting the basis.
