The Canadian Wheat Board is facing increased competition from a source that is a lot closer to home than the Black Sea region or Australia, says a market analyst.
“Long term, growing wheat for the ethanol market appears more competitive than growing spring wheat for the board,” said Brenda Tjaden Lepp, co-founder of FarmLink Marketing Solutions.
Her brokerage firm sends wheat to the board or to prairie-based ethanol plants depending on which buyer is paying more.
“It all boils down to the bid,” she said.
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The two buyers are currently price competitive. But in the long run, Tjaden Lepp feels it will be a safer bet to grow high-yielding winter and soft white wheat for the domestic market than rolling the dice to grow a high protein bread wheat for the board.
She said there are too many risk factors in growing hard red spring wheat, such as what kind of competition Canadian growers will face from the Black Sea and Australia, whether the United States milling market will always be there and the “black box” of marketing grain through the CWB with its delivery and grading restrictions and non-transparent pricing.
“It’s a lot more work and it’s a lot more risky than growing AC Andrew for Husky,” said Tjaden Lepp.
She anticipates hard red spring wheat will continue to lose acres to winter wheat, soft white wheat and a host of other crops next year.
“Break-even on spring wheat, especially high protein spring wheat that needs a bit of nitrogen, it’s ugly.”
Tjaden Lepp said producers will need $10 per bushel for bread wheat to compete against $4 oats. You would have to be a savvy marketer to achieve that kind of price.
“If you have to grow a cereal, make it a low-cost, high-yielding one that can move into the domestic market because these ethanol plants are here to stay,” she said.
Between Husky Energy’s plants in Lloydminster, Sask., and Minn-edosa, Man., and the Terra Grain Fuels facility in Belle Plaine, Sask., prairie-based ethanol plants are expected to consume one million tonnes of wheat in 2008.
That total could rise to two million tonnes by the time other plants come on line to meet the 2010 national mandate, according to the Canadian Renewable Fuels Association.
Some say that poses a substantial new threat to the CWB, an agency that sold an estimated 13.4 million tonnes of wheat domestically and abroad in 2007-08.
Cherilyn Jolly-Nagel, president of the Western Canadian Wheat Growers Association, likes the option of growing wheat for the ethanol sector. Her husband grew 160 acres of winter wheat under contract for Terra Grain this year.
“One of the benefits for growing a biofuel product is to be outside the monopoly,” she said.
Instead of having to sell canola, peas or lentils off the combine for cash flow, she now has the option of marketing a cereal grain up front.
“I think the flexibility is a big issue when producers are debating whether or not to grow biofuel products,” said Jolly-Nagel.
But she doesn’t believe the wheat that is being grown for the emerging ethanol market is coming at the expense of board grains. Jolly-Nagel estimates six percent of the prairie wheat crop will be consumed by ethanol plants in 2008, most of which will be grown on the 860,000 acres of summerfallow that went back into production this year.
Ed Strueby, grain marketing representative with the Parrish and Heimbecker Ltd. elevator in Moose Jaw, Sask., has a different take. He said there is more soft white spring wheat being grown around Belle Plaine for Terra Grain at the expense of durum and red spring wheat.
Richard Gray, agricultural economist with the University of Saskatchewan, said any reduction in the volume of grain being delivered to the board is being offset by stronger wheat prices. He doesn’t think the agency is feeling any pain.
“I don’t think it’s an issue for them at all. The sales people probably like it,” said Gray.
“They do have some good customers and the less grain they have to sell, the easier it is to cater just to those customers.”
In years where there is a pile of frozen, low quality wheat, the board knows it will be absorbed into the system.
But he thinks things may get dicey for the CWB when farmers start accusing the agency of being too aggressive on its soft white wheat pricing. It would be a similar situation the board found itself in with feed barley, when its pricing caused angst in the feedlot industry.
“I think they’ll manage that pretty carefully so they don’t look like they’re squeezing the ethanol industry,” said Gray.
