Ethanol production in Western Canada is about to shift from a trickle to a steady flow, fueling an explosion that could forever change prairie agriculture.
Husky Energy’s 130-million-litre plant in Lloydminster, Sask., was scheduled to officially open earlier this week, after deadlines for this issue. It is the first of three large-scale operations under construction that, once built, will consume more than one million tonnes of prairie wheat each year.
Cattle industry officials hope they can use the cheap feed byproduct of Canada’s new ethanol plants to remain competitive with their U.S. counterparts.
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Hog industry officials worry about the short-term competition for feed quality wheat but think it will spur development of a new class of wheat grown specifically for the hog and ethanol sectors.
Wheat industry analysts say the stage is set for a clash of interests between the Canadian Wheat Board and the ethanol sector, which will compete for the same product.
“I’m not sure exactly what is going to happen but whatever it is, it’s going to be interesting,” said Agriculture Canada wheat market analyst Glenn Lennox.
Once the Husky plant is in full production, it will require 350,000 tonnes of feed-quality grain per year. The same goes for its twin plant under construction in Minnedosa, Man. A separate large-scale project in Belle Plaine, Sask., will add another 400,000 tonnes of demand.
If all goes as planned, those three plants will be buying 1.1 million tonnes of feed-quality wheat annually by 2008. That total doesn’t take into account the myriad of smaller ethanol projects already built, under construction or in the planning stages across the Prairies.
There won’t be enough feed-quality wheat to meet the needs of those plants and those of the livestock sector, said Lennox.
Western Canadian farmers grew an estimated 2.2 million tonnes of winter and prairie spring wheat this year, which are the two main classes of wheat used by ethanol plants.
But depending on growing conditions, competition from the domestic livestock industry and the requirements of exporters, ethanol plants probably won’t be able to get half that production.
“These plants are going to have to figure on using a No. 3 CWRS if it is available,” said Lennox, adding that in years where little feed wheat is on hand they may even have to bid on No. 2 CWRS wheat.
That will put ethanol plants into a head-to-head competition with the wheat board for milling quality wheat. It will also support the off-board wheat price, which could have other lasting impacts on the board, said Lennox.
“The hard red spring production could decline as the feed price goes up,” he said.
Rick Steinke, director of the CWB’s market analysis division, rejects the upward pressure on feed-quality wheat prices that others project.
If the price gets too high, livestock producers will take wheat out of their rations, replacing it with corn or barley. Or grain producers will grow more acres of wheat, which will bring prices back down.
Steinke said the grain industry is full of examples of ups and downs in feedstock prices.
The demise of the Crow Benefit transportation subsidy led to more cattle and pigs on farms in Western Canada and a surge in domestic use of barley.
“Yet during that time, the price of feed barley in Lethbridge dropped,” he said.
A similar phenomena occurred in the United States, where corn prices are slumping despite surging demand from the ethanol sector.
While Steinke doesn’t expect off-board wheat prices to soar, he acknowledged that the new high-yielding, low-protein wheat varieties being developed could carve into red spring acreage, limiting deliveries to the board.
If that happens, CWB permit book holders will benefit because the CWB sells to its highest value markets first. If there is less wheat to sell, a larger percentage of it will be sold at higher prices.
“It would appear that there’s going to be more money, not less, which is good.”
Andrew Dickson, general manager of the Manitoba Pork Council, can see the move toward high-yielding, low-protein wheat blossoming into another CWB debate.
“There is a certain resistance from the status quo on the whole issue,” he said.
Dickson wants to nip that in the bud.
“We understand the flour industry needs to be protected. It has been a real good business for a number of years,” he said.
“We have no interest as a livestock sector in hurting that business.”
