MONTREAL — The transition to an open market hasn’t unfolded the way grain industry analysts expected.
Marlene Boersch, managing partner of Mercantile Consulting Venture Inc., thought there would be a “quick and aggressive” move by grain elevator companies into the wheat market and immediate pressure on pulse and special crop acreage.
Wheat is easily hedged, has better price discovery than pulses and is a lower risk crop to grow because of the high volume markets where it is traded.
Boersch felt there would be a diminished role for pulses and special crops as cash crops in the post single-desk environment because farmers will be able to be paid in full for their wheat straight off the combine.
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So she was surprised to see that total pulse and special crop acreage is up 20 percent over last year.
Boersch told delegates attending the Canadian Special Crops Association’s recent annual convention that the CWB and the grain companies have bungled the transition to an open market.
“The wheat board really so far has been seen as somewhat confused. They have not really taken optimal advantage of their connection with buyers,” she said.
The grain companies seem unprepared and unable to service their customers and overly cautious in the contracts they offered to growers.
“The farmers have really not been impressed with the lack of detail in the contracts and have really not rushed forward to take up those contracts from the trade,” said Boersch.
She said a lack of competition in Canada’s grain industry and a lack of expertise within the grain companies contributed to farmers’ ho-hum response to the wheat and barley contracts.
Twelve major grain companies used to vie for farmers’ wheat. Today there are eight, although Boersch said it’s more like seven because Richardson International and Glencore International appear to be working in close conjunction with each other. Together they handle two-thirds of Canada’s grain.
Another sign of stumbling to the open market is the lack of interest in the ICE wheat contract by the grain companies that helped design it.
At the time of her presentation, ICE futures contracts covered 1,440 tonnes of the 19 million tonne Canadian wheat crop. That compares to 13.4 million tonnes of the 21 million tonne U.S. hard wheat crop traded on the Kansas City Board of Trade.
“This contract so far is not working at all. It is not being used as a tool within the market,” said Boersch.
She believes the grain industry will eventually get its act together, and pulses and special crops will feel the squeeze when that happens.
