When something is in short supply, it becomes more valuable.
That basic law of economics seems to be affecting the Canadian Wheat Board’s grain transportation tenders this year.
The board is shipping a substantially smaller portion of its sales program under commercial tenders in 2003-04.
That reduction in volume has been accompanied by a big increase in the prices being paid for those tenders by prairie grain handlers.
“They have been very aggressive with their bids to this point,” said CWB director Ian McCreary, former chair of the board’s transportation committee.
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In the first quarter of the crop year (the three months ending Oct. 31), the board accepted tenders on 674,000 tonnes of grain.
The successful bids, relative to the posted charges for freight and handling, ranged from par to $24.07 per tonne below the posted rates.
In other words, grain shippers have been hauling tendered CWB grain to export terminals for as much as $24 a tonne less than regular non-tendered movement. Those savings are passed on to farmers through the CWB’s pool accounts.
By comparison, during the same period the previous year the board accepted tenders covering 1.27 million tonnes of grain at bids ranging from par to $9.09 a tonne below posted rates.
“It seems like the shippers are actually quite a bit more aggressive when there’s less of them (tenders) available,” said McCreary. “It’s not really unexpected.”
That aggressive bidding by the big grain firms has again left small shippers effectively shut out of the tendering.
“Any company that does not own a terminal at port just can’t compete,” said Jim Major, manager of Great Sandhills Marketing Centre, a farmer-owned inland terminal at Leader, Sask.
“Our revenue pipeline doesn’t include any revenue from terminals. The larger companies that have terminals are able to use those revenues to tender at high values that we just can’t afford.”
The good news for the small shippers is that the board is shipping a maximum of just 20 percent of its sales program through tenders this crop year, down from 50 percent in 2002-03.
But Major said that’s still a significant volume of grain.
“For any grain company, it’s the last 10-15 percent of grain that you handle that you’re going to have any real net earning or profitability on,” he said. “So if you lose out on that 20 percent, it makes it pretty hard.”
Great Sandhills and other small grain shippers had asked the board to eliminate tendering in 2003-04. Saskatchewan Wheat Pool and Agricore United, which together handle about 60 percent of prairie grain shipments and win the majority of tenders, wanted tendering increased.
They say tendering reduces the costs of shipping grain and puts more money into farmers’ pockets more quickly.
The board said the decision to reduce tendering and bring in a new system of awarding rail cars was designed to accomplish two things – encourage more competition among grain companies “at the driveway” through handling tariffs, trucking premiums and grading, and ensure that farmers can do business with the elevator of their choice.
Meanwhile, the board reported last week that tendering, along with freight and terminal rebates and financial penalties for nonperformance of grain delivery, resulted in total system-wide savings of $33.8 million in 2002-03.
That will be distributed to farmers through the board’s pool accounts at a rate of about $2.50 per tonne.
The previous year the savings had totalled $40.9 million, or about $2.17 per tonne.
The total savings will be lower in 2003-04 because of the reduced amount of grain being shipped under tenders, although that will be balanced off somewhat by the higher bids and the fact that the board will ship about 50 percent more grain this year.
“The savings to the pool account won’t be down as much as people anticipate,” said McCreary.
