Without the CWB co-ordinating shipments, grain marketers will be competing for sales and rail service
If Mother Nature co-operates, farmers and grain handling companies on the Canadian Prairies could be shipping a large and unusually valuable grain crop to overseas buyers this fall.
But getting that crop to market in a timely manner could be a challenge, according to some industry observers.
According to CWB officials, Western Canada’s farmers are on track to harvest a larger-than-average wheat crop.
Total wheat production, excluding durum, is estimated at nearly 20 million tonnes this fall, well above the five-year average.
Global demand for wheat is also strong and production problems in other major production areas, including the Black Sea region, are expected to create a strong pull for Canadian grain exports.
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The elimination of single-desk marketing also means the CWB will no longer be the only grain marketer in charge of co-ordinating grain movements and filling overseas sales contracts.
With the private grain trade directly involved in marketing Canadian wheat, more companies will be running their own export programs, demand for rail service could be high and shipping patterns could change significantly.
The potential for logistical glitches was acknowledged recently by federal agriculture minister Gerry Ritz, who was in Saskatoon July 31 to mark the beginning of a new era of grain marketing in Western Canada.
“There’s going to be a lot of pressure on our overall logistics industry to handle a tremendous crop that’s coming off,” he said.
“We’re going to have a very good-sized crop. It’s not in the bin yet … but at the end of the day, there’s going to be a rush to move a lot of product off the combine.”
Under the single-desk system, the CWB co-ordinated grain shipments over a 12-month sales window.
By spreading sales over an entire marketing year, demand for rail capacity was also moderated.
Western Canada’s new grain marketing system could put additional pressure on Canada’s rail system to move larger volumes during peak periods.
Cherilyn Nagel, a wheat producer from Mossbank, Sask., and past -president of the Western Canadian Wheat Growers Association (WCWGA), said delivery bottlenecks could affect grain movement this fall. But those issues are not new, she said.
And they aren’t necessarily the result of grain market deregulation.
“It’s going to be a challenge (to move the 2012 crop) but I can’t say that it’s necessarily a challenge that I don’t welcome,” Nagel said.
“It’s kind of like running out of bin space. It’s a good problem to have …. The fact is, we have a bottleneck (delivery) system, we’ve had this bottleneck system for a long time, and I think we’ve been able to manage it fairly well.”
Nagel acknowledged that the elimination of single-desk marketing is likely to change grain shipping patterns but she’s not convinced that those changes will be detrimental to the agriculture industry over the long term.
“I believe that not having the Canadian Wheat Board involved in grain transportation may go a long way toward addressing some of the logistical concerns that we’ve had in the past with wheat, durum and barley,” she said.
“Freight’s still our biggest expense and it’s still an issue that we have to work on, but I feel that there’s been fairly good dialogue happening — at least between our association and the railways — to start to address what our concerns are.”
According to Nagel, one of the key issues facing the wheat industry is securing adequate rail space during peak export periods.
In a submission to a federally appointed rail service review panel in 2010, the WCWGA suggested that a two-tiered revenue cap system be implemented, allowing railways to capture higher revenues during periods of peak demand for rail service.
“To provide the railways with an incentive to add capacity during the October to December shipping period, we propose that the railway revenue cap be increased during this period, in effect allowing the railways to capture higher per tonne revenues,” the submission said.
During non-peak periods, the revenue cap would be lowered.
Nagel said Western Canada’s oil and potash industries are also expected to command a larger share of rail space in the future, a situation that could affect the timely movement of grain.
Competition for rail service will increase but that doesn’t mean that agricultural shippers will be pushed to the sidelines, she added.
“I think we’re a pretty good customer, both for CP and CN, and I don’t anticipate a loss or a decrease in rail service for our industry,” Nagel said.
“Am I willing to pay more for freight so that it’s a more efficient system and it’s there when I want it to be? The answer is yes, I really am, provided the service is there.”
Norm Hall, president of the Agricultural Producers Association of Saskatchewan, said it remains to be seen how the elimination of single-desk marketing will affect shipping patterns.
“With some of the issues that we’ve had in the past, I’m not sure if (rail service) can get a whole lot worse,” he said. “But that said, without the Canadian Wheat Board … co-ordinating a lot of the movement out to the West Coast, there is the possibility for some nightmares.”
Hall said there are many unanswered questions related to rail service, including whether the Harper government will take steps to remove the rail revenue cap, which limits the amount that railway companies can charge for moving prairie grain to export position.
In the past, Ritz has indicated that he views the revenue cap as problematic.
The federal government has also indicated that it intends to introduce legislation ensuring that rail shippers receive better service and giving them the right to negotiate service level agreements with railway companies.
Those agreements would include specific details on items such as service expectations, delivery times, obligations for shippers and railway companies and penalties for non performance.
Hall said concerns over rail service are likely to become more evident as expansion occurs in the oil and potash industries.
“We know there’s going to be just that much more product moving but we’re just not sure what the answer is,” he said.
“What’s going to get shuffled off or pushed aside with all this extra tonnage going through our rail system? Is it going to be grain?
“Is potash going to be backed off? Is there going to be additional investment in the rail system?”
Officials from Canada’s major railways said they are anticipating a large 2012 crop and are ready to meet the heightened demand from grain shippers.
Ed Greenberg, a spokesperson for Canadian Pacific Railway, said CPR has been involved in ongoing discussions with the grain industry to ensure that both parties are well prepared for the fall export period.
“We appreciate that while market changes are still evolving, we believe we are well positioned to handle new grain flows and we’re ready to re-spond to the shipping needs of our Canadian farmers,” he said.
“We’ve worked with these companies before so we have that relationship and we’re confident in our abilities, specifically with regard to the (marketing) changes,” added Emily Hamer, regional manager for public and government affairs with Canadian National Railway.
Hamer said CN moved a total of 150,000 grain cars in the 2011-12 crop year to export terminals in Vancouver, Prince Rupert and Thunder Bay, up five percent from 2010-11.
