New marketing era, new issues | Private firms take over from the CWB in co-ordinating sales and shipping routes
Executives from major grain handling companies say the transition to an open marketing environment has been a smooth one so far.
However, there are unanswered questions about how the industry will evolve, particularly when it comes to grain movement.
“To a large extent, the move from a single desk to an open market environment is a little bit like uncharted territory for all of us … but we’re finding our way through it,” said Jean Marc Ruest, vice-president of corporate affairs with Richardson International.
“As grain companies, we’ve had a lot of lessons learned through the way we’ve dealt with … non-board grains. We’re familiar with contracting with producers, we’re familiar with taking positions … and we’re familiar with how to market and sell (non-board) commodities to end-use buyers domestically and around the world, so I think we’ve found a level of comfort very quickly.”
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He said transportation is one of the biggest questions facing the grain industry. Availability and reliability of rail service as well as the cost of transportation and logistics will be important considerations for private companies operating in a deregulated market.
“I think what we do see in the open market is that we now have the ability to see what (grain) movements make the most sense commercially,” Ruest said.
“The new market opens up the opportunity for all participants to consider and reconsider the way in which we’ve all been doing business, including how and where we sell grains and oilseeds produced in Western Canada.”
Having the private sector directly involved in the marketing and movement of grain and oilseeds could result in new efficiencies, such as the increased use of combo vessels capable of carrying multiple commodities to a single destination, he said.
There is an overwhelming sense of optimism in the Canadian grain and oilseeds sector, Ruest added.
“When you have a sector that shows as much promise as this one does, you’re gong to see a lot of people interested in getting involved in it,” he said.
Andrew Paterson, chief executive officer of Paterson GlobalFoods, said grain flow patterns could change significantly in the new environment.
Under the single desk system, the CWB co-ordinated grain sales and selected transportation and shipping routes accordingly.
“What the wheat board did was they used the entire system,” said Paterson.
“The private trade will have to come to their own conclusions on maximizing the system and determining what works and what doesn’t work. Now we will all find out whether shipping grain to Churchill was a wise thing or shipping grain to Thunder Bay or the lower St. Lawrence.”
Paterson said there are indications that more prairie grain will move to the West Coast.
“What I can tell you is it appears that the Vancouver draw area has stretched to the Manitoba border and maybe into Manitoba for more than just canola,” he said. “I can see the terminals in Vancouver running at full capacity or close to it.”
A poor crop in the United States could also mean smaller U.S. exports this fall and surplus rail capacity south of the border, he added.
That could affect Canadian railway operations and grain flows north of the border.
“Believe me, traders are attuned to rail capacity issues and they are looking at maximizing their capacity by using other modes or other routes,” Paterson said.
In the wake of Glencore’s proposed takeover of Viterra, some industry analysts have suggested that further consolidation is likely to occur in the Canadian grain handling industry.
However, Paterson said there are few opportunities for large foreign companies to buy significant grain handling assets in Canada.
Apart from a few independent producer-owned terminals, Canada’s privately owned grain handling companies are well established, well-financed and unlikely to sell to a foreign bidder, he added.
Foreign companies that are hoping to secure a larger share of the Canadian grain trade may be forced to build assets from scratch or operate without assets and negotiate handling agreements with established companies.
“If they want to come into this marketplace, then I think they will have to come in and build,” he said.
“Do I think that will happen? Yeah, I think someone might come in and test the waters, no doubt. But the one thing that will happen in this new environment is that we (grain companies) will trade more among ourselves … because it will make sense for logistics and capacity reasons. By doing that, the requirement to own assets becomes less.”
