BELLE PLAINE, Sask. – North America’s largest wheat ethanol plant was barely visible at its grand opening, hidden from view by one of North America’s largest piles of grain.
Two massive grain bins, each containing 750,000 bushels of soft white spring wheat, proved insufficient after Terra Grain Fuels was forced to delay its opening near Belle Plaine. As a result, the company has heaped 2.5 million bu. of wheat on the ground.
The $145 million privately owned plant began production eight months behind schedule, but the company lived up to its word and took delivery of grain it had contracted with about 400 local producers.
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“The farmers made a commitment to us,” said company president Tim LaFrance.
“We’re making that commitment back with respect to buying the grain in the time that we told them to deliver.”
Wesley Neb, a producer from Balgonie, Sask., contracted 300 acres of AC Andrew wheat with Terra, and the company took every kernel he grew.
Neb signed a two-year contract with Terra in 2007 for $3.68 per bu., a price that seemed attractive at the time, but wheat prices have soared since then. The Canadian Wheat Board’s July 24 Pool Return Outlook lists a price of $7.62 per bu. for soft white spring wheat delivered in Saskatchewan.
In addition to being caught on the wrong side of the market, Neb had agronomic problems with the crop in 2007. Because of dry conditions, the crop barely achieved 30 bu. per acre, instead of the 60 to 80 bu. Terra officials had boasted about during a series of town hall meetings.
Despite the setbacks, Neb is strongly considering signing another contract for 2009 delivery. The company has boosted its contract value to $5.50 per bu. and is offering an incentive to compensate for rising input costs.
“It works out actually not too bad,” Neb said.
He likes delivering to the nearby ethanol facility because his freight bill is a reasonable $9 per tonne, while a grain elevator would deduct about one-third of the value of a milling wheat contract for handling and freight charges.
Dennis Brentnell, who farms along the Trans-Canada Highway between Pense and Belle Plaine, chose not to contract grain with Terra despite his proximity to the plant.
He would like to support the local business but his farm is situated in prime durum country.
“When you’ve got something good going, it’s kind of hard to switch over.”
Brentnell said having a new plant that employs 42 people is great for the community and gives farmers another solid delivery option. The 150 million litre ethanol facility will buy 15 million bu. of wheat a year from a 120 kilometre radius once it is operating at full capacity.
However, he is happy he chose not to sign a $3.68 soft white wheat contract with Terra.
“It would have hurt to have contracted at that price when you can take it next door to the elevator and maybe get a few dollars more a bushel for it.”
Ed Strueby, grain marketing representative with the Parrish and Heimbecker Ltd. elevator in Moose Jaw, Sask., said a lot more soft white spring wheat is being grown in the area at the expense of durum and red spring wheat, but the economic impact on local grain elevators hasn’t been too severe.
“We haven’t really felt too much of a pinch yet. Some of the acres that are going into soft white spring we’re buying here anyhow.”
The CWB’s price for soft white spring wheat makes Terra’s contracts “pale a little bit by comparison,” which is helping the grain elevators lure some of the excess production of AC Andrew.
Another factor softening the blow is that farmers harvested good durum and milling wheat crops the past few years, so there is plenty of grain for the elevator system.
Strueby said all of the local grain elevators are “bound to lose a few bushels,” but he welcomes the competition.
“Overall, for producers to have a little extra jingle in their jeans, that’s a good situation.”
LaFrance said Terra won’t buy more wheat until late 2009.
He is pleased area farmers have been respecting the terms of their contracts, adding there will be times down the road when grain values drop below Terra’s contracted price, and the company will live up to its end of the deal when that happens.
“It will swing back and forth,” he said.
“It’s not if, it’s when.”
