Premiums will go the way of single desk: grain trader

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Published: March 9, 2012

The golden age of trucking premiums and quality shopping is ending along with the Canadian Wheat Board monopoly, says a senior grain trader.

Wheat will begin acting like oats and canola, Keith Bruch of Paterson Globalfoods said during the Grainworld conference.

“They’ll be shopping buyers. They’ll be shopping basis. They won’t be shopping grades,” said Bruch in an interview after a panel discussion about the post-monopoly marketing world.

Wheat has long been an odd duck in the prairie farmer’s marketing pond. Trucking premiums were offered on CWB grain and farmers were often able to get different grades from different elevators for the same grain.

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Bruch said that’s going to stop happening because wheat will no longer move through a parallel system to non-board commodities. Instead, it will follow the same signals and move by the same dynamics that affect free market commodities.

Companies will fight for farmers’ grain through the basis, but trucking premiums likely won’t exist nor will elevators buy off-grades as better grades on the assumption that they can be blended somewhere down the line.

“It will all be reflected in the basis,” said Bruch.

Trucking premiums and quality arbitrage were workarounds that grain companies employed to push grain in a different direction than where it would flow if it was only subject to basis levels.

Basis levels in board grain and open market crops were different beasts.

Open market crops have always allowed grain elevators to set basis wherever they wanted to attract or discourage farmer deliveries, but board grains did not allow that because regulations determined what basis levels could be applied.

Companies that wanted to make basis levels more attractive to farmers had to get creative, which is what they did with trucking premiums.

If an elevator wanted to attract more canola, it could make its basis $10 per tonne better for the farmer. If it wanted to attract more CWB wheat, it could offer a $10 trucking premium and get the same result.

Now with those basis restrictions removed, many in the industry think there won’t be any reason for the grain company workarounds.

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Ed White

Ed White

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