Growers will share in tens of millions of dollars in grain handling and transportation savings in the post single desk environment, say analysts and grain companies.
“It just logically has to get more efficient,” said Mark Hemmes, president of Quorum Corporation, the monitor for the prairie grain handling and transportation system.
“That is going to be a big deal.”
The first place efficiencies will arise is in the country elevator network, where in the past two independent parties have been planning the gathering of grains into one network.
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“Over time the grain companies and the (Canadian) Wheat Board have gotten better at working and planning together but you still have problems, you still have issues and conflicts,” said Hemmes.
Grain companies were never sure how things were going to unfold from one week to the next with the CWB handling logistics for board grains and the grain companies taking care of the non-board crops.
Removing the CWB from the planning process should make it easier for the owners of the assets to make better use of their facilities.
“You have to think there’s going to be efficiencies that are going to translate into money. It’s just logic,” said Hemmes.
Viterra thinks so. The company issued a news release saying it expects to realize a $40 to $50 million increase in earnings before interest, taxes, depreciation and amortization (EBITDA) per year in the post single desk world starting in 2014.
Fran Malecha, chief operating officer of grain with Viterra, said a significant portion of those savings will arise due to better use of the company’s assets.
“We’re turning the assets at a much higher rate on the non-boards. We expect that will transfer over to the board grains and increase the overall efficiency of our current assets.”
Viterra had a two-week planning window for moving board grains under the CWB’s rail car allocation system. In an open market the planning horizon is much longer. Viterra has been contracting grain since Dec. 20.
“You’re much better able to plan the logistics through the country elevator,” said Malecha.
“That’s just one example of how it’s going to be more efficient.”
Some of the cost savings will be passed along to farmers.
“I see the pie getting bigger potentially for all the industry and certainly growers are the key participant in the industry,” said Malecha.
In addition, growers will be better equipped to make planting and marketing decisions and to move grain when they want.
Richard Phillips, executive director of the Grain Growers of Canada, said there was a lot of frustration with the way the CWB allocated rail cars.
“The wheat board did a good job co-ordinating for its own crops but to the detriment of others at times,” he said.
That created bottlenecks for non-board grains at the port.
Phillips is confident some of the newfound efficiencies will be passed along to growers in the form of trucking premiums, higher basis levels and other incentives, as long as there’s enough competition in the grain handling sector.
Hemmes doesn’t think that will be an issue. Grain companies in the U.S. and abroad are eyeing the Canadian market.
“Don’t lose sight of the fact that you’ve just taken 20 percent of the world’s export trade in wheat and thrown it open. And so those companies are looking at that and they’re drooling and they’re going to be in here.”
Companies like Toepfer International, Bunge, Gavilon, The Scoular Company and Archer Daniels Midland are all looking to expand their presence in Canada, he said.
Hemmes also expects other changes in the post single desk world:
- grain companies could dedicate certain elevator s to certain crops
- more U.S. grain could move through Canadian ports and vice-versa, creating a continental export market
- another round of elevator consolidation might occur, although new entrants may buy some of the discarded assets.
