The federal government’s grain delivery mandate won’t have much impact on Canada’s burdensome carryout, say analysts.
Agriculture Canada is forecasting 22.8 million tonnes of ending stocks for grains and oilseeds in 2013-14, which is not likely to be adjusted much.
“Right now we’re still leaning towards leaving our carryout, not making significant changes to it,” said Chris Beckman, an oilseed analyst with Agriculture Canada.
Ottawa has told the railways they have to haul one million tonnes of grain per week, which would require 11,000 rail cars.
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It represents a large increase over what was hauled in the winter, but Beckman said Agriculture Canada was already counting on increased spring and early summer movement when it calculated the carryout.
“When we put together our S&Ds (supply and disposition), we kind of assumed that movement would start picking up anyway when temperatures improved,” he said.
The government mandate is for the shipment of all Schedule II grains, which includes value-added products such as canola oil, canola meal, wheat flour and barley malt.
It means the 11,000 cars in the government’s mandate are not all hauling crops.
Oil and meal movement alone requires 1,200 to 1,400 rail cars per week, which is another reason why Agriculture Canada is leaving its carryout forecast intact.
However, Beckman believes there has been too much fixation on the carryout number. The 22.8 million tonnes on hand at the end of July will be a much smaller number by the time the 2014 harvest rolls around.
“We should have, I’m guessing, maybe six weeks of solid grain movement before most of the crop starts coming off in a significant way,” he said.
Beckman believes rail shipments through much of August and September will be more than twice the usual amount for that time of year.
He figures the railways will be moving close to the mandated one million tonnes per week by that time, and the ports should be less congested.
“That’s the time of year you see a lot of rail cars sitting along the sidings. This year you probably won’t see that as much. They’ll be moving grain,” said Beckman.
“By the time harvest starts, farmers will probably have five or six million tonnes less grain in their bins than they had July 31.”
It would leave 17 to 18 million tonnes of carryout, which while burdensome isn’t overwhelming.
It would also represent 19 percent of 2013 production, which isn’t as bad as some years. For example, Beckman said an entire year’s worth of grain was carried forward in 1969.
“We’ve seen worse and made it through worse,” he said.
Derek Squair, president of Agri-Trend Marketing, also isn’t tweaking his export and carryout numbers because of the government’s rail car mandate.
He was already counting on 8,000 to 10,000 rail cars carrying grain to port position every week during the spring and summer months. He doubts the railways will be able to do much more than that.
“I think the 11,000 (rail cars) is a real stretch,” said Squair.
He said he was tempted during the winter to erase the 8.5 million tonnes of canola exports in his supply and demand charts.
“Now we’re getting a little more confident we should be close to that near the end,” he said.
Squair said Agri-Trend’s export forecast is probably more optimistic than most analysts, who are anticipating 7.5 million tonnes of canola shipments.
He thinks there will be an opportunity to make sales into the European biodiesel market through Thunder Bay.
Renewed strength in the export market should result in 3.1 million tonnes of carryout, which is slightly below Agriculture Canada’s forecast of 3.3 million tonnes.
If the railways are able to haul 11,000 rail cars per week, it would give exporters the confidence to put more sales on the books, which could further reduce canola carryout.
“We could get it down below 2.5 (million tonnes),” said Squair.
“That would cut 25 to 30 percent off the basis levels that we’re seeing today.”
