SASKATOON – Switching to special crops to soften the blow of higher freight rates may not be the panacea it’s sometimes made out to be, says a grain industry official.
Dale Adolphe, manager of planning and development for XCAN Grain Pool Ltd., told a conference here that major shifts in production could create volatile and unpredictable market conditions and leave farmers no further ahead.
“My concern is that a lot of these crops that I think are going to look attractive have a finite demand,” he said. “You don’t sell more mustard just because there’s more mustard to sell.”
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Earlier, University of Saskat-
chewan agricultural economist Richard Gray told the Cropportunities conference that the loss of the Crow rail subsidy and changes in the pooling system will force producers to look for ways to squeeze every last dollar out of their land.
He said there will be strong incentive to grow special crops which are high yielding and high value relative to traditional cereal grains and oilseeds.
But Adolphe said farmers must remember that unlike wheat, Canada dominates world trade in a number of special crops, which means any changes in acreage and production here can have a dramatic influence on world prices.
Once freight rates go up, crops with a high value per tonne, like lentils, canary seed, mustard and peas, may produce a better net return on paper than more traditional cereals and oilseeds.
Advantage disappears
But if too many farmers make the switch at once, that advantage could disappear.
“I can see overproduction, prices falling, people getting out of production, prices going up. I can see the volatility and all that does is increase the risk to the producer and to the grain trade.”
Adolphe added there is also a potential benefit from being the dominant player in world trade of a specific commodity. The exporter may be able to pass on a good portion of the additional freight cost to the customer in the form of higher prices. But that could encourage even more farmers to start growing the crop, increasing the market volatility.
Figures presented to the conference by Mike Pylypchuk of Saskatchewan Agriculture showed how tempting it will be for farmers to switch from traditional cereals to special crops after the Crow ends.
Different mix of crops
Among the major grains, the new freight regime could result in a different crop mix, said Pylypchuk.
In northeastern Saskatchewan, the total freight bill in 1995-96 (using preliminary freight rate figures) will range from $12.15 per seeded acre on flax and $18.17 on canola to $28.67 on wheat and $38.29 on feed barley.
Adolphe also cautioned against putting too much stock in predictions that the negative impact of higher freight rates will be offset by a boom in processing on
the Prairies.
“We can expand production quicker than we can expand markets,” he said. “That means we’ll be depressing prices and the cycle I was talking about earlier develops again.”
