Two big-picture issues will dominate discussions this winter: the Canada Transportation Act review and the privatization of CWB.
The grain logistics backlog that dominated the news last winter has now faded from the headlines. There are still lingering effects such as Canadian National Railway being singled out for not meeting the minimum movement requirement, but overall the system is no longer in crisis mode.
Hopefully, memories are long enough and the political will remains deep enough to get some structural change in railway service obligations as the review of the Canada Transportation Act kicks into high gear.
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There’s no easy way to emulate competition in a railway industry dominated by two giants that don’t really compete head to head and who face only minimal competition from trucking.
The minimum movement targets set by the federal government had a positive effect, but they also had unintended consequences. The railways concentrated on the easy corridors and the easy origins to reach the mandated movement. If mandated minimums are part of a long-term solution, how do you fix this distortion?
CWB privatization is the other big issue with Farmers of North America publicly entering the arena and seeking the support of producers.
CWB did not garner a significant market share in the past crop year, but it will have an interesting footprint with the new facilities it is building as well as the assets it has bought. Competition in the marketplace is good for farmers, particularly if farmers have some control.
However, it often isn’t the most public proposal that ends up winning the prize. Ultimately, the privatization plan may or may not include FNA.
FNA certainly makes grain handling sound like a rip-off as it goes through the basis deductions that were in place over the winter. In most cases, grain companies should have had strong profits — they’re not in business to lose money — but it’s not as lucrative as it appears on the surface.
Basis deductions increase as the system becomes congested and sellers are hit with demurrage charges and have to buy their way out of contracts. A rising basis is a way to limit the inflow of grain from farmers because there’s no place for it to go.
A privatized CWB will deal with the same issues. With the proper structure, it could provide significant competition in the marketplace, but it won’t be able to work miracles.
While these major issues play out, farmer conversations this winter are more likely to focus on the profitability of canola and whether the price can rebound. Meanwhile, prices for low quality durum and lentils have held up amazingly well. And of course, cattle prices are nothing short of astounding.
Most producers will be marketing a mix of crop qualities while moving and drying grain. They’ll worry about flooded and rutted fields, impassable roads and what the weather will hold for next year.
Fertilizer purchase decisions loom. Many producers will be considering equipment upgrades to deal with wet conditions: everything from tractors with tracks to tillage tools and grain carts. They’ll consider next year’s crop mix and what they can do to maximize returns.
But while we deal with the dollar and cents issues that matter to our individual farms, keep an eye on the big picture issues because they will form a framework for the future.
