Transportation Issues Continue to Limit Shipment of Canadian Grain

January 27, 2014 04:49 AM



Pro Farmer Canada Editor Mike Jubinville has kept us up-to-date on the transportation issues slowing the movement of the record Canadian wheat crop. He says while there is incentive for Canadian growers to ship their wheat across the border into the U.S., tonnage would be much larger "if we could get it there."

"The problem here is transportation," says Jubinville. "Rail cars are dedicated to east-west movement and we can't get cars for movement south. Truck freight is also expensive. But the price incentive is there for growers near the border."

Jubinville says Canadian producers are rightly frustrated with the transportation situation. "Growers have bills to pay and can't deliver grain. Prices are under extraordinary basis penalties because of the congested interior delivery situation... and that is directly reflected in wide wheat
price spreads we are seeing between Canadian Prairie and U.S. elevator delivery points," he says. "One grower in southwestern Manitoba pointed out to me that CWRS is $4.88 per bu. here and just across the border U.S. is $5.87 per bu. for the same wheat."

Jubinville has encouraged his subscribers to ship wheat across the border if the opportunity is available. But he notes, "It's not just about price... rather more importantly, just getting the opportunity to delivery."

He recently talked to a farmer with land on both sides of the Saskatchewan/Montana border that was selling HRS wheat at a $1-per-bu. premium in Montana. "But some of the coops closest to the border were less inclined to take Canadian grain so as not to offended their local U.S. clients/shareholders," he says. "But there were instances where U.S. flagged/licensed trucks ran up to Saskatchewan to pick up wheat so as to disguise Canadian wheat in U.S. trucks in the elevator line-up."

The issues in Canada are more complicated than what they appear on the surface, says Jubinville."First, we have all been talking about a record-large 2013 crop for some time... and the inherent risks that may pose to slowing the future delivery process. And today we are living it. But no one anticipated the truly mind-bobbling scale of this year's Western Canadian production."

"There is some suggestion floating around that had the CWB monopoly remained in place we would not be having these problems. This one is a minefield I would prefer not to wade into as it reawakens a very heated debate. At the fringes of what value CWB influence in organizing rail traffic may or may not have helped grease the fluidity of the system, I honestly can't speak to with expert knowledge. But one of my CWB contacts who was around for both the old and new days discretely tells me it would not have made much of a difference," says Jubinville.

Instead, Jubinville says the core of the problem in today's environment boils down to the current inadequacies of the railway infrastructure and what he calls the "misdirected profit incentive." He says while it costs around $675,000 to ship a 110-car train of grain from the Prairie interior, a similar train of crude oil generates around $1 million of income for the railway.

"The issue here is a lack of competition in our grain transportation system," says Jubinville, who says he can understand why rail companies are making their shipping decisions based on profits. But unfortunately, the shipping situation for Canadian grain will be prolonged. "I suspect in three or six months time, we may see some loosening up of the current congestion which is probably the worst we have ever seen, though poor basis and delayed delivery will remain a key marketing feature for the remainder of the current marketing year and likely into the start of 2014-15 at least."

But there is a light at the end of the tunnel. "Performance of the grain transportation and handling system since the record 2013 harvest supplies were available for shipping suggests that 2013 harvest can be moved before space is needed for the 2014 crop," says Jubinville.


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