Storage and cash reserves key as elevators fill up with grain

Record high yields have plugged Canada’s grain-handling system, and those who need cash to pay their bills will likely suffer the most

The plugged grain transportation system in Western Canada is the result of a “perfect storm,” says one Alberta farmer.

“We have excellent yields all across Western Canada this year, and we have produced more grain than probably they were predicting,” said Andy Kirschenman, who grows durum, flax, yellow peas, mustard, fall rye, and canola with his father on 5,000 dryland acres.

Terminals in his area north of Medicine Hat on the Saskatchewan border are nearly full, he said. “And if they’re not full, their pricing is indicating they would not like to buy any grain anyway.”

The record harvest — up 33 per cent from last year — is causing problems in country elevators across the country, said Wade Sobkowich, executive director of the Western Grain Elevator Association.

“They’re at about 90 per cent capacity right now,” he said.

But the “major bottleneck in the system” is the railways’ willingness to add additional capacity for grain movement, he said.

“Unless the railways make some changes and provide additional rail car capacity to the grain industry, the way we’re going, we’re going to end up with carry-over at the end of the (crop) year.”

Storage risks

Like many Prairie growers, Kirschenman is sitting on a lot of grain — but able to ride it out.

“We’re in a place where we can be in a drought situation very quickly,” he said. “So going into a year like this with enough income, we have no problem sitting into the spring and even the summer just to see how the rain plays out.

“We’re in a better situation than quite a bit of Western Canada.”

On-farm storage is the biggest factor on most farms, said Sobkowich. “If (a producer) has enough bin space, he can sit on it, but if he doesn’t have enough bin space, he has to look for other ways to simulate cool and dry conditions,” he said. Some are storing the grain in machine sheds, grain bags, or on the ground — and that’s always a worrisome situation, he noted.

“Things can happen that degrade the quality of the product, and when it comes time that he can deliver that grain, he’s now delivering a product that’s of lower quality than it originally was, so he’s carrying that risk,” said Sobkowich.

Storage isn’t a problem on Kirschenman’s farm as he moved a lot of his pea and rye crops at harvest. But he’s struggling to sell his remaining peas, durum, and canola, and is shopping around to find the best prices he can given the limited capacity at grain terminals in his area. “The flax and the rye are moving well this year, and the drop in prices hasn’t been nearly as severe for those two,” he said.

Price-takers

Other growers he knows haven’t been as lucky, said Kirschenman.

“We heard around harvest that there were guys hauling grain for a dollar value,” he said. “It didn’t matter the bushel cost. It was a dollar value in order to pay bills.”

The pressure on farmers struggling with cash flow will “only get worse” in the coming months, he said.

“It will be the guys who have bills to pay and have quite a bit of debt that will have to be price-takers in this market so that they can actually get someone to take their grain.”

Even then, that may be a while.

Although elevators are using “every single rail car (they) can get from the railways,” producers will have few options until more rail cars start moving, said Sobkowich.

“We’re going to have to wait for relief from the railways so that we can try and draw this grain into the country elevator system.”

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