What does your grain sell for at port?

When grain gridlock hit two years ago, the gap between the elevator and port price appears to have skyrocketed — and cost farmers billions

The jury’s still out on whether knowing the price of export grain relative to local cash prices will help producers get better prices.

But the Alberta Wheat Commission intends to find out.

Tom Steve

Tom Steve
photo: Supplied

“The port price would provide an indication of whether the system is constrained or functioning efficiently,” said Tom Steve, the commission’s general manager.

“For farmers, it’s a tool to let them know whether to send their grain to port or whether there are more attractive opportunities.”

According to economist Richard Gray, Prairie farmers lost $5 billion to $6.7 billion during the 2013-14 and 2014-15 crop years because the export basis — the difference between the elevator price and the price grain fetched at the Port of Vancouver — soared to unprecedented levels. Using a mix of U.S. data (for grain exports at Portland, Ore.) and private estimates, the University of Saskatchewan economist concluded the average export basis from 2002-12 was $68 per tonne. But following the record harvest in 2013, Gray estimated it jumped to $162 per tonne for 2013-14 and $124 per tonne the following year (as the last of the bumper harvest was exported).

“Even for a smaller 1,000-acre farm, the income reduction would have been in the order of $120,000,” Gray wrote in a 2015 study for the Saskatchewan Wheat Development Commission.

That prompted Drumheller grain producer Darrell Stokes to put forward a resolution that Alberta Wheat Commission lobby government to require grain companies to report international sales prices to Cereals Canada. The resolution passed and will now be considered by the commission.

Darrell Stokes

Darrell Stokes
photo: Supplied

“I’m concerned because I feel farmers are being taken advantage of,” said Stokes. “This would be the first tiny baby step to maybe making it clear just how badly we’re being taken advantage of.

“What I’m looking for is to have transparency in terms of the pricing grain companies receive when they take a $5 bushel of wheat, take it out to the coast, and put it on a boat. If that number is $10 — and nobody knows that number because grain companies don’t give you that information — we would see that the grain companies are taking us to the cleaners.”

Sensitive data

However, there is a major roadblock to making this information public — it could compromise Canada’s competitive position.

“In the U.S., for example, grain marketers are required to report sales volumes on a weekly basis above a certain threshold,” said Steve. “That gives the trade an understanding of what proportion of the crop has been sold. However, they’re not required to report transaction prices. If that were to be the case in Canada, some would argue that it may put us at a competitive disadvantage.”

The Alberta Wheat Commission is examining if there is some way it might have an indication of export basis on its Price and Data Quotes (PDQ) website.

“If you provide actual sales data that starts to get into competitive sensitivity issues — where your competitors know what the price of wheat or canola is in Vancouver — they can react accordingly,” said Steve. “With PDQ, we report an average of all the prices. Whether or not it would be to our advantage to report port price sales is something the industry needs to discuss and debate.”

Another roadblock would be getting this data in the first place.

“It’s a corporate secret. They’re under no obligation to tell us,” noted Stokes. “They take (the grain), it’s theirs now, they can sell it for whatever they choose, and they have no obligation to tell us what they sold it for.

“I’m hoping that farmers start to get upset about that. There are a lot of people who think things are all perfect now — they can forward contract and buy futures — but in my thinking, farmers keep getting the short end of the stick.”

Data gaps

Port basis is not the only data missing in the grain export system, said Steve.

“There’s no requirement in Canada for grain handlers or exporters to report sales volumes in a timely fashion,” he said. “Some of that data is collected by the Canadian Grain Commission but it is very dated — usually 1-1/2 to two months old by the time it’s available.

“In the U.S. there is a requirement that export sales be reported weekly and, for sales over 100,000 tons, reported immediately. That type of information here would help Canadian producers understand what percentage of the crop has been sold and potentially the value of their grain. Information is power.”

The PDQ website is an attempt to put some of that power into producers’ hands.

It currently offers benchmark prices for four crops covering eight zones throughout Western Canada. The market data is provided by grain buyers licensed with the Canadian Grain Commission and averaged by region before posting. The commission is still refining the site. For example, it uses the wheat futures market in Minneapolis to get prices for Canadian hard red spring wheat.

“So on our site, and many grain company websites, the futures value is shown in U.S. dollars and the Canadian price is in Canadian dollars, which creates a lot of confusion as to the basis level when you’re comparing U.S. currency to Canadian currency,” said Steve.

And market data can only get you so far as better information alone won’t address Canadian producers’ export 
challenges.

“In terms of exporting grain, a big challenge is still our transportation system,” said Steve.

That’s why the entire grain industry is anxiously awaiting the recommendations from a review of the Canada Transportation Act. The report from the 18-month-long review, headed by former federal industry minister David Emerson, was to be given to the federal government last month and is expected to be made public in February or March.

“We’re looking forward to seeing what enhancements can be made to the transportation system in order to ensure that that gap doesn’t get too wide during times of shortage of capacity,” said Steve.

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