The Russians aren’t coming, they’ve already arrived. And they’ve been joined by the Kazakhs and Ukrainians.
The surge of wheat exports from Black Sea producers into global grain markets isn’t new, but most Prairie farmers may not appreciate just how strong they’ve become.
“Russia continues to dominate the global wheat export trade,” market analyst Marlene Boersch told FarmTech attendees. “They’re breaking one record after the next.”
The country’s latest records include the biggest-ever wheat harvest (85 million tonnes, up 15 per cent from 2016) and forecast exports of 34.6 million tonnes in the current crop year.
Add in its Black Sea cousins and you get some eye-popping numbers. In a mid-January report, the International Grains Council forecast Ukraine will export 17.0 million tonnes and Kazakhstan will ship 7.3 million tonnes this crop year. The total is just shy of 60 million tonnes or nearly three times the grains council’s forecast for Canada (22.0 million tonnes).
And while Russia alone has doubled its wheat exports in the last three years, Canada’s are only 15 per cent higher than a decade ago.
“We think we’re one of the biggest forces in the wheat market. We’re not,” said Boersch, owner of Mercantile Consulting Venture.
Greg Porozni described the situation even more bluntly in a separate FarmTech session on international wheat markets.
“What keeps me up at night is Black Sea wheat,” said the Mundare-area farmer. “It’s everywhere and it’s $50 to $60 a tonne cheaper.”
Earlier this winter, Porozni went on a Team Canada-style trade mission with grain industry officials to Indonesia, Dubai, Nigeria, and Ghana.
Everywhere he went, grain buyers, millers, and other wheat users spoke of how much they love CWRS No. 2 with 13.5 per cent protein — because it’s ideal for blending up lower-quality Black Sea wheat.
But it got worse, he said.
Some brokers of Black Sea wheat are now guaranteeing certain specs on some loads, such as 11.5 per cent protein. That’s far from a pledge of top quality, but it’s a big step up for a region infamous for its lack of consistency in the quality of its product.
“This was unheard of even two or three years ago,” said Porozni.
It’s concerning because the Black Sea production zone already has formidable strengths. The region has a lower cost of production, cheap currencies, and is close to its biggest buyers — the Middle East and North Africa — and so has much lower transportation costs. As well, there has been a massive investment to modernize both farms and transportation networks.
The bottom line was made clear by Boersch. At the time of her presentation, Canada Prairie Red Spring was selling for $274 a tonne (all prices U.S.) and 13.5 per cent protein Canada Western Red Spring was sitting around $253. Meanwhile Russian 11.5 per cent protein wheat was going for $186.
“Russia keeps churning out the world’s cheapest cash wheat,” said Boersch. “This is your competition.”
Increased production is bad news. Cheap prices, even worse. But Russia is also getting its wheat to market quicker — and that’s where Canada is really falling behind, according to Boersch.
“Over the past 15 years, Russia has increased its export capacity ninefold. This year alone, it’s up another 23 per cent,” she said.
In down markets — like the one Prairie producers are trading in now — buyers want to purchase commodities quickly, and that means buying commodities that are close by.
“In these down markets, he who can ship quickly actually gets the business.”
And Canada has a few things working against us, said Boersch. First, we’re simply not close enough to major wheat markets like the Middle East and North Africa. We can’t change that. Second, a different “trade matrix” is developing between countries like Russia and China, which will make it cheaper for these countries to work together. We can’t change that, either.
Finally — and more fatally — investment in Canada’s grain transportation system has stalled, said Boersch, adding not enough is being done to change that.
“We all want to increase volume. We want to increase exports. That’s all very good. We’ve invested a lot of money in those goals,” she said.
“But we also need to be investing and planning for how to get it there in an expedient way.”
While West Coast port capacity has increased and rail transport has improved over the past three years, that growth is marginal compared to Canada’s major competitors, and there aren’t enough players in the game to force competition and get costs down, she said.
“Are we doing something about it? Are we even thinking about it? Do we have a plan? I would think not,” said Boersch.
“At the moment, we’re really failing at anticipating change and building for change.”
As a result, wheat producers here have to stay on their toes and take advantage of price increases when they come along.
“When opportunities come up, you must pounce.”