U.S. pressuring Canada on grain grading

U.S. grain bought on spec, not grade, say Canadian grain industry watchers

U.S. officials say this country’s grain-grading system is to blame for why American farmers living close to the border can’t take advantage of higher Canadian wheat prices.

But Canadian officials deny claims that Canada’s quality control system discriminates against imported U.S. wheat.

Canadian officials concede imported U.S. wheat formally receives the lowest grade in the wheat class it’s intended for, but stress there are no regulations or commercial impediments blocking American farmers from selling wheat in Canada, as long as the varieties are registered in Canada.

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Canadian Grain Commission officials say U.S. grain can also be sold outside of the grading system based on specifications — similar to how wheat is marketed in the U.S.

But American wheat must get the lowest grade, which is Feed in the new Canada Northern Hard Red class, proving American wheat is treated differently, said Dalton Henry, U.S. Wheat Associates’ director of policy.

“Yes, the U.S. producer could deliver wheat to (a Canadian) elevator and an elevator could choose to buy it on spec and they could work to negotiate what that price would be, but just because it can legally happen doesn’t mean that it does happen, or that there is not a barrier there,” he said.

It’s become a bigger issue since U.S. Wheat Associates began comparing wheat prices at U.S. and Canadian elevators equal distance to the border following the demise of the Canadian Wheat Board in 2012.

Economic theory holds that in a well-functioning open market Canadian and American wheat prices should come together, or arbitrage as it’s known.

Initially U.S. prices were higher, which wasn’t unexpected given the change in marketing was followed by a bumper crop in 2013 and a massive backlog in grain shipping in 2013-14. But last summer, U.S. Wheat Associates estimated Canadian wheat prices were 50 cents a bushel higher than those in the U.S.

“At that point it became much more real and much more urgent for our growers, particularly those who are within driving distance of a Canadian elevator,” Henry said. “Our estimates are that there are about 3.3 million tonnes of U.S. wheat production within about 100 miles of a Canadian elevator.”

So far, most of the trade flow has been in the opposite direction. This crop year Canada has exported more than one million tonnes of wheat to the U.S., while the U.S. has exported around 100,000 tonnes to Canada, Henry said.

“That is a spike that has really caused the issue to get back on the (American farmers’) radar in a bigger way,” Henry added.

Statistics Canada data shows American wheat exports to Canada averaged just 38,286 tonnes the last three calendars years.

Varietal registration

Bill C-48, which died when the federal election was called last fall, would have permitted American wheat to be graded the same way as Canadian as long as the variety is registered in Canada, CGC spokesman Remi Gosselin said.

The Canadian government is aware of U.S. concerns, Agriculture Minister Lawrence MacAulay said in an email, adding the government is looking at what changes may be needed in the grain sector to align it with a changing market.

Members of the Canadian National Millers Association have no problem importing American wheat, president Gordon Harrison said. Canada’s wheat registration system accommodates the commercialization of American wheats, while protecting the integrity of Canada’s premium milling classes, Canada Western Red Spring and Canada Western Amber durum wheats, he added.

But Canadian grading is a high priority for the U.S. administration. U.S. Agriculture Secretary Tom Vilsack raised it last month with MacAulay during the G7 agriculture ministers’ meeting in Niigata, Japan.

“This is a concern that I have raised on a number of occasions,” Vilsack told reporters here on an April 27 teleconference.

“We still have an issue with Canada on wheat grading,” U.S. chief agricultural negotiator Darci Vetter later told reporters. “What farmers tell us is that there are in fact circumstances where the grade matters and we think the regulation frankly is unfair so we are going to keep working on it.”

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