Are Prairie farmers still keen to move grain?

Canadian Grain Commission data shows deliveries 
to elevators have slowed considerably

The pace at which the handling and transportation system has been able to move grain off the Prairies and into export markets this spring has almost certainly exceeded all expectations.

But the data through to late July has raised a new question: Are Prairie farmers still keen to move all the exceptional 2013 harvest?

What’s clear is the politically opportunistic mandates imposed by the federal government have been exceeded by consistent and wide margins. The debate surrounding their implementation was less on the level of the mandated movement but more on the penalties for not achieving them, suggesting no great expectation that they would be achieved.

Nevertheless, bulk exports have been running in a range of between 900,000 and a million tonnes per week. This far exceeds a rate of just over 800,000 tonnes per week — achieved only briefly — in the previous record year for bulk exports in 1991.

Should shipments (export and domestic) continue at their current pace, farmer deliveries will exceed 50 million tonnes for the 2013-14 crop year. That’s about seven million tonnes above those of last year. However, supplies are about 20 million tonnes larger. So there will still be a hefty, but not necessarily burdensome, accumulation of year-end stocks, and much of that could be worked off during the six weeks in the new crop year before the new crop is available in volume.

But will this happen?

There is evidence that supplies available for shipment by the railways are drying up.

Country elevator stocks were much above recent-year levels early in the spring and that remained the case during spring seeding, when supplies are normally run down.

Given the hue and cry over the lack of delivery opportunities last winter, it might be expected that as soon as farmers had their crop in the ground, they would resume elevator deliveries.

However, this has not been the case.

The accompanying chart (at top of article) shows primary elevator stocks from April to June over the last six years. This year, April began with much higher stocks. Typically, they decline until seeding is over and farmers once again have time to haul their grain and oilseeds. But this year’s surge was short lived and primary elevators stocks are now in the normal range for the past five years when crop movement dropped off.

As well, there has been a dramatic decline in unfilled rail car orders by grain companies with the decline reportedly resulting from cancellations rather than fills. For CN Rail, this wish list of unfilled orders has declined from almost 32,000 spots — or more than six weeks of grain car supply — in early April to under 8,000 or less than 10 days of supply in mid-July.

This development was not unexpected.

First, farmers have marketed record amounts of grain since harvest (more than 40 million tonnes since October). But they may now be taking a cautious approach to running down farm storage with 2014 crop prospects not entirely certain.

Secondly, basis has been very slow to recover from the devastating declines in late 2013. Although measures of the general level of basis are far from precise, it is clear that grain companies have yet to bid up basis to levels of a year ago. There may be a very reasonable expectation that basis levels are about to recover and therefore worth waiting for.

Both of these factors are undoubtedly at play.

But the statistics from the Canadian Grain Commission show how much things have changed.

It was only a few months ago that farmers were demanding government do something because they could not move their grain.

Now, the statistics show, farmers are choosing not to deliver grain.

It’s a perfectly reasonable choice. Basis levels for crops such as wheat remain terrible. For whatever reason, grain buyers are not encouraging deliveries.

As well, this appears to be a more average year for production.

So farmers — presumably those who have room in their bins and no pressing need for cash — are making the decision to hold back deliveries in hopes that it will be more profitable to store grain rather than sell it.

There will likely be a pickup in deliveries prior to harvest as farmers adjust their marketing strategies before taking off the 2014 crop.

But that will be their choice.

The railways have opened up space in the country elevator system. What is not clear is why grain companies have not narrowed their basis to year-ago levels in an attempt to attract farmer deliveries to fill that space.

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