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The ‘new’ wore off of ‘normal’ pretty quickly

The grain industry may have gotten a little too optimistic 
after last year’s whopper of a crop

It’s easy to get a little giddy when things go much better than expected. For example, take last year’s bin buster of a crop.

By any measure, it was an astounding production feat. Western Canadian farmers shattered all previous records on most major crops, growing a whopping 76 million tonnes, 50 per cent higher than the five-year average and 30 per cent above the previous year.

It was like a runaway freight train and the grain trade executives and politicians were quick to hop aboard.

A senior industry official told the Canadian Global Crop Symposium last spring this is “the new normal,” a phrase also embraced by federal Agriculture Minister Gerry Ritz. Some suggested 90 million tonnes of production on the horizon.

The push was on for new and expanded handling facilities, and perhaps more notably, more rail capacity for moving grain. The trade scoffed at the notion put forward by railway company officials that it would be imprudent to make major investments into expanded capacity just to handle infrequent surges.

We’re not here to defend the railways’ performance. By our calculations, until the government brought in the threat of financial penalties, the system we have today was proving relatively less efficient than it was back in the days when men used shovels to fill boxcars.

The reasons for that were multi-faceted, including the bitter winter weather and unexpected surge in production. But it was also clear the rail companies had perhaps been a bit too aggressive in streamlining their locomotive power.

A similar scenario is unfolding in the U.S. this fall, which appears poised to harvest a bumper crop that far exceeds the available handling and storage capacity. It all underscores the insanity of focusing solely on production increases without considering the necessary handling and marketing infrastructure to accommodate it.

Nor do we suggest the marketing system has a whole lot to do with what farmers choose to grow. In the years previous, we heard how changes to Western Canada’s grain-marketing system would result in a big jump in wheat production. The data would suggest that surge was short lived. They are driven by the economics, marketing opportunities and increasingly, crop rotations. Then the weather must co-operate. And, as of late, it hasn’t.

The latest data from Statistics Canada points to an all-wheat crop that is 26 per cent lower than last year, and a 23 per cent drop in canola production. One industry analyst suggests there might not be enough canola to meet the current demand for crushing and export, which would be great news for farmers, until you consider the domestic crushers and seed exporters tend to be owned by the same companies — making bidding wars unlikely.

Western Canada still has a good crop. Despite the drop, this year’s wheat crop is the third largest in a decade and the canola harvest could be the third largest ever.

Data provided by Agriculture and Agri-Food Canada analysts last winter shows western Canadian production has been increasing, on average, by about three per cent annually over the past three decades — not the 50 per cent increase we saw in 2013 or the 23 to 32 per cent decrease in production we are seeing in 2014.

As for carry-overs, it appears this year’s carry-over won’t be anywhere near as high as threefold increase predicted last winter. We are left wondering whether farmers who couldn’t seed much of their land due to flooding last spring wouldn’t be happy to have a bit left in the bin from last year to even out their farm’s cash flow.

So while last year’s harvest gave us a hint of the potential that is out there, it is far from being what the industry should expect year after year. It’s something farm lobbyists need to keep in mind when considering — or demanding — investments in grain handling and transportation infrastructure. After all, the cost of building and maintaining those investments ultimately flows back to farmers.

About the author

Vice-President of Content

Laura Rance

Laura Rance is vice-president of content for Glacier FarmMedia. She can be reached at [email protected]

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