The former Soviet Union may not have been a model of economic efficiency, but there was one thing that it did very well, and that was import grain.
In the grain trade heyday of the 1980s, the Soviets would import up to 50 million tonnes a year and distribute it far and wide across the largest nation on Earth. As far as exporters were concerned, the Soviet vessel operation was a model of efficiency and regularity, which means the grain must have been rolling out pretty smartly at the other end.
The thing about grain import facilities – rail cars, terminals and elevators – is that they are easily if not instantly reversible. So for anyone who remembers when the Soviets were our largest grain customer, which was not so long ago, it’s a bit of a jolt to see recent statistics which put the former Soviet Union (FSU) states at a whopping 28 per cent of world wheat exports so far this year, 10 percentage points above the U.S., the traditional market leader. Russia will end the crop year with a record carryover of 26 million tonnes, and intends to increase exports next year – by lowering prices.
Now consider a few more things. While the FSU export machine is obviously working well, we know that the production machine has yet to recover from the Soviet influence, and if more modern techniques are applied, as they increasingly are, there’s plenty more grain to come.
That’s through the current export channels, mainly through the Black Sea region. The good news is that most of this is lower-quality winter wheat. While all this competition is beating the heck out of the world price, Canada is at least holding market share and some premium thanks to the higher demand for high-quality spring wheat.
So far, that is. But remember where much of what we today call the “genetics” of our spring wheat came from, and that’s the Russian steppes, where the terrain and climate are similar to Western Canada’s. So another jolt came when reading a recent report that the Russians are shopping spring wheat samples to Japan. That’s not much of a threat now because of an ocean freight disadvantage from the Black Sea, but pull out a world map. You will see that Japan and other Southeast Asian markets are a comparative stone’s throw from Russia’s eastern coast. That’s where the Russians are planning to invest up to $100 million to improve port and rail facilities.
A Singapore-based trader recently said his company had already booked 500,000 tonnes of Russian spring wheat and said, “We will be focusing on high-quality milling wheat from the Siberian region. It grows the best-quality wheat with high protein content because of cold growing conditions, and it will stand to benefit when the ports in the Far East are developed.
“From ports in the Far East you can reach South Korea in one day and Japan in less than two days,” the trader told Reuters. “We see this as a massive opportunity.”
Meanwhile, the Russians, through a state-trading agency, are seeking long-term agreements with Japan, Indonesia, Bangladesh, India and Pakistan.
Farmers on the Canadian Prairies, 2,000 kilometres from the West Coast (with the Rockies in between) and seven days’ sailing from Japan, need to think seriously about how to respond.
The answer? That’s not clear, but it is clear that wheat producers can’t grow their way out of this problem. And it’s time for them to stop taking advice from those who want to by their grain cheap. That includes those calls from the livestock industry for higher-yielding varieties. We don’t want to beat up on livestock feeders, who have enough problems these days, but one has to point out that they haven’t exactly called their own industries’ future correctly.
As for U.S.-led calls for Canada to join a coalition of exporters to produce genetically modified wheat (so that customers have no choice but to accept it), the problem is that it could mean more wheat in an already-oversupplied market. Regarding claims that more production will “soon” be needed to meet a growing world population, we’ve heard that at least since the “World Food Crisis” in 1973. Today, prices are lower than 37 years ago.
Regarding the eventual potential of Siberian wheat yields, let’s assume that they’re about where Western Canada was in 1920. We won’t even speak of the potential additional acres to bring into cultivation.
It’s time for Canadians to think about the future of their wheat-export business, and how it will fit in a market that is soon to get even tougher.