The Canadian Wheat Board isn’t dead yet, but grain companies in Canada are getting ready for a new era – and some are already calculating how much they will earn from the end of the board’s monopoly over Western Canadian wheat and barley.
Regina-based Viterra Inc. said Wednesday that it expects to start seeing financial benefits of the new grain-selling system in the fourth quarter of this year. By 2014, the company said, its operating profit should go up by $40-million to $50-million annually from the move. That’s about 7 per cent more than the company’s expected operating profit of $705-million for fiscal 2011. Viterra reports its results next week for the fiscal year ended Oct. 31.
The Harper government passed legislation last month to end the Wheat Board’s 76-year monopoly over the sale of all wheat and barley grown in Western Canada. Under the law, the government will continue to backstop the Wheat Board for five years and farmers will have the option of selling their grain through the board or through private companies like Viterra.
The law has been controversial and prompted a flurry of lawsuits from farmers, former Wheat Board directors and others who argue that farmers benefited from the board’s control of the western grain supply by getting higher prices in international markets. A federal court judge has also ruled that the government broke the law by not holding a vote among farmers first. That ruling is under appeal. The government has argued that farmers should be free to market wheat and barley in the same way many of them already sell canola, which rivals wheat as the largest crop grown in the West.
Viterra said that despite the legal challenges, the company “remains confident that there will not be any delays” to the implementation of the new rules. And many other companies are also ramping up to take advantage of the new open market.
Winnipeg-based Richardson International Ltd. is expanding its storage capacity to boost shipping. French commodity trader Louis Dreyfus is also increasing its grain-handling capacity in Western Canada, and Germany’s Alfred C. Toepfer International, which is controlled by Archer-Daniels-Midland, recently acquired two Canadian grain-trading firms.
American agricultural giant Bunge Ltd. is also considering expanding its Canadian operations to take advantage of the new system.
Richardson president Curt Vossen said in an interview that he was surprised at the detail of Viterra’s calculations. “I agree with the directional motion of their logic, but I don’t know that you can quantify it ... given all the uncertainties that continue to exist in this marketplace,” Mr. Vossen said. For example, he said the Wheat Board is still in place at least for the short term and will have a role in marketing grain.
For many farmers, the new system has caused some confusion. Most have been inundated with pitches from companies seeking to sign them to contracts for their wheat. The Wheat Board is also still offering contracts. And later this month, ICE Futures Canada, a division of Atlanta-based IntercontinentalExchange Inc., will start trading futures contracts for Canadian durum, a type of wheat used to make pasta.
“I think there was an initial buzz and excitement, day one of the process,” Mr. Vossen said, referring to the flurry of contract offers that came out the day after the legislation received royal assent. “I think it has settled down now and it’s quieter.
“Everybody is kind of getting to that point of wondering, ‘So how is this thing going to manifest itself in terms of pricing, in terms of discounts on quality?’... [things]that are very hard to define clearly at this point in time.”