Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Wheat near Lethbridge, Alta. Today's topics: Occupy's future; crony capitalism; the Canadian Wheat Board; Andy Rooney ... and more (TODD KOROL/REUTERS)
Wheat near Lethbridge, Alta. Today's topics: Occupy's future; crony capitalism; the Canadian Wheat Board; Andy Rooney ... and more (TODD KOROL/REUTERS)

Commodities

Canada grain sector faces sea change after Wheat Board Add to ...

The end of Western Canada’s grain marketing monopoly next year will ripple across the region, redrawing transportation patterns, forcing millers to find new sources of wheat and prompting all players to hedge risk in new ways, according to industry officials meeting in Ottawa this week.

Many point to Australia, which removed its grain-marketing monopoly three years ago, for an idea of how sweeping the changes will be in Canada, the world’s No. 3 wheat exporter.

More related to this story

The number of wheat exporters is Australia has multiplied from one to two dozen, grain shipments and production have set records, and new multinational grain companies have arrived on the scene.

At the same time, shippers have struggled with access to ports, and some Australian farmers say they are earning less.

In Canada, grain handlers are likely to push more wheat through the busy Port Metro Vancouver on the Pacific Ocean instead of through the Great Lakes and St. Lawrence Seaway, said Keith Bruch, vice-president of operations for Paterson GlobalFoods.

Without its monopoly to market Western Canada’s wheat and barley for milling and export, the Wheat Board will no longer co-ordinate the loading and movement of rail cars from grain-handling sites to port. Grain handlers, who include Viterra Inc, Richardson International Ltd and Cargill Inc, will prefer to move grain through their networks of country elevators and to port terminals they own, suggesting Vancouver will take priority over terminals along the Great Lakes and the Seaway, Bruch said.

Vessel rates are also significantly cheaper off Vancouver than the East Coast at present, he said.

“There’s all the incentive in the world for them to move grain through Vancouver,” said Bruch, whose grain-handling company shares ownership of a grain terminal at the port.

More spring wheat and winter wheat may also flow south into the United States as farmers shop for the best prices, Bruch said at the Canada Grains Council conference.

Whether grain transportation becomes more efficient -- a long-standing criticism of the CWB -- depends largely on a sufficient rail car supply, Bruch said. Canadian National Railway and Canadian Pacific dominate the country’s rail sector.

Redrawing grain movement patterns may create subtle but significant changes, touching on everything from which markets buy Canadian wheat to where on the western Prairies farmers grow which crops and in what quantities, Bruch said.

Canada is the world’s biggest shipper of spring wheat, durum and malting barley.

Millers see risk ahead For Canadian millers, who use western spring wheat in flour production, the move to an open market brings considerable risk, said Derek Jamieson, president and chief operating officer of P&H Milling Group, Canada’s second-largest miller after Archer Daniels Midland Co.

Losing the monopoly means millers will no longer have assured supplies available at any given time, Jamieson said. They will need multiple supply sources, including U.S. wheat at times, he said, adding that the Wheat Board has typically set prices so there is no incentive to buy American wheat.

“No question, there is more risk,” Jamieson said. “But it’s manageable.”

Much depends on whether the Wheat Board remains a significant grain marketer in an open market.

No senior Wheat Board officials attended the grains conference, and CEO Ian White, who is expected to continue leading the board after it loses its monopoly, declined to comment.

Handlers to hedge risks differently With the industry facing new risks, it will likely embrace a new hedging tool once ICE Futures Canada launches a spring wheat contract in January, said Brant Randles, president of grain trader Louis Dreyfus Canada.

ICE’s contract will compete with the established U.S. hard red spring contract at the Minneapolis Grain Exchange, but it will be in Canadian dollars and will feature a Western Canada delivery point.

“I’m putting my chips on the western spring wheat contract,” Randles said.

ICE’s plan to launch a durum futures contract looks less certain of success, Randles said, given durum’s much smaller production base compared to spring wheat and the subsequent lesser need to manage risk. (Editing by Jim Marshall)

Follow us on Twitter: @GlobeBusiness

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories