The end of the Canadian Wheat Board is supposed to bring untold benefits to farmers and agriculture companies. At least that's what the federal government has been saying to justify scrapping the Wheat Board's monopoly over the sale of all wheat and barley grown in Western Canada.
Several companies, including Calgary-based Viterra Inc. which reports fourth-quarter earnings this week, are already calculating how much they will make under the new open-market system. These companies are hoping to cash in on what has been a closed market, run exclusively by the Wheat Board. Viterra said it will see up to $50-million in extra annual operating profit, roughly a 7-per-cent increase.
For 76 years, the Wheat Board has been the sole buyer and seller of grain for the western provinces. The Tory government recently ended its monopoly, meaning farmers are free to seek the best deal for their crops from a handful of buyers. Many expected the open market to bring better prices for growers.
But there's one factor that might crimp all those glad tidings – the price of wheat.
Wheat prices have been falling sharply for days amid ever increasing estimates of global supplies. Last week the United States Department of Agriculture said global wheat stocks have hit the highest levels in 12 years and U.S. farmers have planted the largest winter wheat crop in three years. That's notable because the U.S. is the world's largest wheat exporter. Prices for some wheat varieties have fallen more than 7 per cent this month and many analysts expect prices to remain low for a while.
Why are prices falling? One main reason is production from places like Russia, which cut wheat exports a few years ago because of horrid weather. Russia's production soared 35 per cent last year and is expected to be strong again. Other big wheat producers such as Ukraine, Australia and even India have also seen huge wheat crops recently adding to global inventories. While demand and population growth are still strong, the sense among analysts is that the supply should keep up at least for now. And it's not just wheat. The price of corn, soybeans and canola has also been lower. The price of canola, which rivals wheat as the biggest crop in Canada, is expected to keep falling all year.
For Canadian farmers who are just starting to plan next year's crop this just compounds an already confusing situation. On Friday, Wheat Board chief executive Ian White sent a message to farmers urging them to stick with the Board, which will remain in place in some fashion for a while. "We're ready to deliver competitive alternatives that farmers can use with confidence as they build individual marketing strategies," Mr. White said in a statement that outlined the various Wheat Board contracts. But private companies are now jumping into the fray, offering contracts as well. And ICE Futures Canada is about to start trading a Canadian wheat contract.
Many farmers already sell canola and other crops on their own, but wheat is different. There are dozens of varieties and grades which can fetch a premium price if handled properly. How those issues, and many others, will be sorted out under the new system remains to be seen.