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Putting a Price Tag on the Grain Backlog

The biggest cost may be Canada’s reputation

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By Allan Dawson, Manitoba Co-operator

We’ll never know exactly how much this year’s grain backlog cost Western Canada’s grain industry, including farmers, but it will be in the millions of dollars.

A bigger backlog in 2013-14 cost members of the Western Grain Elevator Association — Canada’s major grain companies — $90 million just in demurrage, contract extensions and defaults. That doesn’t include intangible costs.

University of Saskatchewan agricultural economist Richard Gray estimated 2013-14 cost western grain farmers up to $6.5 billion in lost revenue over the 2013-14 and 2014-15 crop years due to a wider basis — the difference between the cash price paid to farmers at the elevator and the price of grain loaded on a boat at Vancouver.

Some suspect grain companies captured some of that value.

Not everyone, including grain companies, agrees with Gray’s estimate because some farmers forward sold and were shielded from the wider basis.

A wider basis translates into less net dollars in the farmer’s pocket. Typically it’s used to discourage grain deliveries to plugged elevators.

Still, there’s no denying farmers took a big financial hit in 2013-14.

But the biggest potential cost to farmers from the current backlog probably won’t be demurrage or the basis, but rather lower export prices for crops such as wheat.

It looks as if you can put a price on reliability, or the lack of it. In March Canadian wheat loaded in a ship at Vancouver, B.C., was selling for around $1 a bushel less than equivalent-quality American wheat shipped out of Portland, Oregon, according to Canadian and American price data.

Given Canada’s reputation for high-quality wheat and Vancouver being closer to Asian markets, Canadian wheat should be selling for a premium not a discount. But some industry observers suspect it reflects offshore buyers’ concerns about Canada’s unreliability.

Read Dawson's full report at the Manitoba Co-operator.

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