A plumbing problem

Will farmers miss a once in a decade opportunity?

Last year the oil industry’s spokespeople were all a twitter about the importance of pipelines to international markets.  One Calgary oilman and the editor of Roughneck Magazine colourfully said something to the effect the west “has a plumbing problem.”

For grain farmers getting their product to port is a plumbing problem which predates the development of the tar sands and debates over pipelines to the coast.  Rail service, demurrage and despatch on grain ships, and all the other complications of accessing an international market were the stock in trade of the farmer controlled Wheat Board for 75 years.  In fact during the farmer controlled Wheat Board’s last three months vessel time in port was reduced by one third and terminal storage time was reduced by almost eight percent on a larger crop than the previous year.

But no more – the Wheat Board is gone and logistics are now firmly in the hands of the private trade thanks to Agriculture Minister Gerry Ritz and his Prime Minister.

So what is happening at the coast?  With the end of the Wheat Board it is mostly a secret.  However Ritz’s Con Board are admitting there are record numbers of ships sitting at anchor waiting to be loaded with grain.  As of last Friday the Vancouver Port Authority reported 42 ships at anchor.

The Con Board reported about half of those were grain ships with some“waiting between three and four weeks . . . representing one million tonnes of capacity waiting for Canadian grains and oilseeds.”

In the country farmers are complaining they cannot deliver on grain contracts with either the private trade or Gerry’s Con Board.

Just as bad, our former customers, from Japanese millers to South Asian pasta makers, are complaining about poor and unreliable service.  In a world of just-in-time inventory unreliable service is no service at all.

Now that almost one third of the crop year has gone,  Ritz’s Con Board (misleadingly renamed  “Canadian Wheat and Barley”) reports that between 65 and 80% of the crop has yet to be contracted.  This is a gentle way of saying “no sales yet.”  It also means no grain scheduled to fill that pipeline to deep water.

With snow in the mountains and the usual seasonal rains at Vancouver and Prince Rupert, moving grain and loading ships slows down.  We are fast approaching the point where not all the prairie crop can be exported this year, even if everything works perfectly.

So far prices have remained buoyant on the news of the largest US drought since 1896 along with droughts in the other major grain growing areas around the world.  But that is not lasting.  Already last Friday’s USDA reports indicate both corn and soy bean crops are better than expected.

So when those 20 or so ships waiting to load in Vancouver submit their demurrage bills, you can bet the private trade will pass the cost of their bungling onto farmers in the form of lower grain cheques.

You can also bet over the next months, those ships will be loading grain that was worth a lot more just a few weeks ago.  This is simply because when customers come to purchase that 80% of the Canadian crop stranded on the prairies, they will know the pipe line is unreliable and they now have a captive supply of grain looking for a home.

The only people who will do well from this mess are the private traders who will happily pay farmers less and then flip the grain to end use customers for their own profit.  Farmers can thank Mr. Ritz and Mr. Harper for taking away their opportunity to use their single desk to cash in on the once-in-a-decade opportunity presented by a world-wide drought.