How bad is it?

(March 5, 2014)  The media is now full of stories about the chaos at grain ports.  Unfortunately few of them are going much beyond the simple minded mantra of blaming the railways.

Much as I hate to miss the chance to criticize the railways, this time the rancor is misplaced.  This is clearly a problem created by the private grain companies and transportation is just a subset of that bigger picture.

So I was pleased to have some fresh information on the subject delivered by the president of the Grain Workers’ Union Local 333 to the Agricultural Producers’ Association of Saskatchewan meeting just under two weeks ago.

This is the union representing the people who actually put the grain in the ships among other things.  In spite of the hyperbolic nonsense that shows up in the Alberta press about strikes; this is a union that has not taken a job action for 12 years, so they are hardly militant.

Those farmers who actually paid attention to what the farmer-controlled Wheat Board was doing know that the CWB was exceptionally efficient at getting the right grain to the right customer.  Most of the time in the last ten years the CWB paid no net demurrage for keeping ships waiting and often ended up putting extra money into farmers’ pockets because the ship owners paid extra money when they were loaded and on their way faster than expected.  These amounts typically ranged between four and eight million dollars.

In 1996/97 when the CWB had to actually pay ship owners for late deliveries, the farmer controlled CWB successfully sued those responsible for almost double what demurrage had cost and then went on to earn extra money each year because of the market discipline they had administered.

So how bad is it now?  There are currently 50 ships waiting to load.  According to the very expensive Market Research Services Newsletter Ritz’s version of the CWB issues monthly each ship costs in the order of $15,000 per day including fuel costs.  According to the Grain Workers Union presentation:

“We have ships that take 3 weeks to month or longer to finish loading product.  We don’t see any ships that arrive and are able start and finish loading without being kicked back to anchor at least 1 time but the rule is generally 2 times sent to anchor. A ship being sent to anchor during the single desk was a very rare occurrence.”

What has this done to the price of grain?  The CWB Market Research Services newsletter from Feb. 26/2014 indicates the price of wheat at Vancouver is $11.38 while the average price farmers are getting in country for the same grain is around $4.69 assuming they can sell it at all.

Twelve days ago Regina Leader-Post columnist Murray Mandryk pointed out that:

“based on today’s world price, 11.2 per cent is paid in transportation freight, 39.5 per cent is taken by the elevator companies and a measly 49.8 per cent is left for the farmers.” 

Now we have newer numbers from the Market Research Newsletter indicating the situation is much worse for farmers than when Mandryk reported.  Now the grain companies and railways are taking 60 percent of the grain and the farmers’ share has dropped below 40 percent.  Contrast that with the fact a serf in the Middle Ages got to keep between 75 and 80 percent of his crop.   

It is now fair to ask if this mess is really the grain companies bungling the marketing or are they simply exercising their market power to take more money from farmers by manipulating the system for their own profit.

The future looks even worse because the customers who once relied on the integrity of the farmer-controlled Wheat Board are going elsewhere. Saskatchewan Economy Minister Bill Boyd obviously forgot his speaking notes when he let it slip that there would be at least a 25% carryover of old crop into the new crop year until sometime in 2015.  So there will be a massive carryover of Canadian grain depressing prices on the prairies and around the world.  Barring a major crop failure in Canada or the US, this is the new normal.

The short sellers and speculators must be thanking Minister Ritz and the Harper government for making their job of fleecing western farmers that much easier.  No doubt there are many rewards awaiting them when they finally leave office but they will certainly not come from western farmers.

Editor’s note:  the quote attributed to the Grain Services Union should have been attributed to the Grain Workers Union.  Revised March 7, 2014 to include date of CWB Market Research Services newsletter used for second citation.