Canadian Oat Farmer, Ron Rein on Oat Prices

Hi, I’m a grain farmer from western Canada. After reading the entry “Blame Canada: High oat Prices Edition” I want to offer the perspective of a Canadian oat producer who has been effected by the scenario described in the entry.

It’s frustrating to not be able to take advantages of higher prices in the USA, due to the inefficiencies of Canada’s transportation system. It was also frustrating to read, a few months ago, in an oat grower’s newsletter, that the America oat milling industry was to import oats from Europe, while Canadian producers were sitting on a large oat crop that they were unable to get shipped to America, due to the failings of Canada’s grain transportation system.

This past winter Canadian farmers have seen the widest basis levels (the difference between the futures price and the price farmers are actually paid) for almost all grains and oilseeds. Not just for oats.

The Reuters article blamed the cold winter and the large wheat and canola crops in Canada for the transportation inefficiencies. But, in reality, this year’s lack of grain movement by rail is the result of many complex factors. The large crop just helped to compound the problem; and the cold winter was more of an excuse by the railways, than a real contributing factor.

Some of the contributing factors to poor Canadian grain movement, which I have observed, include:

    • Much larger crop volumes than anticipated in 2013.
    • The lack of railroad competition in Canada, with a railroad duopoly holding Canadians who rely on the rail industry hostage.
    • A lack of political will by the Canadian government to oversee the railways, or enforce them to live up to service commitments.
    • The fact that western Canada’s grain growing region is the furthest inland of any major grain exporting region of the world, making western Canadian farmers more dependent on rail service.
    • Growing competition from other commodities and consumer goods for this country’s limited rail capacity.
    • Public and political opposition to new pipeline construction, which results in more commodities competing to use that limited rail capacity.
    • The recent loss of the single desk marketing agency for Canadian wheat, which played a large role in coordinating wheat shipments.
    • The inability of statistics Canada to forecast the large volume of the 2013 crop, so that the grain handling industry could prepare for the volume.

 

Many of those factors, which affect grain transportation in this country, have been in effect for years, and gradually getting worse. As a result, Canadian grain producers have often been at a competitive disadvantage to grain producers in other parts of the world, due to the unreliability of our grain transport system. Usually, this has primarily effected crops like wheat and canola, that are mainly sold to overseas markets, than oats which is mostly sold into the United States. But this year, the total cluster fuck, that was caused when the larger than normal crop, and the loss of the single desk seller for wheat, were added to the other factors impacting grain transportation, has effected the transportation and handling of all grains from western Canada.

Usually, this has primarily effected crops like wheat and canola, which are mainly sold to overseas markets; more than oats which are mostly sold into the United States. But this year, a larger than normal crop and the loss of the single desk seller for wheat were added to the other factors impacting grain transportation caused a total cluster fuck. That effected the transportation and handling of all grains from western Canada.

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7 responses to “Canadian Oat Farmer, Ron Rein on Oat Prices”

  1. William Dodd says :

    My name is William Dodd and I’m also a Canadian farmer.

    I’d have to agree with everything Ron Rein said, and he points out the only really good thing about a single desk selling system. It coordinated shipments of board grains, however, it is likely less of a factor, as non board grains such as canola and pulses have been able to move freely for years without the problems we are seeing this year.

    Oil rail shipments have jumped about 200% since 4 years ago, and projects for 2 more rail shipping centers for oil cars are in the work in Saskatchewan. (That I know of, there are likely more across western Canada.)

    Furthermore, the Canadian governments rail service bill mandates that east west routes are focused on. This means that southern routes, where most of our export oats go, are neglected and oats are still stuck in the bin for the foreseeable future.

    The duopoly is likely the biggest factor after shipments od other commodities by rail, as the two railway companies know that we have no choice but to send our grain through them at some point, so are in no hurry to move it. This costs Western Canada it’s reputation as a reliable grain exporter and costs every farmer big money. Furthermore, it means that the grain companies can take full advantage of the situation and squeeze farmers as hard as they want, because many are desperate to move any grain they can.
    I heard today that grain that was contracted in mid June at $4.70/bu was rejected after the first load and the farmer sold somewhere else for $3.50. The companies are doing this because of the huge excess of grain, they can get any grain they want for cheap and when they do, they put the screw job to you, and start to deduct for small imperfections and dockage. If this was a normal market, chances are the grain would not have been rejected, but it is very easy for the company to pick up better quality elsewhere for much cheaper, or blend some that they got at the cheaper price.

    If we had dual running rights, and more than two railways, we would most certainly be in a better situation. CP and CN are both guilty of massive cuts to engines, conductors and engineers as a cost cutting measure to ensure profit for investors, but messes up the entire system and allows it to overload. All world markets are at reasonable levels, but because of the problems on the prairies, our prices are artificially low, while terminals at the coast are astronomical. ($4.00 HRSW bid at rhe local elevator, compared to $11.27 at Vancouver) the railways are taking advantage, as are the grain companies because they know the farmer can’t hold on to his grain forever) Things might get really really ugly next fall and winter unless we have a prairie wide below average crop

  2. Ron Rein says :

    Interestingly, at times in the past, some of the factors that I mentioned have actually encouraged me to grow oats.
    Since our grain growing region is so far inland, and inefficiencies in the transportation system make it hard to be competitive with other wheat exporting regions of the world, oats, which is sold into the North American market, rather than to Asian or European markets, is sometimes a more attractive crop to grow here than wheat.

  3. Ron Rein says :

    William, I think the loss of the single desk for wheat will be less of a factor in future years, as the grain handling industry learns to adapt to the world without it. As you pointed out, non board grains have been handled without it for years.

    I don’t know if dual running rights, on Canadian railways, would make as big of a difference as people hope it would. Rather than just extending running rights on a Canadian railway to the other company, I’d rather see running rights on Canadian rails extended to American companies. That would finally introduce some actual competition into the Canadian rail industry.

  4. Ron Rein says :

    It’s worth noting, that rail shipments of other grains in Canada have finally started moving. The Canadian government has recently passed a bill forcing railways to move some of the backlog of grain. But as William pointed out, the priority for this movement has been for grain moving east and west, to export terminals on the west coast and on the great lakes. Not for grain moving south.

    The following is part of an email, that a nearby elevator sent out to it’s customers, which I received yesterday:
    “Markets : Canola – holding steady with good movement to Vancouver
    Flax – look for movement late April – TPA triggering at $13.50
    Red Spring Wheat – markets flat – excellent movement – use Target contracts and listen for specials
    Oats- no Bids – Can’t get rail movement to the USA
    Feed Barley – steady market – bids at $2.90 TPA $3.00
    Y-Peas – June movement – TPA $6.00???”

    So, it doesn’t look like there will be much rail movement to the USA for oats any time soon.

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