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.
At the grocery today I went to get some oats from the bulk bins to make muesli and I was hit with some unwelcome sticker shock. 89¢ a pound! That’s up from 69¢ a pound for as long as I’ve been paying attention (a little over a year). For those counting on their fingers and toes, that’s a 28% increase. An increase in the cost of my staples is a real punch in the gut right about now for an aspiring food wonk who needs a job (hint, hint Corby Kummer). When I got home I needed to know what my supermarket was trying to do to me.
So what happened near the beginning of the year? This:
Feb 6 (Reuters) – The U.S. oat market soared to an all-time high on Thursday, ignited by a razor-thin supply of oats moving into the United States from top exporter Canada in the wake of logistical nightmares. Chicago Board of Trade oat futures rose the 20-cent daily trading limit – notching a record high of $4.63-1/4 a bushel and surpassing the previous record of $4.59-3/4 set in August 2008. That topped a month-long rally, with oats climbing 35 percent since early January.
Extreme cold and heavy snowfall this winter has caused railroads to run shorter trains and slowed movement of bulk commodities, crude oil as well as grains, out of Canada. The harsh weather, coupled with record-large Canadian wheat and canola harvests, has overwhelmed the Canadian National Railway Co and Canadian Pacific Railway Ltd, resulting in a shortage of some 40,000 grain hopper cars needed to move crops to port or U.S. customers.
. . . “In the prioritization of who gets railcars, grain isn’t on the top of the list – it’s not the highest revenue. And within the grain list, oats is not at the top of that list either,” McCambridge said. “Supplies could be tight for some time.” The United States imports more than half of the 160 million bushels of oats it uses annually to produce breakfast foods and snacks as well as feed for livestock. Oats are mostly fed to horses but they are also finding their way into pig diets this winter to help fight off the effects of a deadly pig virus, Porcine Epidemic Diarrhea virus, or PEDv, analysts said.