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Wheat on usual rollercoaster … rail transportation not keeping up

One of the most volatile crops in the world must be wheat – it can go from surplus to causing food riots in a year.

AHEAD OF THE HEARD -- One of the most volatile crops in the world must be wheat it can go from surplus to causing food riots in a year. One rarely hears outcries about the supply of canola, or barley (unless its malt for beer), even shortages of rice don’t seem to attract much attention. I expect it has to do with the universal use of wheat as a food and its grown in diverse geographic areas which affects production and supply. Canada is a significant player in world production and marketing. But wheat production is not always on the top of mind for growers. There is a tendency that wheat like barley is a crop of last resort.

Many producers tend to consider other cash crops first with wheat as the last alternative. Wheat has a relatively low production cost, but actually making money is more of a hope. That may radically change in the near future with the advent of new hybrid wheat varieties which will increase yields and make wheat production more attractive. The downside is that development would increase surpluses, stagnate prices and put more strain on rail transportation more on that later.

It would seem few crops are as market affected by climate as wheat at least on a global basis. Weather calamities in Russia, Australia, Argentina, the USA and Canada have significant effects on supply and price. Take last year for instance large high quality crops in Australia and Russia have created a global surplus which puts severe pressure on prices. Low prices tend to be harder on Canadian producers because we are a high production cost area with an expensive handling and transportation infrastructure.

Last year made that reality even worse with a reduced crop due to harvesting delays and quality problems. That has made marketing the wheat crop on the world market most difficult. It seems much of last year’s wheat crop will have to be sold into the domestic feed market that’s good news for poultry and hog producers. If the cost is low enough it might even become attractive to cattle feeders. That marketing situation has already affected railways with reduced shipments to coastal shipping terminals there are no backlog problems with available grain railway cars and timely shipping. How ironic wasn’t it just a couple of years ago, that there appeared to be a national crisis because railways were unable to keep up with shipping a bumper wheat crop to west coast grain terminals. But that’s the endless story of the wheat business.

Part of that story were the usual howls of outrage from industry and government about the inadequacies of the grain shipping infrastructure. Predictably, busybody studies were invented to quell the frustration. No such howling now, but just wait until the next bumper wheat crop. However, there are some curious developments the big grain companies are building and expanding their terminals on the west coast; in a couple of years grain and oilseed storage and handling capacity will increase by a whopping 30 per cent. That’s a good thing as it should speed up loading and reduce wait times and demurrage costs of ocean vessels. As admirable as that is there does not seem to be anything on the horizon to increase rail transportation systems to meet that new shipping capacity. In fact shipments may be going in the reverse it seems the number of rail cars available to ship grains and oilseeds will be considerably reduced over the next few years. That would be the thousands of government-built railcars that are coming to the end of their lives and need to be replaced but no significant grain hopper car replacement program seems to be place.

What a conundrum for the Canadian wheat industry production can be increased by growers with new hybrid wheat varieties and the handling and loading of that wheat is being significantly increased on the coast. But getting the wheat from grower to terminals by the railways seems to be trending downward. There would seem to be a disconnect here and it’s starting to scream for industry and government to find a way to resolve a situation which is only going to get worse. The uncomfortable issue is to allow the railways to increase regulated shipping rates so that leasing companies will build new grain cars to replace the old cars and increase the fleet. But I expect governments are reluctant to poke that politically sensitive bear maybe we need an even larger shipping crisis to deal with that reality.