“Forward Looking Issues for Canadian Wheat”
Fields on Wheels 21Oct. 21, 2016
Harvey G. BrooksSaskatchewan Wheat Development Commission
Saskatoon, Saskatchewan
Sask Wheat Development Commission• Formed in July 2013• Mission:
• To provide leadership in identifying and supporting research, market development and advocacy that contributes to profitable and sustainable wheat production for Saskatchewan farmers.
• Producer funded through $0.52/mt check-‐off• Voluntary check-‐off
• Producer elected Board of Directors
Outline•Major Drivers for last 10 years• Current Situation• CTA Review Panel Process• Producer Recommendations • Report Recommendations• Implications for producers
• Future Direction
Recent Major Drivers
• Chinese demand for food oils and coarse grains• Soybean, canola and corn price driver
• Biofuel mandates• Wheat and corn price driver• Mandates appear to have maxed out fuel blends
• Exchange rate devaluation• Currency Levels drive exports from Black Sea, Brazil and Argentina• Price insulation for Canada
World wheat production, consumption and ending stocks
OECD FAO Ag Outlook 2016-‐25 (July 5)• Efficiency gains will enable prod growth at lower prices • Food demand growth limited by slow popn growth (saturation)• Biofuels demand is saturated • Prod growth primarily by yield improvement • Undernourishment will decline • Global exports to remain highly concentrated • Real Ag prices expected to remain flat• Uncertainties• China’s “Grain Policy” – soybeans and coarse grains (stocks)• Economic growth• Significant weather events
2016/17 Crop Year Issues
•Minimum Beginning Stocks• This likely the biggest issue for slow shipping start
• Harvest weather• Quality issues• Delayed harvest
Supply Disposition All Principal Field Crops: Sept, 2016 Forecast
2012/13 2013/14 2014/15 2015/16[f] 2016/17[f]
Yield (t/ha) 2.67 3.46 2.86 2.92 3.13
Production (kt) 76,716 90,293 81,292 85,166 90,636
Beginning Stocks 12,796 9,591 19,705 14,770 12,325
Total supply (kt) 89,512 108,885 103,505 102,142 105,092
Exports (kt) 41,889 48,519 48,901 48,351 47,934
Total domestic use (kt) 38,042 40,673 39,835 41,466 43,468
Carry-‐out stocks (kt) 9,591 19,705 14,770 12,325 13,690
• AAFC – Outlook For Principal Field Crops, Sept. 28, 2016
$0
$50
$100
$150
$200
$250
$300
2012 Aug
2012 Oct
2012 Dec
2013 Feb
2013 Apr
2013 Ju
n
2013 Aug
2013 O
ct
2013 Dec
2014 Feb
2014 Apr
2014 Ju
n
2014 Aug
2014 Oct
2014 Dec
2015 Feb
2015 Apr
2015 Ju
n
2015 Aug
2015 Oct
2015 Dec
Month
Export Basis 2002-‐2012 Ave.
Saskatchewan Cash – Vancouver FOB = Export Basis 2012 –Dec 2015
October Basis to World Prices
FOB Prices, Street Prices and Estimated Export Basis (October Historical)
DNS 14% 1 CWRS 13.5%
OctoberFOB PNW (US$/MT)
CAD/USD Exchange
FOB Vancouver (C$/MT)
Street Price (C$/MT)
Export Basis (C$/MT)
2013 349 0.964 314 201 113
2014 371 0.886 333 200 133
2015 243 0.775 291 225 66
2016 251 0.759 322 213 109
Sources: US Wheat Associates, Banks of Canada, AAFC Weekly Price Series, and Government of Saskatchewan
An Economic Analysis of Western Grain Export Capacity (2016)R. Gray and M. Torshizi
•Modelling of grain production capacity through 2025• Excess basis will occasionally reach $120/mt• Producers uniquely affected•Without increases in rail and handling capacity, production increases will create producer losses of +$10 bln over 2016-‐2025• Strong incentives to expand capacity
CTA Review Panel Submission• Producer recommendations by APAS, Sask Barley and Sask Wheat
• A Full Costing Review• completion of a formal costing review and adjust the maximum revenue entitlement accordingly.
• Maintained Maximum Grain Revenue Entitlement• the maximum revenue entitlement will stay in place to ensure fair compensation to railways for
hauling grain.
• Information Requirements• information reporting for the grain handling and transportation system to function effectively.
• Rail Oversight and Planning• the CTA require a rail oversight/planning group, to establish performance targets and assess ongoing
operations of the railways
CTA Review Panel Submission Information by Producer Groups• $6.7 Billion in losses to producers over 2013/14 and 2014/15 (Gray Study 2015)• $63/mt loss -‐ $630,000 loss for a 5,000 acre farmer based on 1 mt/acre/year• Farmers are uniquely affected by handling and transport constraints!
• Travacon Research Ltd. Update of Railway Earnings• Excess of Revenue over “fair and adequate” compensatory costs of $8.32/mt in 2013/14
• Grain is paying its “fair share and then some”!
• Gray and Torshizi Study (2016) Economic Analysis of Western Grain Export Capacity• Producers have strong incentive to see expanded capacity to keep pace with productivity growth!
• Removal of MRE provides “perverse incentive” to Railways to reduce capacity!
CTA Review Panel Recommendations
• Elimination of the MRE within 7 years.
• No consideration for:• the lack of competitive market forces• Railway market power to set service availability • Lack of commercial accountability of the railways
Transition Recommendations of the CTA Review Panel
• Allow 1/3 of cars to operate outside the MRE• Exclude containerized grain from MRE• Exclude inter-‐switching from the MRE
• What are the consequences?• US Style rail shipment pricing• Massive wealth transfer• No guarantees of improved service levels• Perverse incentive to reduce average service levels for regular shipments under the MRE to drive up demand for above average service.
Considerations for Future Transportation Policy
• System is working pretty well!!• MRE ensures railways are getting “fair and adequate” compensation for grain movement (and then some)• Rate regulation and adequate revenue
• System efficiency is regularly improving• Need for capacity planning• Need for Transparent Information• Price and logistics information• CP proposal for “Transparent Yardstick”
Future Transportation and Handling System Considerations
• Don’t break it while fixing it!
• Continuous improvement should be the model!
• Longer term capacity on west coast is critical objective!!• +10 mmt/year capacity increase is needed
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