The first thing grain farmer Kent Erickson does at 6 a.m. before irrigating his 2,000 acres of wheat is check his BlackBerry for the latest grain prices from buyers like Viterra Inc. (VT) With the end of the Canadian Wheat Board’s 70-year-old monopoly last week, he can price, market and sell his crops for the first time.
“Now that we have that ability as farmers, we’re able to make those decisions on our own,” Erickson, 31, said by phone from his 4,700-acre farm in Irma, Alberta, about 200 kilometers (124 miles) from Edmonton. “That’s going to give us more profit but it’s going to cause more chance for a loss too.”
For the country’s 75,000 grain farmers, the end of the monopoly means for the first time they have options to shop their wheat to the highest bidder as a global drought bolsters prices. For companies such as Glencore International Plc (GLEN), which bought Regina, Saskatchewan-based Viterra Inc. for C$6.1 billion ($6.12 billion) in March, it means tapping into an export market worth C$5.7 billion last year, the third-largest in the world.
From 1935, the wheat board was the only game in town, the sole body sanctioned to buy and sell grain for export from Canada, the third-largest shipper of wheat after the U.S. and the European Union. As the biggest wheat marketer worldwide, it sold grain to more than 70 countries, generating C$6.07 billion in sales in 2011 that was passed directly on to farmers.
Its dissolution became a political issue as Prime Minister Stephen Harper’s Conservative government sought a more free- market approach to the industry. Harper called the day the wheat board dissolved “grain marketing freedom day” at a press conference in Saskatchewan last week.
The move will “open the door to new investments and to value-added opportunities for Western agriculture,” he said at the Aug. 1 event.
Pat Martin, who monitors the Wheat Board for the New Democratic Party, the largest opposition group in Parliament, saw it differently. “The end of the Wheat Board marks the end of an era of stability and profitability for Prairie farmers,” he said in a statement.
Under the single desk, farmers received an average return or “pool” price for their grain instead of market value. For smaller producers lacking marketing prowess, the organization gave them easy access to global markets. For entrepreneurial farmers, it was a constraint that prevented them from searching out higher prices by selling when and to whom they wanted.
Erickson, whose grandfather once drove to the nearest elevator and sold his grain without knowing the daily price, is prepared to negotiate deals himself.
“I can call anywhere, anytime or look on my phone and find out what the price of my wheat is today,” he said. “So if I’m a good marketer and I want to price now rather than wait, I have that choice.”
Erickson is typical of farmers in the western provinces of Alberta, Saskatchewan, and Manitoba, where the average farm is about 1,500 acres. He has signed contracts with Viterra, Minneapolis-based Cargill Inc., and closely held Richardson International Ltd., based in Winnipeg, Manitoba.
Stephen Vandervalk, 35, a fourth-generation farmer in Fort Macleod, Alberta, about 165 kilometers from Calgary, who sells 3,000 metric tons of wheat annually, said business-minded producers will “absolutely” make more money.
“But it’s not just about more money,” said Vandervalk by telephone from his farm. “It’s about managing my risk 10 times better than I ever could before. That’s huge. That’s what business is about.”
Vandervalk, president of industry association Grain Growers of Canada, estimates he will make C$60 more per acre of wheat each year dealing directly with the companies he’s signed up with, which include Parrish & Heimbecker Ltd., a closely held Canadian company based in Winnipeg.
“Anything is better than selling to one person,” he said.
Farmers selling their wheat when harvest comes in September may find prices pushed higher by a drought that has scorched the U.S., Europe and Russia, said Patricia Mohr, a commodities analyst at Bank of Nova Scotia. (BNS)
Wheat hasn’t been affected as much as corn, which hit a record high in the U.S. last week, but demand for wheat may grow as traders bid up the price of all grains, Mohr said.
The drought “is a positive for wheat,” she said on the phone from her office in Toronto. “It will tend to lift the price.” Red Spring wheat, the benchmark for Canada, closed little changed at $9.4625 today, down from a peak of $10.315 in July, its highest in about a year.
Prices offered by grain-handlers such as Richardson and Baar, Switzerland-based Glencore are so far identical, said many farmers who have already signed contracts. Where they will compete is on services such as weighing and cleaning grain, said David Pupo, an agriculture analyst at Macquarie Capital Markets in Toronto.
Viterra commands 48 percent market share compared with Richardson’s 15 percent, according to Pupo’s estimates. Other companies such as Paterson Grain, and Winnipeg, Manitoba-based Parrish & Heimbecker Ltd. will make up the rest of the market.
The Canadian Wheat Board will also continue to sell wheat and last week signed an agreement with Richardson giving farmers access to the company’s elevators and ports. The board aims to have contracts with all grain companies, Maureen Fitzhenry, a spokeswoman, said by phone from Winnipeg, Manitoba.
“There’s going to be competition for grain,” Pupo said. “Anybody who trades grain is going to compete for it.” Now that the board is gone, “it’s not business as usual.”
Not all farmers are looking forward to becoming marketers. In February, four farmers launched a C$17 billion class-action lawsuit against the federal government to restore the board. The elimination of the single-desk system will lead to a profit loss for farmers, the statement of claim said.
“The Canadian Wheat Board has been pretty brilliant at matching that demand to a particular high-quality product from Canada,” Steven Shrybman of Ottawa-based Sack Goldblatt Mitchell LLP., legal counsel for the case, said by telephone. “That type of marketing model isn’t one that the big companies practice.”
The case is awaiting certification as a class action. The federal government moved to dismiss it the day the wheat board dissolved. Shrybman said about 1,000 farmers have signed up to receive regular updates and potentially be considered plaintiffs.
Andrew Dennis, 52, is one of the plaintiffs. He fears prices will drop. “You can’t just load up a street with a hundred barbers when they only had one before and expect the price to go up,” he said by phone from his 2,500-acre farm near Brookdale, Manitoba, 200 kilometers from Winnipeg.
Dennis sold 2,500 tons of wheat each year to the wheat board but this year he’s putting it all in storage until he knows exactly what the market will look like.
Brian Oleson, agribusiness chair in cooperatives and marketing at the University of Manitoba, sees a bleak future for grain producers.
“Are these guys running out there to get the highest price for the farmer and the highest price back to the farmer?” he said from his office in Winnipeg. “No. They’re going to want to drive down the price as low as possible in sourcing it,” he said.
For Larry Ruud, chief executive officer at One Earth Farms, one of the largest corporate farms in Canada, the services the new companies offer will be important.
“It’s about price, of course, but it’s also about premiums and discounts around the contracted grade and delivery terms,” said Rudd, who manages about 95,000 acres in the prairies.
“We already currently manage the marketing and the cash flow decisions on everything else that we produce from canola to feed barley,” he said. “For me, running the business is going to be easier. We’re removing one of the middle men in the system and anytime you can remove middlemen in the system, you’re reducing cost and I’m all about reducing cost.”
Back in Alberta, Erickson said he hopes corporations will focus on training farmers who aren’t as market savvy.
“One of the challenges over the next five to 10 years is to understand how the wheat market interrelates throughout the world because the wheat board really has done a lot of that for us,” he said. “It’s going to be a learning curve. Long-term, I think markets sort themselves out.”
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