Canada. How to beat the Black Sea

19.11.2018

Russia, Ukraine and Kazakhstan are going to be fierce competition in the coming years

Western Canadian offshore grain exports are running ahead of last year despite harvest delays and the railways are performing well. But Canada’s grain monitor warns to compete with increasing exports from the Black Sea region, Canada must keep its grain pipeline efficient.

“Canada has one of the best, if not the best, grain-handling systems in the world, but that isn’t going to be good enough in order to compete with the kinds of volumes and the price differential that’s going to be associated with Black Sea grain,” Canada’s grain monitor, Mark Hemmes of Quorum Corporation, told the 23rd annual Fields on Wheels conference in Winnipeg Nov. 2. “I think that is probably one of the most overlooked competitive concerns that our industry has today. Unless we continue to have that best grain-handling system and the most efficient and the lowest cost we could find ourself in a position where we are losing market share to that area. And that’s not the situation we want to end up in.”

The threat is real, Cereals Canada president Cam Dahl said in an interview Nov. 7. Countries such as Russia, Ukraine and Kazakhstan, exporting wheat through Black Sea ports, are closer to port than Canadian producers — in many cases within trucking distance — and they are closer to grain buyers.

A Cereals Canada-Canadian International Grains Institute (Cigi) ‘exploratory mission’ recently visited Russia and Ukraine finding most of the grain is coming from modern farms with world-class equipment, Dahl said.

“There has been significant gains made in much of the Black Sea region,” he said. “To Mark’s point it is a disadvantage to be as far away from port as we are because our competitors are producing grain cheaper.”

Canadian wheat is still well regarded for its high quality and consistency versus wheat from the Black Sea region, Dahl said.

“But it’s getting a lot better, especially as farms modernize and get larger,” he said. “There are other parts of the region, such as Kazakhstan, that is very much like the Canadian Prairies. That would be a region that will have more direct competition for the Canadian band of quality. I wouldn’t call the quality coming out of the Black Sea lower quality, I would call it different quality.”

In addition to ensuring Canada’s grain system is efficient, Canadian wheat’s competitiveness hinges on research, Dahl said.

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“We have a differentiated product now that allows us to get into markets where we are not competing head to head against that large volume coming out of the Black Sea,” he said. “Research is going to be how we compete in the future.

“In fact if there is one area that I would suggest that the industry needs to focus more on it’s on research. That includes variety development, agronomics, developing products for niche markets through some of the new gene edition techniques.”

The need for more research on wheat and other cereals crops is why many in the grain sector want farmers to pay more in cereal royalties to encourage plant breeders to invest in even more variety development, Dahl said.

Meanwhile, Canada has been moving a lot of grain, including wheat, so far this crop year, he said.

“We’re moving more than we regularly do (at this time of year),” Dahl said. “Some of it is pent-up movement from the time when harvest was not progressing… but Canadian exports right now are very strong.”

Despite a strong start, longer car cycle times are a concern, Hemmes said.

As of Oct. 28 western Canadian (offshore) grain exports (not including to the United States) were up seven per cent to 10.7 million tonnes compared to last year and wheat exports of 4.7 million tonnes were up 23 per cent, Canadian Grain Commission figures show.

In October CP Rail moved a monthly record of 2.64 million tonnes of Canadian grain and grain products, exceeding the previous record set in September 2017, the railway said in a news release.

During the first three months (August, September and October) of the crop, CN Rail moved a record volume of grain and would’ve shipped more had harvest not been delayed, David Przednowek, CN Rail’s director of grain marketing said in an interview Nov. 8.

“It is unbelievable that since the beginning of the crop year… customers for CN-supplied hoppers have self-cancelled over 7,800 orders for CN hoppers,” Przednowek said, mainly because grain companies didn’t have the grain due to the late harvest.

In crop year week 13, CN and CP delivered 93 per cent of the cars grain shippers had ordered on time, the Ag Transport Coalition said.

“So far car order fulfilment on a week-to-week basis has been very good on CN and decent on CP,” Western Grain Elevator Association executive director Wade Sobkowich, said in an interview Nov. 7.

“We’re going to have steady demand from this point forward for rail cars throughout the rest of the fall period and through to April like we see every year,” he said.

Longer car cycle times could eventually result in poorer rail service for grain so it’s good Hemmes is monitoring it, Sobkowich said.

But grain shippers are most focused on getting cars for the week they are ordered and knowing when they will be delivered to an export terminal, he said.

“As long as we’re getting the cars we need in the country, and as long as they are arriving in a predictable way at the terminals then we are getting the service that we need.”


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