After several years of high-quality crops across most of the Prairies, this fall’s poor harvesting conditions mean many farmers have the unenviable task of trying to unload low-grade cereals.
“This year we’re going to be seeing the bulk of the (wheat) crop in the lower grades, No. 3s or feed,” says MarketsFarm analyst Bruce Burnett. But experts say that doesn’t mean the door is shut on exports.
The world market isn’t all for No. 1 CW, 13.5 protein, says Neil Townsend, senior market analyst with FarmLink Marketing Solutions in Winnipeg, explaining much of the wheat bought and sold globally is of a lower quality and protein.
“There will be a lot of blending to make a saleable product,” says Allen Pirness, a trader with Market Place Commodities in Lethbridge, Alta. “Some of that blending will happen on farm, some at the elevators, some at the end-user.”
“If buyers can find higher quality elsewhere, they may buy low quality from Canada to blend — if it makes economic sense for them,” says Brian Wittal of Pro Com Marketing in Olds, Alta. But he adds that the lower grades are in a much more competitive market.
Dryness in Australia, normally one of Canada’s main competitors for high-quality wheat, could provide some relief to Canadian growers, says Alberta Agriculture’s Neil Blue.
“On the flip side, Russia, Ukraine and other former Soviet Union countries have increased their production, and they’ve been quite aggressive in marketing in the Middle East. We’re at a freight disadvantage to Middle East countries, so it’s more the China and other Pacific Rim countries that we’re at an advantage to exporting into again.”
Watch for the falling number
The extent of sprout damage could determine the marketability of this year’s crop. Sprouting triggers an enzyme that can prevent a loaf of bread from rising. It’s measured through a “falling number” test, and customers will be wary if it’s too high. Falling number is the greatest concern in milling wheat channels, agrees Jason Labossiere, senior risk management consultant with INTL FCStone. He adds durum wheat has been especially hard hit by sprouting, which may have put half the crop into No. 5 CWAD or feed category.
“That’s potentially 2.5 million tonnes of new-crop production that will go from a No. 1 to a No. 3 grade, so that’s going to put our supply at about 3.8 million tonnes this year versus our exports last year at 4.6,” Labossiere says.
If quality drops too far, wheat needs to find a home in the feed market. Canada usually exports little feed grain as the domestic industry offers better prices, Wittal says.
“But in years with excess feed stocks, we usually see an increase in feed export sales — and not because they are at profitable values, but more so to clear inventory before the next crop comes off.”
Burnett says lower global corn stocks could open more demand, especially in Asia, where buyers will substitute feed wheat instead of corn if it’s economically feasible. “It’s all going to be about the pricing, but certainly countries like South Korea can take an awful lot of grain.”
Townsend says the domestic feed market will be highly competitive, and as much as 30 per cent of the final harvest may even be too poor for feed channels. Feed wheat will also have to compete with lower quality of other crops such as oats, barley, peas, and canola.
“Total available inventories are going to be huge, not to mention the potential for U.S. corn to come up if they have a large crop, and if the Canadian dollar stays around the 76-cent range,” Wittal says.
He projects it could take 12 to 18 months for animals to chew through the inventory. “I would be contracting now for November/January delivery and get it gone ASAP,” Wittal says.
Burnett sees some selling opportunities to eastern Canadian buyers thanks to a slow corn harvest in the U.S. and Ontario
Get a good sample
The experts say this is a year when it’s particularly advantageous to know the quality of your crop, and it’s important to have a representative sample to show buyers. Wittal says a good composite bin sample is critical.
“If you don’t have good composite bin samples, (grain companies) will not make a deal with you for the rest of your crop based on a load sample or bin door sample.”
Townsend says samples should be done by a third-party tester, not the buyer. “They want you to get all your samples done, commit your samples to them, and then they’ll decide what they will pay for it. I think you should get your samples done independently.”
Blue recommends growers take advantage of the Canadian Grain Commission’s Harvest Sample Program, which offers free, unofficial grades which farmers could use when shopping around. He adds that farmers should take and keep representative samples during loading as a reference in case there are grading discrepancies.
Blue also urges farmers not to overlook direct markets such as local feedlots, hog or poultry producers.
“Also, I’d suggest considering the services of a cash grain broker because sometimes they can get a higher net price than one could achieve on their own because of the volumes they can deal in,” Blue says.