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Down At The Elevator

Greg Brenneman, who farms near Salina, Kansas quickly put the question is sharp context. His home state has moved away from wheat production, as Gerald Pilger reported in last month’s issue of COUNTRY GUIDE. Instead, farmers there are growing more profitable corn.

It’s a change that is putting huge pressure on the state’s grain handling system there, and Brenneman says he and other farmers are seeing the consequences.

Kansas farmers are delivering six or seven times more product to local elevators now that they are growing 250-bushel corn instead of 40-bushel wheat. That is straining everything from rural roads to the low-capacity elevating legs at many grain delivery points.

If the grain handling system in Kansas can get bogged down, could things go the same way here?

While most western Canadian farmers aren’t likely to make a wholesale switch to corn production anytime soon, newer varieties requiring fewer heat units are becoming increasingly popular. And the trend toward higher yields in other established crops is already clear.

According to Statistics Canada, wheat farmers in the three Prairie provinces can expect to pull off 40 bushels per acre today, up from 26 bushels in 1970. Farmers are driving up the yields of other crops too.

Meanwhile, the number of primary elevators accepting farm deliveries has dropped significantly. The Canadian Grain Commission says the number of primary elevators has declined from 4,947 to only 318 over the same period.

More significantly, their combined storage capacity has dropped by roughly 50 per cent, from over 11 million bushels to just 5.6 million.

On the face of it, that sounds like trouble.

The best guesses of industry insiders are that the number of commercial facilities will stay close at about current levels at least for the foreseeable future. As newer Prairie facilities have been built, they have replaced and consolidated older, less efficient, wooden elevators.

Built to be lean

“Some extra capacity wouldn’t hurt us,” says Charray Dutka, manager of quality control and inventory in

the logistics unit of the Canadian Wheat Board. “But it’s unlikely due to the sheer cost.”

“Canada’s grain handling system has always been very different from the U.S. and other major competitors,” Dutka continues. “We’ve always had a very lean commercial handling system.”

The primary elevators and terminals can now accomodate barely one third of the West’s export volume at any one time. That means the system needs to function on a just-in-time delivery schedule. Grain that enters it needs to move very quickly.

During its consolidation over the past few decades, the primary elevator system did get impressive significant updating. As old elevators have given way to high-throughput terminals capable of loading trains much more efficiently, that has changed the railway’s practices, too. “In the last 10 to 15 years or so, we’re doing much more shipping in 50-to 100-(rail) car blocks,” says Dutka. And that provides efficiency advantages for the railways.

Line companies can capture cost reductions by accommodating those high-volume shipments. “There are some pretty good rebates, anywhere from seven to eight dollars per tonne,” explains Dutka. That has the potential to be passed on to farmers in the form of reduced elevation charges.

There have been other improvements at the railways, as well. For example, CN instituted its Scheduled Grain Plan, which reduces turnaround time on those 100-car unit trains. The company co-ordinates delivery dates with shippers and terminals, and all players continue operating through weekends and holidays to minimize the number of days filled hopper cars spend waiting to be unloaded and sent back.

“We are able to better serve our customers while increasing reliability and consistency on our network,” Michael Cory, CN’s senior vice-president for Western Canada said about the plan in a press release.

Even though the system has been reinventing itself to maximize throughput, there is still the problem of where to store any extra yield until it’s ready to move. “The bulk of our storage is on farms. It always has been, and I expect that to continue,” says Dutka.

So on-farm storage capacities will have to grow to keep pace with future yield increases. That may be the single aspect most in need of an upgrade in capacity.

Farmers control storage

Even if commercial storage facilities were to expand, the cost would be charged back to producers. “Farmers are going to pay for storage, regardless,” says Dutka. And Barry Prentice, director of the Transport Institute at the University of Manitoba agrees. “The farmer is paying for it if you have to build a dedicated terminal facility. Commercial storage is a duplication of what’s happening on the farm.”

If farmers are going to continue handling their own storage needs, Prentice sees an opportunity for them to exploit that and partially bypass the 150-year-old bulk handling system. He believes they could increasingly use cargo containers to extract extra value out of premium quality grains.

With a world population growing ever more affluent, demand for branded and high-quality goods is likely to rise. “We’re competing with Ukraine and other places on the basis of volume, more than anything else,” Prentice says. “My argument is we have to start really extracting a premium for the quality we can produce.”

Prentice thinks that could be achieved by trading some wheat on the basis of attributes rather than grade, similar to how the oat crop is marketed now. But that isn’t easily done in a bulk handling system.

Instead, separating grain into smaller specific-quality lots and then selling and shipping it in cargo containers could help extract extra money from the marketplace.

Currently, speciality crops and some small orders are shipped via containers. According to Mark Dyck, senior manager of rail logistics at the CWB, there are multiple reasons for that. Some purchasers may have difficulty obtaining credit. “It’s easier to finance a small shipment,” Dyck says. Other reasons include storage limitations at the destination, or customers interested in test quantities.

Freight rates are the main factor limiting container shipments. “As an example, grain shipped to Taiwan in a container from Vancouver is (at the time of writing) $95 per tonne,” says Dyck. “The same Panamax (bulk) shipment is $31 to $33 per tonne.”

Such price differences haven’t always held. During the economic downturn in 2008, container rates were actually lower than bulk. That was due in part to a shortage of ships designed to haul bulk commodities. Since then several new freighters have entered service and the resulting increased capacity has led to normalization of bulk rates.

Overall, freight tends to flow along the route of least cost, and grain is no exception. “It (cost) fluctuates,” says Dutka. “When ocean (bulk) rates increase you’ll see more containers, and when it decreases you’ll see containers trend down. You’ll always have some containers, because you have some customers that only need small quantities.”

“I don’t know if it’s ever going to be the primary method of exporting grain, given that the customers and exporters are set up for handling bulk grain,” Dutka adds. “But it will definitely supplement the current program.”

The bulk handling system could never really go away, says Prentice. He sees average quality product being well suited for that type of marketing. Bulk movement along with increased containerization of premium product could work in tandem.

The French model

“I see it working a bit like the French wine industry,” Prentice adds. “They sell 10 per cent of their wine in a very exclusive, high-priced system. Then there is a whole bunch that gets sold off in bulk as well. Not all wine is estate labelled. Think of a container (of grain) as like a wine bottle.” Higher container shipping costs would be less of a concern when very high-value product is being shipped.

Currently, most container filling actually happens at port, so increased use of containers wouldn’t greatly increase railway capacity under the existing process. But Prentice sees a new method, where farmers could load containers right in their yards and haul them to inter-modal facilities for transport like any other cargo. That would bypass existing primary elevators and increase overall capacity of the bulk system by reducing the need to transfer grain from hoppers. It would also accomodate identity-preserved marketing and traceability.

But there is one logistical problem associated with moving large numbers of grain-filled containers. A container filled with grain typically weighs much more than a container filled with, say, electronic equipment. So loading ships becomes more complicated. The number of grain containers each vessel can carry without drastically reducing overall containers loads — and thereby raising freight rates even more — could become a factor.

But it does remain a viable option. And there are some future market factors to consider, too. There is a likelihood that biofuel refineries and edible oil crushing plants will syphon off increasing amounts of production nearer the source, limiting port-bound shipments. So it may not make sense to upgrade the existing bulk handling system, even if overall yields do threaten to put more pressure on it.

“Overall, we’re a grain-exporting country and will continue to be,” says Dutka. There is no doubt of that. But how much Prairie grain flows to ports, how it gets there, and how much gets processed domestically in the future are the key questions. Depending on the answers, our bulk handling capacity may already be adequate to last us well into the future.CG

About the author


Scott Garvey

Scott Garvey is a freelance writer and video producer. He is also the former machinery editor for Country Guide.



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