What's New

Get the report here

Grain Monitoring Program – Third Quarter Report - 2008-09 Crop Year - December, 2009

As reported in the Q2 report, favourable growing conditions across much of the prairies proved responsible for a significant increase in yield for the 2008-09 crop year. Generally good conditions allowed farmers to bring harvest to completion ahead of normal, and contributed to an improvement in overall grain quality. Although by historical standards global grain prices have stood up fairly well, prices moved lower from the record levels of the previous crop year due to a loosening in overall grain supplies brought on by an end of drought conditions in Australia and the Ukraine. Prices were further pressured by the mounting crisis in financial and credit markets which exerted downward pressure on all commodities.

It should be noted that throughput and volume increases were seen in all areas of the GHTS in the third quarter of this crop year such that a trend of reduction over the previous crop year was reversed. Concurrent with this the GHTS also saw improvements in performance in all three sectors of the logistics chain (country elevator, railway and terminal handling).

Grain Production, Supply and Traffic

Grain production for the past year climbed to 60.4 million tonnes, an increase of 24.4% from the previous crop year’s 48.5 million tonnes. Increased production was seen for all major crops other than oats. Wheat, durum and canola contributed the bulk of the gain rising to 20.0 million tonnes (up 35.8%), 5.5 million tonnes (up 49.9%) and 12.6 million tonnes (up 32.5%) respectively from a year earlier. As was the case with most other grains, special crop production rose appreciably, increasing by 17.1% to 5.2 million tonnes.

After seeing reduced movements in the first 6 months of the crops year, volumes rebounded sharply in the third quarter, climbing by 45.1% to a record-setting 7.2 million tonnes for the period, beating a GMP record of 6.4 million tonnes set in Q3 of the 1999-2000 crop year. Set against the volume seen in the first two quarters, the year to date volumes have now realized a marginal gain of 1.7% over the 18.2 million tonnes handled in the same period a year earlier. Much of this surge could be traced to particularly heavy shipments of wheat and canola, which posted third-quarter increases of 60.6% and 61.8% respectively. It is worth noting that the heightened demand for canola also helped raise its year-to-date volume to a GMP record of 5.3 million tonnes.

GHTS Infrastructure

There were minimal changes recorded during the first two quarters and none in the third quarter:

• The number of licensed elevators and grain delivery points declined to 366 and 272 respectively, while storage capacity grew slightly to 6.1 M metric tonnes.
• The percentage of elevators capable of loading in blocks of 50 or more railcars rose to 50.5%.
• The Western Canadian rail network declined by 59.3 route miles of infrastructure, all of which related to the pruning of portions of CN’s Saskatchewan-based Matador Subdivision (29.7 route-miles) and White Bear Subdivision (23.5 route-miles) and its former Stettler Subdivision in Alberta (6.1 route-miles).
• The licensed GHTS terminal elevators remained at 15 and storage capacity at 2.5 million tonnes.

Revisions to the network plans of both CN and CP during this period showed that another 850 route-miles of railway infrastructure are still being targeted for discontinuance over the next three years, with almost three-fifths of this amount currently earmarked by CP.

CWB Tendering and Advance Awards Programs

During the first three quarters of the crop year, the CWB awarded a total of 282 contracts for the movement of 2.0 million tonnes of grain under its tendering program, a increase of 25.9% from the 1.6 million tonnes handled in the first three quarters of the previous crop year. A further 1.2 million tonnes was moved under the advance awards program. In aggregate, 30.7% of the CWB’s total grain shipments moved under the two programs to western Canadian ports. The CWB reported that its Transportation Savings had increased by 5.8% in the first three quarters, rising to $23.8 million from $22.5 million.

Other Commercial Developments

Railway Service Complaints

Stakeholder complaints over railway service and car allocation continued to find the spotlight during this quarter, particularly the concern of a perceived decline in the consistency and reliability with which that service has been delivered. In the interest of keeping readers of these reports informed, the Monitor has been following this issue throughout the past two crop years. While the report covers the chronology of events in greater detail, the following summarizes those events leading up to the decision made in the first quarter of this crop year.

In March 2007 Great Northern Grain Terminals Ltd. (GNG) filed a level-of-service complaint with the Canadian Transportation Agency alleging that CN’s advance products discriminated against it and other small shippers in the allocation of railcars, rendering them uncompetitive in the marketing of grain. The complaint also alleged CN had failed to provide an adequate level of rail service under its general car allocation program. This served as a lightning rod for a host of smaller shippers, with over 20 separate organizations having sought intervener status in the case. The Agency decision followed in July 2007, determining that CN’s car allocation practices had resulted in a significant deterioration in the service provided to GNG and that CN had in fact breached its common carrier obligations causing GNG to likely suffer substantial commercial harm. Although CN was directed to make reasonable accommodation for GNG’s specific transportation needs, the Agency also found the difficulties encountered by GNG were not isolated, but rather the product of a widespread “systemic” failure.

In September 2007 the CWB, along with five other companies, filed a series of new complaints with the Agency regarding the level of service they were receiving from CN alleging the carrier was still failing to provide them with adequate rail service owing to what they perceived to be the inherent failings of the car allocation process. (Paralleling the case put forward by GNG six months before). In following months the complainants request for an injunction was denied and an attempt at mediation failed. In January 2008 the Agency issued an interim decision finding that CN’s advance products had caused the complainants substantial commercial harm in the 2006-07 crop year, and that the carrier was in breach of its level-of-service obligations. Further, the Agency found that further harm was likely to be incurred if some form of corrective action was not taken. While recognizing CN had made some effort at revising its advance products in order to better reflect the wider needs of shippers as the 2007-08 crop year got underway, the Agency concluded that it simply could not gauge the effects of these changes in the absence of the data necessary to make such an assessment and deferred a final decision in the matter until all of the requisite data could be assembled and analyzed.

On 25 September 2008, the CTA released its decision, deciding in favour of four of the six companies that filed complaints. The Agency found that, based on its established service performance benchmarks for the movement of western grain for these complainants, CN was in breach of its level of service obligations to four of the six applicants for the crop year 2007-08 (North East Terminal Ltd., North West Terminal Ltd., Parrish & Heimbecker Ltd. and Paterson Grain). The CTA ruled that CN did not breach its level of service obligation to the CWB and Providence Grain Group Inc. for the 2007-08 crop year. In granting relief to the successful complainants, the Agency decided that a performance-based benchmark was a remedy which would be fair and reasonable to the parties in order to ensure “predictable” rail service.

The Agency ordered CN to provide these four grain companies, with a minimum of 80% of their requested rail cars. Further, 90% of the confirmed cars were to be delivered either on time or in the subsequent two weeks (three weeks total). CN was to meet these performance standards on a 12-week rolling average throughout each crop year. This requirement was to be put into effect for the 2008-09 crop year and beyond.

Complaints about the carrier’s service were not to end there. In March 2009, Western Grain Trade Ltd. lodged a similar complaint with the CTA against the service it had been receiving from CN at its facility in Hamlin, Saskatchewan. As a processor and exporter of special crops, WGTL maintained that reliable and consistent rail service was essential to its commercial success. Moreover, the shipper alleged that the erratic service it was now receiving from CN had already undermined its business and caused it financial harm. The complainant indicated that it was ultimately seeking an order, consistent with the remedies previously advanced by the CTA in such matters, which would direct the carrier to provide service that better reflected the shipper’s specific needs. A decision in the matter was not expected until the end of the 2008-09 crop year.

Elimination of KVD

The Minister of Agriculture and Agri-Food announced in mid February 2008 that the KVD-based system which had been used to classify western Canadian wheat would end with the 2007-08 crop year. As of 1 August 2008 it was replaced by a system involving farmer-based declarations. The intent of this regulatory change was to encourage the development and introduction of new varieties of wheat with enhanced characteristics for traditional users as well as different quality attributes and yield potential for ethanol and feed usage. The Canadian Grain Commission (CGC) and the grain industry have worked collectively to ensure that the changeover does not compromise the integrity of the existing quality assurance system, and in developing a rapid-testing mechanism for implementation at a future date.

The declaration process has revealed, in a limited number of instances, that some farmers are growing wheat varieties that are no longer registered. The CGC and Canadian Food Inspection Agency recognized that enhanced notification systems need to be implemented to ensure that producers have access to current information on registered and deregistered varieties.

Changes in Ocean Freight Rates

As discussed in previous editions of the Monitor’s reports, ocean freight rates have fluctuated dramatically since the 2002-03 crop year. Over the following 5 crops years since the first surge, ocean freight rates have seen dramatic increases and decreases as measured by the Baltic Dry Index (BDI). Rising from the low 2,000 point level in 2002-03 to past the 11,000 level in the first quarter of the 2007-08 crop year they began to plummet over a three month period in the second and third quarters of that crop year by a factor of almost 50%. For a short period they had regained all of this lost ground and by early June 2008 the BDI had reached another all-time high, coming within striking distance of 12,000 points. But as before, they again began to tumble. With the close of the 2007-08 crop year the BDI had fallen to 8,600 points.

The first quarter of the 2008-09 crop year saw the most dramatic shift to date in the BDI. By the end of October 2008 the Index had fallen to just one tenth of the level at which it had started the quarter, sitting at 850. The second quarter saw a further eroding in the BDI, which fell to 700 before stabilizing and returning to near 1,100 by the end of January, 2009. Mounting investor confidence saw a further strengthening of the market in the third quarter, with the BDI rising to almost 2,300 points by mid March before pulling back to close out the period at just below 1,900 points.

System Efficiency and Reliability

Country Elevators

The throughput at country elevators increased by 5% compared to the first three quarters last year (to 26.3 million tonnes).

Rail Operations

The railways’ average car cycle in the first three quarters of the crop year decreased to 14.0 days from the previous year’s average of 15.7 days.

Despite the onset of winter, which normally leads to an elongation of the car cycle in the second and third quarters, the quarterly average was reduced from an initial value of 15.3 days in the first quarter to 12.6 days in the third. This latter value proved to be the lowest quarterly average yet achieved under the GMP.

Terminal Elevators and Port Performance

Terminal throughput increased by 5.7% to 18.2 million tonnes during the first three quarters while average inventories decreased by 3.4% over the same period last year, to an average of 1.4 million tonnes. At the same time, the amount of time spent by grain in inventory decreased to an average of 17.5 days as opposed to 19.6 days a year earlier. The third quarter’s 13.3-day average proved to have been the lowest yet recorded under the GMP.

Supply Chain

Grain took an average of 53.6 days to move through the supply chain during the first three quarters of the 2008-09 crop year, 6.5 days less than the 2007-08 crop year’s average. This is the lowest yet seen under the GMP.

Producer Impact

Export Basis and Producer Netback – CWB Grains

The PRO for 1CWRS Wheat (13.5% Protein) moved downwards from the 2007-08 crop year’s final realized price of $372.06 per tonne to $307.00, a decrease of 17.5%. This has remained unaltered since the first quarter of this crop year. Still, this value well exceeded the $219.20 per tonne that had been set as the farmer’s initial payment for the 2008-09 crop year by 40.1%. Much of the impetus for this decline in price stemmed from a loosening of the global wheat supply coupled with uncertainty in global financial markets and volatility in the commodity sector.

Export Basis and Producer Netback – Non-CWB Commodities

The Vancouver cash price for 1 Canada canola fell by 17.9 % in the first three quarters of the 2008-09 crop year, attaining an average of $456.87 per tonne as compared to the previous crop year’s final average of $556.76-per-tonne.

Producer-Car Loading

Producer-car shipments during the first three quarters of the 2008-09 crop year increased by 13.9% from that handled a year earlier, rising to 9,026 from 7,925. In relation to the volume of grain shipped in covered hoppers, producer-car loadings accounted for just 4.5% of the overall total.

Get the report here

Quorum Corporation

701, 9707 – 110 Street

Edmonton, AB T6M 1A5  

p- (780) 447 2111; f- (780) 451-8710
e- info@quorumcorp.net ; w- www.quorumcorp.net

Page last updated on: January 15, 2010 2:31 PM