Moving the Massive 2013 Harvest Soon Sorted
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The political challenge of Prairie crop movement has now been with us for over 15 months, with two contrasting post harvest market situations.
In 2013 the challenge was the urgency of moving distressed grain following an unexpectedly large harvest for which adequate on-farm storage was not available. The fear was that grain stored in the open could not be moved before the spring and would spoil. With the country elevator system "plugged" the intake of grain could not exceed shipments. Hence the railways were perceived to be the problem.
In 2014 the challenge related to the apparent reluctance of farmers to move their grain to market early in the immediate post harvest period, thereby possibly setting the system up for capacity challenges later in the crop year when farmers might choose to sell grain more freely.
In retrospect the 2013 challenge was met. And with the experience of 2013 behind us the challenge of 2014 is likely to be resolved as well.
Against the expectation of many, the railways were able to ramp up grain movement as soon as supplies became available after the 2013 harvest. On a harvest-to-harvest, as opposed to crop year, basis farmers during 2013-14 delivered more than 15 percent or 6.5M tonnes - not including certain special crops, more than during the previous 12 month period. This compares to an increase in total supplies for the crop year of 21 percent, or 18.5M tonnes. In all probability the apparent accumulation of on-farm crop inventory was in part a result of farmers' decisions not to sell late in the period.
By summer it was evident that the pressure was off the movement of crops as farmers did not replenished marketing channel supplies after the busy spring field-work season. This indicated a lack of urgency which did not even appear to return following the 2014 harvest. Primary elevator stocks in 2014 never came close to matching post harvest 2013 levels until mid December, Chart 1.continue
Indicative of the general expectation for Canadian crop marketing twelve months ago Ag Canada was forecasting 2014-15 ending stocks at the highest level in over 20 years. By the fall this projection was for stocks at the lowest level in the same period. Even after the recent upward revision in the ending stocks forecast, the year end stock levels look quite comfortable in comparison with recent years, Chart 2.continue
But the federal government is seemingly reluctant to give up its role of attempting to orchestrate grain transportation. An element of hesitance, however, has been apparent. It delayed almost six months before taking any action initially and since has been making eleventh-hour decisions to extend its program. Political reality is that to be seen wielding the big stick over the railways is regarded positively in the country. The danger of this is that the railways will start adjusting their plans to the stick as opposed to the transportation needs of the industry. And farmers are collectively in a better position to express their needs to the railways than the stick holder.
A further danger for the federal government is that it will set the mandates at unrealistically high levels in the context of crop available for shipment. It is probably not a coincidence that both CN and CP missed the mandates in early September when country elevator stocks - grain available for shipment, were at their lowest level of the year.
In the most recent, late November, program extension there appeared to be some evidence the federal government was maneuvering to allow for a graceful exit. Beyond the quantitative mandates which appear well below what was achieved last year, there are more subjective elements. These include "formal winter contingency plans including service plans for producer car loaders and short line railways for the remain[der of the] crop year" - the most political of issues and, therefore, the thickest smoke.
Also rather quaintly, as the information collected by the federal government is regarded as confidential, :
These elements of the program could be maintained to limit the political damage that might otherwise arise from simple abandonment of the program.
Looking ahead the movement of crops will depend more on farmers' deliveries than the railways ability to move crops. There is an expectation that this will pickup with the New Year which is a new tax year for many. Also if we run into some unduly cold weather the flow of grain from farms is likely to slow which will suit everybody, except perhaps the federal government if their mandates are too ambitious.
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