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Twelve Months of Grain Movement Mandates

- Tuesday March 17, 2015

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David Walker
Edmonton, AB
phone: +01 780 434 7615
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Having used the grain transportation issue over the last 12 months the government of Canada is now face with the challenge of putting the issue to bed, or at least sidelining it before the general election anticipated this fall. (1,010 3words)

From the performance of the Prime Minister at the recent Saskatchewan Rural Municipalities annual get together at Saskatoon, it seems it is attempting to move the issue on from actual performance to that of competition.

The reality is that the performance of the railways was probably never really much of an economic as opposed to a political issue. It was the combination of the exceptionally large 2013 crop which in turn was the result of exceptionally heavy yields almost everywhere on the Prairies, with farm storage, grain handling and transportation systems developed over the years to handle good crops rather than exceptionally good crops.

The federal ministers of transport and agriculture most probably thought they were onto a good thing a year ago when, having seemingly waited for the prospect of improved spring weather, they dictated higher level of grain movement by the railways. The weather and the railways obliged and the mandates were exceeded, Chart 1. The orders were extended without out much fanfare for two month in the summer.


Canadian Prairie Shipments

The statistics suggested there was still plenty of grain to move, when the ministers in very late July decided to continue for the August to November time slot what they probably regarded as their previous successes. The mandates were raised, possibly prompted by the level achieved by the railways to that point in time.

It then transpired that farmers were not anxious to continue to market grain at the pace that they had in the spring and early summer. Even after harvest the country elevators did not fill in the way they had the previous year, Chart 2. That farmers might limit their marketing as a means of evening out their cash flow with the prospect of a smaller 2014 crop was to be expected. Further some farmers may have been hesitant as grain companies did not seem to be bidding particularly aggressively.


Canadian Prairie Primary elevator Stocks

But without crops to move, the railways may not have been masters of their own destiny in meeting mandated levels during the late summer and fall. How big an affect lower elevator stocks had on grain movement is debatable. But it was certainly evident that grain movement was no longer an issue of any but political significance.

As the federal government has chosen to keep the specific performance measures of the railways confidential, it is not possible to get a totally accurate picture of how well the railways did in meeting the mandates. But Canadian Grain Commission weekly data for shipments from country and process elevators and producer car loading do provide a good indication, Chart 1.

From this it would seem that meeting the mandate was a close run thing for much of the pre and post harvest period. And the federal government did in fact choose to apply token penalties to the railways belatedly during this period - probably enough to show farmers the measures had teeth, but not enough for the railways to challenge seriously the measure.

In very late November at the end of the fall mandate period, the federal government set rather relaxed targets for December to March, probably hoping the issue would go away and/or avoiding any weather related debate. These dictates appear to have been handily met by the railways. There was, incidentally, some build in country elevator stocks over the winter months almost to the levels of a year earlier.

The end of the current schedule of weekly rail movement targets is rapidly approaching. March 28 is the expiry date. If past performance is any indication, the announcement will be made on any extension the previous weekend. And it would be reasonable to expect any such announcement to cover the balance of the crop year.

The federal government has two challenges with extending mandates. Farmers do not by and large put a high priority on marketing grain when road bans are in effect and particularly during the spring seeding period. Typical the elevator system is charged with grain prior to this period, so that any slowing of farm deliveries can be offset by a rundown is elevator stocks. This reality will need to be accommodated when the mandates are set.

The run down in stocks was limited last year as farmers were still under pressure to deliver. If the experience of last fall is anything to go by, there will a relatively steep decline in grain available for shipping this spring. The second challenge for the federal government is that July 31, the end of the crop year and a natural end to any extension of mandated movements, would be getting uncomfortably close to the anticipated federal general election in the fall.

Clearly as long as the federal government keeps setting mandates performance will be a continuing issue. There will surely be those who for one reason or another want to keep the issue alive regardless of how well the railways have preformed. But if the mandates are allowed to lapse the federal government will be viewed as going soft on the railways.

True the federal government has thrown some non performance elements into the mix such as winter weather contingency plans, rail corridor, short line and producer car issues and such, which might divert attention. One of these, improving the environment for forward contracting by providing for the imposition of demurrage seems to have merit if it was applied bilaterally. It would reduce the tendency for the pot to be kept boiling by posturing on the issue of car spotting.

The Prime Minister's appearance at Saskatoon may have also been an attempt to divert attention away from the issue of performance to that of the market power that the railways have over Prairie crop movement. It is an issue that every farmer must question, but one for which ready answers have yet to emerge.

David Walker
March 17, 2015

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