Canada Markets

The Ag Transport Coalition posted their second weekly report on Tuesday which highlights the performance of Canada's two major railways in moving grain. The coalition is comprised of groups which include the Canadian Canola Growers Association, the Alberta Wheat Commission, Pulse Canada, Manitoba Pulse Growers Association, the Western Grain Elevator Association, Canadian Oilseed Processors Association, the Inland Terminal Association of Canada and the Canadian Special Crops Association with federal government support.

Data is suggested to include 85% of the country's grain traffic which is collected by QGI Consulting. The focus includes metrics covering the supply and demand for railcars, the timing of the arrival of cars, the length of time cars sit at both the origin and destination and also a comparison of the flow of traffic in various freight corridors.

The most current data, which takes us to the end of week 23 or Jan. 11, clarifies the issues and will ultimately lead to tough questions directed at Canada's two major railroads. Oil shipments by rail have fallen due to decreased demand, according to Statistics Canada data, while the current winter weather has improved from the polar vortex faced this time last year. How will this be explained?

The attached chart indicates just how broken the grain supply chain is. In week 23, or the week ending Jan. 11, only 25% of the cars ordered for week 23 shipping were spotted, as indicated by the blue bar, while crop year to date, only 45% of the ordered cars were spotted in the correct shipping week as shown by the red bar. This chart will be updated throughout the crop year to watch for trends in this data.

To-date, a total of 15,743 ordered cars have failed to be spotted, which reflects 9% of the total number ordered. A total of 7,400 of these cars or 47% of the total have been outstanding for four weeks or longer. Using a conservative per car weight of 86 mt/car, this would suggest approximately 1.35 mmt that has failed to leave the prairies in the first 44% of the current crop year.

Statistics by corridor also indicate a troubling situation. On a percentage basis of total demand for cars by corridor, outstanding cars as a percentage of total demand range from 4.9% for Thunder Bay, 7.9% for Vancouver, 9.4% for Canadian domestic movement, 26.4% for U.S. and Mexico movement and up to 40% for Vancouver transload cars.

Feathers were obviously ruffled in at least one head office with the release of the first weekly report last week. "The use of public finds to drive a single, self-serving agenda under the guise of solving large, complex supply chain issues is unconscionable" suggested CP CEO Hunter Harrison. It is his belief that progress can only be made by including all of the links in the supply chain in the study.

There are valid concerns on the prairies surrounding grain company pricing and the lack of arbitrage with U.S. markets. A good example is that of hard red spring wheat. Monday's National Average Spring Wheat Basis in the U.S. was reported at 0, or March option, calculated by deducting DTN's National Spring Wheat Index from the nearby MGEX HRS future. Today's calculation indicated the average prairie-wide basis also calculated at a 0 basis for February delivery. Given a Canadian dollar in the 80-cent range, one should expect more aggressive pricing on the prairies relative to prices south of the border.

It is my take that we will never see the price arbitrage the industry deserves without first fixing the transportation issues impacting movement from the prairies. While identifying the problems is a critical first step, the challenge remains what can be done about it?

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

(CZ)

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