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Mixed fortunes for Canadian farmers…

Rail blockades hindering Canadian grain exports…

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Rail blockades across Canada continue to paralyse grain movements, leaving export grain stranded on the nation’s Prairies and slashing grain export income by as much as US$7 million per day from lost sales, contract penalties and demurrage.

In early February protesters set up blockades east of Belleville, Ontario, and west of Prince George, British Columbia in solidarity with Indigenous leaders from the Wet’suwet’en Nation who oppose construction of a natural gas pipeline. Wet’suwet’en chiefs claim the proposed pipeline would run through the hereditary land of their people.

The blockades have since sprung up at several strategic locations across the country disrupting most key rail corridors bringing both passenger and freight train services to a grinding halt.

They have cut off critical crude-by-rail shipments to three eastern refineries that account for about a third of the country’s refining capacity. And farmers who rely on propane to heat livestock barns during the winter and keep animals comfortable are having to ration their supplies because of the blockades.

The dispute has struck a chord across the country and led to widespread protests that are about far more than the future of a single pipeline. It is giving voice to those who believe the Trudeau government is not delivering on its pledges to take climate change more seriously and transform its relationship with Canada’s indigenous people, who make up about 5 per cent of the population.

This is the latest crisis to face Justin Trudeau at the start of his second term as Canadian prime minister. After spending days calling for talks and making clear he didn’t want police to dismantle the blockades by force, Trudeau’s tone hardened late last week. He demanded aboriginal protesters lift the rail blockades that are hurting the economy and made it clear police would, if necessary, enforce injunctions to remove the obstacles.

About 94 per cent of Canada’s grain exports travel to port by rail on an annual basis. The blockades are further impeding grain shipments that already faced severe backlogs stemming from a delayed harvest and a week-long strike at the Canadian National Railway Company back in November last year.

According to data released by the Canadian government last Friday, wheat exports from all ports were less than 174,000 metric tonne in the week concluding Sunday February 16, down 37 per cent compared to the previous week and 28 per cent below the five-year average. Shipments of wheat from Vancouver, Canada’s main grain export hub, fell 68 per cent to 44,200 mt while exports from Prince Rupert decreased from 77,000 mt to zero.

The latest weekly grain monitoring report stated there were 40 vessels lined up at the port of Vancouver and ten at Prince Rupert as of February 16. The Vancouver line-up compares with the average of 24 vessels for the port, while the yearly average at Prince Rupert is only five. Eight grain vessels were cleared to sail from Vancouver in week 29 of the Canadian grain shipping calendar, but none from Prince Rupert.

The blockades are not only disrupting the passage of grain to port for export but seriously impeding each rail company’s ability to reposition empty rail cars back upcountry for loading. This has led to a sharp increase in upcountry elevator stocks. Growers have been delivering as arranged with exporters, but the grain is not being railed out of the sites at the same pace.

The effects on the Canadian farmer is real. As elevators fill up, growers have to stop delivering, and they don’t get paid when they are unable to deliver their grain. This may lead to a financial squeeze as farmers need the money to cover the costs to seed and fertilise the upcoming spring crop,

The ships currently waiting at anchorage put the 2019/20 shipping season on track to match the disastrous winter of 2013-14 for grain shipments. Agriculture and Agri-Food Canada’s February supply and demand estimates included a 400,000 metric tonne drop in exports of the grains and oilseeds for 2019-20.

The blockade comes at a time when grain sales, in particular wheat, have been booming into Asia. Canadian wheat sales to China were at a 14 year high in 2018/19, and the trend has continued this season. This is in stark contrast to canola, where the continuing trade dispute between the two countries has stymied the traditional trade flow.

The increased wheat enquiry from China is really by necessity. China needs to fill a void created by the long-running trade war with the United States and lower than normal exportable surpluses out of Australia after back-to-back droughts on the east coast. They have also purchased French wheat in recent weeks.

Sales of Canadian wheat have also been increasing to countries such as Indonesia, Philippines, Thailand, Vietnam and South Korea. The dynamic has changed to such an extent that in the 2019/20 marketing year Indonesia was Canada’s biggest global wheat customer. Their exports to Indonesia totalled 2.28 million metric tonne, almost double Australia’s shipments to the same destination.

Sales of Australian wheat to China have continued in recent weeks. However, with a smaller exportable surplus this season compared to last, the cupboard will be empty very quickly. This will frustrate our ability to take advantage of Canada’s grain export woes and clawback traditional Asian demand, particularly for Australian wheat.

Market awaits news from China as the barley harvest swings into gear…

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Farmer selling has picked up over the past week as the 2019 harvest gathers momentum in the southern grain-growing regions of Australia. And the market pressure created by this increase in supply, in conjunction with a rally in the Australian dollar, pushed grain prices lower across the board.

The Central Queensland wheat harvest came in close to industry expectations at around 375,000 metric tonne, and on-farm storages are filled to the brim as growers take advantage of a lack of production in the southern part of the state. This grain will be trickled into the domestic market over the coming months, filling part of the void created by abysmal production in southern Queensland and northern New South Wales.

The southern Queensland harvest has come and almost gone in a very short period of time. There were isolated pockets of harvestable grain that weren’t cut for hay, but on the whole, the ongoing drought has pushed production lower than last year’s dismal total.

The story in northern and central New South Wales is no better. These regions should be a hive of activity with headers rolling and queues at the local silo a feature. Instead, the paddocks are bare, and many silos haven’t even opened due to the record low production. What has been produced will go directly into the domestic market or is being stored on-farm for delivery to local end-users in 2020.

The production outlook in Southern New South Wales, Victoria, South Australia and West Australia is far better, and this is where the supply pressure is being seen as growers look for cash flow by selling off the header. Falling grower bids may well stem the tide of selling, so cash prices become a function of how desperately the trade need to buy. With domestic demand covered, export interest will be the most likely catalyst for an increase in buyer appetite.

Barley has dominated harvest proceedings thus far. Reports from the field suggest that early barley quality, and yields, have been quite variable as the tough finish manifests itself in high screenings and low malting barley selection rates in many districts. That said, it seems that yields, on the whole, are surprising to the upside.

The price of wheat delivered onto the Darling Downs retreated around $5 last week to close at about $410. Western Australia and the Eyre Peninsula are the regions most likely to ship wheat around to Brisbane over the next 12 months, and grower bids at those ports fell by around $7 across the week. Geelong bids fell by the same number.

On the other hand, the price of feed barley delivered Darling Downs region remained steady across the week at around $375. The Geelong and Kwinana feed barley bids fell by $10, and the Port Adelaide and Port Lincoln bids fell by $5 across the week.

Port Lincoln is the cheapest Australian grain at the moment with ASW wheat and feed barley values now down to US$225 Free on Board (FOB) and US$193 FOB respectively. Kwinana port values sit at around a US$8 premium for both grains. Both ports should be competitive into the wheat export pathway at those values, and recent sales of wheat out of Western Australia support that notion.

Barley, however, is a different story. Australia has relied heavily on China in recent years. November 18 is the anniversary of the launch of the anti-dumping probe by the Chinese Ministry of Commerce (MOFCOM). Under the World Trade Organisation (WTO) regulations results of such investigations, or some guidance on potential actions, are expected within 12 months, but a six-month extension can be granted.

The Australian trade will be looking to Beijing to provide such guidance, whether positive or negative, in the next few weeks so that the market has some direction and certainty through harvest and into the New Year. There are rumours of small volumes being traded, but most exporters are not willing to entertain Chinese enquiries due to the execution risk any sales would present under the current circumstances.

So, where does the Australian barley exporter look in the absence of Chinese demand? Saudi Arabia is the logical answer. Black Sea values were sitting at around US$190 FOB last week. Add freight of US$25 makes it US$215 Cost & Freight (C&F) into the Red Sea port of Jeddah. That compares US$226 C&F ex WA using US$200 FOB Kwinana and freight of US$26. Out of Port Lincoln, it works out at US$223 C&F using freight of US$30. So no joy into Jeddah at current values!

How about the Persian Gulf port of Dammam? Freight from the Black Sea into Dammam is around US$11 over Jeddah. Freight out of Australian ports would be the same as Jeddah. Suddenly, at last week’s prices, Australia is competitive against Black Sea origin for the next Saudi tender.

However, Argentina could well rain on our parade. Export barley values out of the deep-sea port of Bahia Blanca were quoted at US$170 last week. Add freight of around US$42, and Argentina trumps both the Black Sea and Australia at the next tender. Argentina likes to get the business on early, so are also likely to be the weakest seller. This is especially the case at the moment as the new Peronist government is threatening to increase export taxes.

The only other obvious export options at the moment are Thailand and Indonesia. The later is expected to be looking to Australian supply once the free trade agreement has been ratified. It has been tabled in the Indonesian parliament and will be debated in the Australian Senate this month. Endorsement by both parties is expected by year’s end.

Domestically, the Queensland stockfeed market will continue to require feed barley from Victoria, South Australia and Western Australia for the next 12 months. At the current delivered Darling Downs spread of $35, feed barley is buying demand away from wheat, and the consumer has been taking advantage of the relative value in recent weeks.

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