WINNIPEG, Manitoba (Reuters) - The Canadian Wheat Board, now known as CWB, aims to buy one-third or more of western Canada’s wheat and barley through pricing pools for the upcoming 2012/13 crop year, Chief Executive Ian White said on Monday, as competition starts to transform the fertile region’s grain industry.
CWB will lose its western grain-marketing monopoly over those grains on August 1 under a new Canadian law, leaving it to compete on the open market for farmers’ crops.
AWB, the former Australian Wheat Board, now owned by Cargill CARG.UL, handles 24-30 percent of Australia’s grains in the open market and the CWB hopes to top that share, White said.
The CWB currently offers the only wheat and barley pricing pools — which average out prices over a period of time — in western Canada.
“Farmers will determine what they want to do but we think that as part of their risk management to put one-third or more of their grain into a pool would be a very good idea,” White said on the sidelines of a Canada Grains Council conference in Winnipeg.
“We think a lot of farmers will want to put a lot more than that in,” he said.
Last year, western Canada produced 22.7 million tonnes of wheat, including 17.8 million tonnes of spring wheat and 4.2 million tonnes of durum, as well as 7.3 million tonnes of barley, according to Statistics Canada.
Canada is the biggest exporter of spring wheat and durum, both of which fall under the CWB’s monopoly.
The CWB faces head-on competition with grain handlers such as Viterra Inc VT.TO — which has received a friendly takeover bid from Glencore International Plc (GLEN.L) — as well as Cargill and Richardson International Ltd in the open market.
Some hope the change will reinvigorate wheat in the eyes of farmers, who have devoted more acres to high-return canola in recent years.
“There is a sense that wheat had become a rotational crop,” said Jean-Marc Ruest, vice-president of corporate affairs for Richardson, at the Grains Council meeting. “It has to become a crop producers grow by choice because it provides a competitive return.”
Some farmers are mourning the loss of the CWB monopoly, which they say provided stable, premium prices in a volatile industry.
Not Alberta farmer Kevin Bender, president of the Western Canadian Wheat Growers Association. He hopes to sell more of his crop right after harvest, rather than storing it to wait for the CWB to accept it under its staged delivery system.
The marketing change looks to shake up the region’s traditional planting mix, with farmers possibly boosting durum production over the years and one durum plant already scheduled for construction by Alliance Grain Traders Inc (AGT.TO), he said.
“It makes no sense to ship durum to Italy, where they make it into pasta and we buy it back from them,” Bender said.
The flow of Canadian grain exports may also change. More Canadian wheat and durum may move into the United States, with U.S. farmers expanding corn acreage at the expense of other crops, and it may make sense to funnel U.S. grains through Canadian ports at times, said Steve Whitney, vice-president of agribusiness marketing and sales for Canadian Pacific Railway Ltd (CP.TO).
“I think the business is going to take on a more North American complexion.”
CWB, which owns no grain-handling assets such as country elevators or port terminals, has a deal with Cargill that will allow farmers to sell grain to CWB and deliver at Cargill’s facilities. Similar agreements with all other Canadian grain handlers are likely within weeks, White said.
The CWB does have the advantage of Ottawa’s guaranteeing its borrowings for up to five years. That will allow CWB to borrow at preferential rates to buy farmers’ crops, White said.
But the CWB has no plans to borrow to buy a small grain handler or storage assets, he said.
“All I can say is I don’t have anything on the horizon.”
Editing by Gerald E. McCormick, Jim Marshall and Dale Hudson