(Reuters) - Canada’s Viterra Inc VT.TO has agreed to handle and store grain that farmers sell to the Canadian Wheat Board (CWB), a move that could make the board a more viable option for producers after it loses its grain-marketing monopoly.
The arrangement, which extends to some smaller grain handlers in addition to Viterra, the country’s largest, takes effect on August 1. That’s the same day that the CWB loses a 69-year-old monopoly on marketing Western Canada’s wheat and barley for export and human consumption.
The board plans to compete with Viterra and other grain handlers in an open market to buy farmers’ grain even though it owns no storage space at country elevators or port terminals, putting the new stripped-down company at a major disadvantage.
But the CWB is the only company that has announced price-pooling options for farmers, a means of averaging out prices over a period of time that helps farmers avoid volatility. Some agreements also include cash sales.
With high fixed costs, grain-handling profits are driven largely by volume, said Fran Malecha, chief operating officer at Viterra.
“We feel there’s a lot of value in this for Viterra,” he said in an interview. “It’s certainly something growers were looking forward to.”
Viterra shares were 2 Canadian cents lower at C$16.11 on the Toronto Stock Exchange on Thursday afternoon.
Along with Viterra, the CWB said Thursday it had agreements in place with Mission Terminal, West Central Road and Rail, Delmar Commodities, Linear Grain and Agro Source.
Cargill Ltd CARGIL.UL, the third-largest Canadian grain handler, and the farmer-owned South West Terminal, agreed earlier to handle CWB grains.
CWB Chief Executive Ian White said the board is still negotiating with other handlers. Privately owned Richardson International Ltd, the second biggest handler, and Louis Dreyfus Corp LOUDR.UL are two notable companies without agreements.
“The more handling agreements we have, the more opportunities for farmers to deliver to the CWB, and therefore the higher opportunity for the CWB to get an increased market share.” White said at the Farm Progress Show in Regina, Saskatchewan.
Canada is the world’s biggest exporter of canola, spring wheat, durum and oats.
Viterra has agreed to be bought by Swiss-based Glencore International PLC (GLEN.L) in a C$6.1 billion ($5.9 billion) deal, pending Canadian government approval.
The deal between Viterra and CWB would still apply under Glencore’s ownership, Malecha said.
Reporting by Rod Nickel in Weyburn, Saskatchewan, and Aftab Ahmed in Bangalore; Editing by Viraj Nair; and Peter Galloway