Pricing the border by truck and by rail
By Tim Kalinowski, Staff Writer
For most southern Alberta and Saskatchewan farmers the U.S. border is tantalizingly close. Not much more than an arbitrary line on a map really, when you think about it. And a higher U.S. dollar gives American grain companies a lot of buying power when it comes to setting their prices. So it is no surprise these companies are increasingly looking north to meet their quotas when they fall short, and it is equally unsurprising that Canadian farmers close to the border would be looking to sell south if the price makes sense.
“When grain companies in Montana and North Dakota are looking for durum, barley and other commodities they are willing to pay more than Canadian companies will pay. This makes it very attractive for farmers in this (south) region to sell there, ” explains Mark Hemmes, president of Quorum Corporation.
Quorum Corporation is in charge of the Grain Monitoring Program which provides independent tracking of all Canada’s grain movement through Canadian elevators and ports. In recent years, Quorum Corp. has had to expand the scope of this tracking to take into account an increase in cross-border grain sales by Canadian farmers to the northern United States, especially in western Canada.
According to Hemmes the evidence is clear: Exports from Canada to U.S. elevators in northern North Dakota and Montana were at 10 million tonnes in 2014/15, up dramatically from about four million a decade ago. That number still represents quite a small percentage of overall Canadian grain sales, but has been growing steadily year over year.
“You can see when the price differential goes up between Canada and the States, the volumes go up,” says Hemmes. “When that differential goes down, the volumes go down. Our own research basically confirmed what people were telling us: They are very closely watching the price north and south of the border.”
Looking over charts provided by Quorum Corp., the magic number which seems to trigger a cross border sale for south area farmers is a differential of about $2.00 a bushel.
But there are also other factors to consider. It’s not just about price, says Hemmes, it’s also about transport distance; as most grain exports into the northern United States, (primarily to elevators along the BSNF northern line), are taken across by truck.
“Another thing which drives this traffic is the difference between rail and truck,” he confirms. “When we compared the cost of moving something just on straight freight rate, the lines cross at about 330 miles; that’s when rail suddenly becomes cheaper than truck. If you allow 330 miles (from CP Rail mainline in southern Alberta) where does that take you in the U.S.? Well, interestingly, it takes you right along this (BSNF) line where all of that grain I was talking about is going to.”
He goes on to say it is not just Canadian farmers who have become aware of how close the Canada/ U.S. border is in making their marketing plans; so too have the American grain companies situated along that line. This can be easily be shown by a direct comparison between the number of elevators north of the border along the southern Alberta CP Rail mainline, (as it passes through Medicine Hat), and those immediately south of the border along that same stretch.
“There is about 12 elevators along that stretch in the United States, and that is about how many elevators you will find along CP in that same stretch on the north side of the border,” explains Hemmes. “There have been at least two new elevators constructed along that stretch in the past few years.”
While most of this cross border trade goes by truck, Hemmes likes to consider the future possibility of shortlines, such as the newly minted Forty Mile Rail Line in southeast Alberta and the long-established Great West Rail line in southwest Saskatchewan, increasing their cross border linkages to make this traffic south even greater. This could open new arteries for Canadian grain not dependent on the CPR and CNR.
“I think with Canadian grain movement the Canadian grain industry is moving into a different time. I think we are going to see some considerable growth and see some new things happening. There are a lot of opportunities for grain from Canada to move into the U.S. markets. Both grain trucking and rail are going to be an opportunity for anybody moving into these markets, depending on what the destination and what the distance is,” says Hemmes.