When Does Marketing Grain to Canada Pay?

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Key insights:

  • The recently-announced US-Mexico-Canada Agreement (USMCA) includes provisions to eliminate automatic wheat down-grading for grain grown in the United States but marketed in Canada.
  • If approved, the USMCA could create new opportunities for northern US grain producers to market their wheat to Canada. However, the decision to actually do so would depend on at least three factors: prices offered in Canada versus the United States; USD-CAD exchange rates, and delivery costs.
  • A basic tool provided in this post allows US producers to obtain an initial assessment of the trade-offs and opportunities for marketing to Canada.

On October 1, 2018, a joint announcement introduced the US-Mexico-Canada Agreement (USMCA), which would replace the current North American Free Trade Agreement (NAFTA). The agreement is not yet law, which first requires its approval by the federal legislative bodies in each of the three countries, so significant uncertainty remains about its final language and/or whether it will actually be enacted. However, if the USMCA does clear the remaining hurdles, a small but important provision could open new markets for northern US grain farmers.

The provision—Section D1 in the Canada-US Bilateral Annex—would eliminate the current Canadian policy to immediately grade US wheat (even grain that is certified to be produced in Canada) at the lowest, feed-grade quality. The feed wheat grading can result in significant price discounts and may create non-tariff barriers to trade. The USMCA would require that US wheat is evaluated based on its actual quality, as long as the US wheat marketed in Canada is a variety registered by the Canadian Food Inspection Agency and Canadian Grains Commission. (It’s important to remember, however, that wheat delivered to Canada would still need to be a registered variety. Here is a listing of registered varieties for different wheat classes and other crops and specifically for Canada Western Red Spring. Thanks for the heads-up, Collin.)

This is, of course, good news for US producers, who would gain additional marketing opportunities in locations that may, for some, be closer than delivering to US facilities. However, it is important to consider additional factors that, despite the policy change, may affect decisions to deliver to a Canadian elevator rather than a US facility.

Three such factors—for which market data are relatively easily accessible and that are likely to affect every farm business deciding where to deliver its grain—include: (1) the price offered by a Canadian elevator versus the price offered by a US facility; (2) the USD-CAD exchange rate, because payment at a Canadian elevator will occur in Canadian dollars (CAD); and (3) the distance and cost to truck wheat to the Canadian or US elevator. There are certainly other factors (e.g., truck and driver availability; different driving regulations in Canada and the United States; hired driver and/or producers’ labor costs; ease with which trucks can cross international borders; among others), but these will vary across farm businesses and must be considered on a case-by-case basis when making the delivery decision.

The tool below can provide some basic insights about how the three marketing costs can alter the decision of where to deliver grain. By using the various sliders, you can see how the per bushel payoff at each elevator as well as the farmgate revenue for a semi-truck load.

 

Some notes and useful links for calibrating the model for changing market conditions:

  • Bushels to ship is based on a full semi-truck load of approximately 45,000 pounds (at 60 pounds per bushel).
  • Trucking costs per mile per truckload are calculated based on information in the USDA AMS Grain Truck and Ocean Rate Advisory report for the most recent quarter (at the time of writing, the per bushel per mile rate was $0.005).
  • Wheat price estimates for Montana can be accessed using the MT Ag Prices tool (at the time of writing, I used a price of $5.20 per bushel for 13.5% protein hard red spring wheat). For specific locations, prices can be acquired by visiting a facilities website or inquiring directly.
  • Wheat price estimates for Canadian elevators can be acquired by visiting a facilities website or inquiring directly (at the time of writing, I used a price of 6.75 CAD per bushel of 13.5% protein hard red spring wheat at a Saskatchewan facility).
  • The current USD-CAD exchange rate can be accessed here (at the time of writing, the exchange rate was 0.77 CAD per 1 USD).

Tell us your experiences and approaches to determining where you deliver your grain. Do you see Canada as a viable market for delivering grain?

(Photo by Loco Steve is licensed under CC BY 4.0)

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About Author

Dr. Anton Bekkerman is an associate professor in the Department of Agricultural Economics and Economics at Montana State University, joining the faculty in 2009 after completing his PhD at North Carolina State University. Bekkerman's primary areas of research are grain marketing, basis and price forecast modeling, understanding how grain prices are affected by changes in supply chain infrastructures and quality demands, and analyzing the economic trade-offs of adopting alternative dryland cropping systems in Montana. One of his current projects is an investigation of how new grain loading technologies are affecting prices that Montana farmers receive for their wheat. Bekkerman is also examining the economic impacts that Montana's rapidly expanding dry pulse industry will have on the state's crop industry. Although Bekkerman grew up on the east coast, he has recently made a small step toward production agricultural after acquiring three backyard chickens.