Wheat buyers fret as Canadian grain monopoly ends

WINNIPEG, Manitoba (Reuters) - Global wheat importers fear the quality of Canada’s prized spring wheat and durum may deteriorate once the Canadian Wheat Board loses its marketing monopoly, creating problems for makers of breads and pasta.

An ear of wheat is seen on the Canadian prairies near Lethbridge, Alberta, September 7, 2011. REUTERS/Todd Korol

A broad swath of wheat buyers, including Japan, known as the most quality-conscious wheat importer, has raised concerns that the consistent, top-quality wheat they have long bought from Canada may not be the same in the open market system, said Rex Newkirk, director of research and business development at the Canadian International Grains Institute (CIGI).

Canada is the world’s biggest exporter of spring wheat and durum wheat.

“We trust Canadian wheat, so if we didn’t have the quality we’ve had, it would be a catastrophe for us,” Miguel Montalban, production manager of the Harinera La Espiga mill in Mexico City, told Reuters through an interpreter.

The Wheat Board has held a marketing monopoly over Western Canada’s wheat and barley for export or human consumption for 69 years, but it will on end August 1 under a new Canadian law.

Wheat buyers will then buy Canadian wheat directly from grain handlers such as Glencore International PLC, assuming it completes its takeover of Viterra Inc this summer, Cargill Ltd and Richardson International Limited.

Eight Latin American wheat buyers, including Montalban, attended a week-long CIGI program in Winnipeg to study the properties of Canadian wheat.

The Wheat Board aimed to give farmers the highest possible returns, but also sought to keep buyers’ loyalty by at times delivering better-quality grain than it was getting paid for, Newkirk of CIGI said.

“The concern (of millers) is that when grain companies are selling now, what they might do is sell everything to the lowest end of the grade,” he said. “The grain companies are going to want to keep those buyers happy, so I don’t think they’ll intentionally sell them the bottom of the grade, but ... there’s going to be a bit of a push and shove for a bit.”

CIGI is an independent market development institute funded by farmers, the grain industry and Canadian government.

At least two private grain marketers -- the Canadian arms of French grain trader Louis Dreyfus Corp and German trader Toepfer International -- have publicly said that Canada should grow more mid-quality wheat in light of stiff competition from the Black Sea region and elsewhere.

Canada’s grading and variety registration systems will remain in the open market, but handlers could encourage farmers to plant more varieties designed to maximize yield at lower quality by narrowing their price discount to top-shelf wheats.

If top-quality Canada Western Red Spring Wheat becomes scarcer, Montalban’s mill in Mexico would have to reluctantly buy U.S. spring wheat that it considers inferior, he said.

The Pastas Capri C.A. mill in Venezuela relies on up to 80,000 tons of Canadian durum annually.

“We are very tied to Canadian wheat,” said mill manager Freddy Rivas. “We’re concerned about availability in the future, and quality. We want to know that we can count on that.”

The solution lies in millers and wheat exporters clarifying up front exactly what specifications they need, from protein content to the level of disease presence, as buyers already do to source U.S. wheat, Newkirk said.

“We can still provide a reliable product, we just need to make sure we clearly understand each other.”

Reporting by Rod Nickel in Winnipeg