Poor weather conditions have dramatically reduced Canada's production of grains and oilseeds this year and resulted in a lower-quality crop.
At the same time, prices for wheat, corn, barley and soybeans are much lower than last year, resulting in much lower projected earnings for farmers.
Last year was a record year for wheat production, with about 37.5 million tonnes, a 38 per cent increase from 2012. Most of the durum wheat crop was of highest quality and the sheer volume that had to be shipped caused friction with the railways.
This year, total wheat production is expected to fall 27 per cent to about 27.5 million tonnes, according to Statistics Canada.
Farmers are on track to meet or exceed historic average yields, according to Harry Brook, a crop specialist with the Alberta department of agriculture, but the grade of wheat produced will be much lower.
Quality is the issue
"It's the quality that's the big issue," Brook told CBC News.
A snowfall and hail in September created poor conditions for farmers at a time when the wheat had to dry in preparation for harvest.
"The problem was the cool, damp conditions. When there was snow in Alberta in September it squashed the crop close to ground. And then the weather warms up and there's water on the ground and the grain starts to germinate," Brook said.
He said many farmers will be looking to sell their crop as feed because of the lower quality and that will hurt their income.
On the other hand, it's good news for livestock producers, who will be buying feed. They are seeing record prices for livestock.
Canola, corn and barley production is also on track to be substantially lower than last year, Statistics Canada estimated in early October. But soybean production could be up.
World prices fall
After hitting new highs in 2013, prices for canola, wheat and other crops have plunged, in part because of supplies left over from last year's record harvest in Western Canada, according to the latest commodity report from BMO.
An oversupply of corn and soybean production worldwide has led to a 34 per cent drop in corn prices and 25 per cent lower soybean prices than a year ago.
"Sharply lower corn and soybean prices have had big knock-on effects in other crop markets where yields were not as strong. The impact has been particularly evident in the canola market, where prices are down 22 per cent year-over-year despite a lacklustre crop, as a deluge of soybeans has poured into oilseed markets," BMO said.
Brenda Tjaden Lepp, chief market analyst for FarmLink Marketing Solutions in Winnipeg, said wheat prices have bounced off their lows of this summer, but prices are lower than normal because all commodities take direction from corn and soybean.
No consistent measure of quality
The biggest disadvantage farmers face this year is what Lepp terms a "structural concern" over the lack of a consistent mechanism to grade wheat.
With flooding in parts of Manitoba and a cool spring across most of the Prairies this year, many farmers there also have a crop that is not of top quality.
"Last year most of the crop was No.1 grade durum wheat. This year there is a very little of that," Lepp said.
She said farmers must go from one grain company to another to find out what price they can get for their wheat, but the companies do not use any universal standard.
"The quality of the wheat really matters a lot – there are a half dozen grading factors and it can make a big difference to the price farmers get. Just from one company to the next there is no consistency in how they grade the wheat," Lepp told CBC.
She estimated 10 to 20 per cent of farmers may be faced with selling their crop at less than the price of production.
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