Wheat for $2.61 a bushel, Chevy Impalas for $12,511 each

That's what you'd get if you applied the WCS differential discount to other products

Among the several reasons I did not take after my father and grandfathers before him as a farmer was this little thing called $2 wheat.

When I came of age in the 1990s, wheat that went for $2 to $3 a bushel was a very real thing, and a very real way for people to go bankrupt. Many did. In recent years, farming in Saskatchewan has actually been profitable for the most part, with the exception of the current never ending harvest. That’s in part because the price of wheat hasn’t been in the dumpster.

Last week I took the heavy oil price differential narrative and turned it on its head. I put it in the perspective of applying the discounts heavy oil was getting to other commodities.

West of the Battlefords is heavy oil country. Slowly over the years, the oilpatch has crept towards the Battlefords, a few miles at a time. So I pulled up the grain prices from the Cargill terminal at North Battleford, and applied the discounts heavy oil was getting on that day, Oct. 9, to wheat, canola and soybeans.

On that day, Western Canadian Select (WCS) was trading at US$28.84 per barrel, $45.50 less than the US$74.34 per barrel West Texas Intermediate (WTI) had been demanding. The discount amounted to 61.2 per cent. A few days later, when I was speaking to Premier Scott Moe in Estevan, the discount had risen to 71.1 per cent, or US$50.50. But let’s work with the 61.2 per cent value for argument’s sake.

If those same discounts were applied to various agricultural commodities at Cargill, North Battleford, red spring wheat would fetch $96.11 per tonne instead of $247.75, when compared to the WCS/WTI discount. The Brent discount, applied to the same wheat, would result in a price of $84.90 per tonne.

I’m still old school, so I think in bushels. That means wheat was getting $6.74 per bushel, but if the 61.1 per cent discount applied, is would be getting $2.61 per bushel. With the Brent discount applied, wheat would be $2.31 per bushel.

In other words, $2 wheat, all over again. No farmer wants to ever go back to that again, and no oilman should want to see oil trading for next to nothing again, either.

When oil prices were depressed worldwide, it was somewhat understandable that WCS was getting beaten down. But as oil prices have rebounded, being the last kid picked for the team, so to speak, is a little hard to take.

For Saskatchewan, if this discount was applied on an annual basis, Premier Moe told me on Oct. 13 it would cost us $500 million in taxes and royalties to the province, and $7.4 billion to the economy. He’s had to revise that number several times in the last six weeks. It used to be $200 million. Then $300 million. Now it’s $500 million. That is an enormous amount of money we are leaving on the table.

Let’s apply this discount to something a little more important to Ontario than the price of wheat, like the price of Chevy Impalas.

Why, you might ask? Because President Donald Trump did the very same thing a few weeks ago, when he spoke “off the record” to Bloomberg News about NAFTA negotiations. They soon became on the record. He said, “Off the record, Canada’s working their ass off. And every time we have a problem with a point, I just put up a picture of a Chevrolet Impala.”

Macleans noted that “This full-size sedan has been one of Chevrolet’s most iconic and best-selling models and a staple of the Canadian automotive manufacturing sector for the last half-century.”

They added the car, assembled in Oshawa, Ont., retails for $32,245 and up.

Trump had threatened to apply a 25 per cent tariff to Canadian-made cars, and it had us trembling. Here, we’re taking a 61.2 per cent differential on our oil.

So what does an Impala go for, with a 61.2 per cent discount? A measly $12,511 each. In other words, the same price I paid 20 years ago for a brand new 1998 Geo Metro.

GM wouldn’t be making cars in Canada with a 25 per cent tariff, yet that much of a cut would be wonderful compared to how we’re getting beaten on heavy oil.

The original plans for both the Northern Gateway and Energy East pipelines would have had them in service, today. If they had been built, on time, these headlines would not exist today. But they do. And we are all much, much poorer as a result. And it’s money once lost, is lost forever.

Thank you, Prime Minister Trudeau. You got marijuana through by now, but not those pipelines. I wonder which would have paid the bills?

 

Brian Zinchuk is editor of Pipeline News. He can be reached at brian.zinchuk@sasktel.net.

© Copyright 2018 Pipeline News

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