SOUTHBOUND CEREALS
BY GEOFF GEDDES • PHOTO COURTESY OF PASCALE SIMARD
Canadian cereals are a hot commodity south of the border, where the $3 billion U.S. market for this country’s cereals-based products is highly integrated. Despite the current trade climate in which tariff uncertainty has become the norm, this demand remains strong for a range of reasons.
“The U.S. is a key export market for Canadian cereals,” said Mark Walker, vice-president of markets and trade with Cereals Canada. “It is our fifth-largest market for wheat, second largest for barley and the No. 1 importer of Canadian oats.”
The U.S. numbers on barley are informative, but they don’t tell the whole story. “In 2022-23, the U.S. grew 3.7 million tonnes of barley and imported 500,000 tonnes from Canada,” said Jon Driedger, vice-president of LeftField Commodity Research in Winnipeg, MB. “The majority of barley that they buy from us is for malting. The next year, those numbers were four million tonnes and 300,000 tonnes, respectively. What we sell them is a small piece of their total, but it obviously fills a need.”
THE APPEAL OF WHEAT
On the wheat side, Canadian exports to the U.S. are more substantial. “Canada supplies 98 per cent of all wheat imports into the U.S, underscoring how American millers need Canadian wheat to meet rising domestic and international demand for wheat-based products,” according to Alberta Grains.
“We sold them 1.25 million tonnes of wheat, mostly hard red spring, in 2022-23, 1.48 million tonnes in 2023-24, and 1.72 million tonnes [as of late August] this year,” said Driedger. “That said, Canada exported about 19 million tonnes of wheat to all countries in
2023-24. The U.S. is an important market, but it is one customer among many.”
Canadian wheat appeals to the U.S. on multiple fronts. Apart from offering high glucan quality that meets the specific requirements of the American milling industry, Canada offers regional market variations. The latter gives purchasers in the U.S. access to a variety of blends across Canadian regions. This helps U.S. buyers cater to the diverse demands of their customers.
“We export a lot of finished and semi-finished products to the U.S., and that is critical for Canada’s wheat sector,” said Walker.
MALT MATTERS
The availability and high quality of Canadian barley also give it appeal south of the border. “The processed malt we send to the U.S. accounts for about 15 per cent of their total needs for the brewing sector,” said Peter Watts, managing director of the Canadian Malting Barley Technical Centre (CMBTC) in Winnipeg, MB .
In addition to consistent supply and quality, there are fewer logistical challenges for U.S. buyers in the purchase of barley from their immediate neighbour to the north. With the unsettled state of Canada–U.S. trade, the integrated supply chain that exists between the two nations has been a hot news topic, and for good reason.
“The Canadian malting industry has a longstanding relationship with their American counterparts, from large operations to small craft brewers,” said Watts. “Those connections develop over time, and our malting companies produce specific products that those customers desire.”
Each year, American brewers and malting companies plan their business operations 12 months in advance, which includes securing sources for the raw materials they need. To have multiple options is vital to business risk management, and Canadian supply options are a big piece of this puzzle. “Ag products are subject to the vagaries of weather, so when the U.S. has a challenging harvest for malt barley one year, they can look to Canada with confidence,” said Watts.
LOGISTICAL LOGISTICS
Logistics is a key component of North American cross-border integration. Processed malt moves to American buyers mostly by rail, usually on a route that appeals to the end user. “If there is a nice rail line from a plant in Winnipeg or Calgary or Saskatoon to the U.S., the product becomes even more valued by American companies, as they can source what they need easily and competitively,” said Watts.
While Canadian cereals have not been a direct tariff target, they have nonetheless felt the effects of ongoing trade tension. Fallout includes changes to the cereals trade relationship and the Canadian approach to marketing into the U.S.
“It has certainly felt like a trade war at times,” said Walker. “Fortunately, Canada’s ag products are CUSMA [Canada–United States–Mexico Agreement] compliant, and those are not tariffed.”
THE WAY WE WERE
The long-term trade relationship between the two nations has shown strain. “I used to hear from people that the U.S. was the most straightforward market we could sell to, but that is no longer the case,” said Walker.
It is commonly held that the biggest downside of the trade fight is lack of predictability. “The worst impact is uncertainty,” said Watts. “This makes it hard for companies on both sides of the border to plan purchases too far in the future. People are basically buying hand to mouth, as they just don’t know what will happen.”
Although the lack of certainty has not affected cereal volumes moving south, it has led to increased transaction costs for both countries. “Canadian grain exporters never needed customs brokers in the past, as the sales process to the U.S. just worked,” said Walker. “This year, in the months following Trump’s inauguration, people were scrambling to get that assistance from brokers. They have also spent a lot of time and resources checking in on supply chains to reassure them. That was never a thing until now.”
On the bright side, U.S. commercial demand for Canadian crops and ag products remains strong, at least for now. “One importer told me that ‘Canada is where oats come from; nobody has oats like Canada,’” said Walker. “Going forward, we will have to see what comes from negotiations, and whether the goalposts move again.”
BRACE FOR IMPACT?
If the Canada–U.S. relationship further sours, Walker foresees increased costs for both countries that will hurt consumers. “Ag tariffs would mean higher prices for breakfast cereals, breads, pastas and such, all of which are staple foods. With inflation rising in the U.S., we want to be there to help keep grocery costs down for Americans and boost food security.”
In the meantime, organizations such as Cereals Canada feel a sense of urgency, and have redoubled their efforts at market development and diversification in the Asia-Pacific region while working to maintain strong ties with the U.S.
“To date, for the most part, we haven’t seen ag products impacted by tariffs, or any trade disruption for crops,” said Watts. “I am cautiously optimistic that, given the importance of trade in cereal grains between the two countries, our industry may be spared the effects seen in sectors like steel, aluminum and automobiles.”
Still, it’s worth noting that even a 10 per cent tariff would create massive trade woes for Canada’s ag sector. “I am crossing my fingers that we’ll be able to maintain our trade in crops without tariffs,” said Watts. “The alternative would cause significant damage and impair our ability to supply the U.S. market in a competitive way.”
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