Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

February 28, 2005

Dismal new crop price predictions
As feared, the first Pool Return Outlook or PRO for the new crop year is not encouraging. The Canadian Wheat Board expects the prices for wheat, durum and barley will be even lower in the crop year ahead. After deducting average Saskatchewan freight and handling, the price of No. 1 CWRS wheat with 12.5 per cent protein is expected to drop from $3.80 a bushel in the current crop year to about $3.60. A lot of producers are holding onto their feed wheat in the hope of better prices, but if the CWB projections are correct, the export price of feed wheat through the board will drop a bit, rather than improving. On durum, the Saskatchewan value for No. 1 with 12.5 per cent protein is expected to drop from $4.30 a bushel down to about $4.00 even. The top grade of two-row malting barley is expected to total about $2.60 a bushel in the current crop year. The PRO for the upcoming crop year is almost 20 cents a bushel lower. Here’s hoping for some surprises in the marketplace to turn these gloomy predictions around. I’m Kevin Hursh.

February 27, 2005

Agri-Retailers speak out
It’s great to see the Canadian Association of Agri-Retailers becoming proactive in its communications. The CAAR annual convention earlier this month in Winnipeg was used as a platform to launch a public information campaign. Evidence of the change in approach came last week when CAAR issued a news release expressing its pleasure over the results of the reevaluation of 2,4-D. This long-time broadleaf herbicide is one of the most commonly used products for both lawns and crops. Health Canada’s Pest Management Regulatory Agency has determined that 2,4-D presents no unacceptable risk to human or environmental health. In its news release, incoming CAAR president Bob Evans said, “The scientific data put forward over the past thirty years consistently indicates that when used properly, pest control products do not endanger people or the environment.” Evans is with Gates Fertilizers in Nipawin. He goes on to say that we should be singing the praises of 2,4-D for what it, and products like it, have done for us over the years. Agri-Retailers are finally speaking up on these issues. I’m Kevin Hursh.

February 24, 2005

Dairy quota values strong despite BSE
Economic consequences are not always as expected. The BSE crisis has had a negative effect on the income of dairy farms, but it has actually put upward pressure on quota values – the opposite of what you would expect. The price of cull cows has dropped dramatically due to BSE, particularly cull dairy cows. The dairy industry has also been hurt by the loss of the American market for breeding stock. Replacement heifer prices have dropped by more than half. When you talk to dairy farmers, they’ll tell you that despite the regulated price for milk, their incomes have been hurt. Amazingly, the value of dairy quota has been steady to stronger across the country. Depending upon the province, the dairy quota corresponding to one cow’s production is running in the range of $20,000 to $30,000. Rather than sell replacement heifers at a loss and rather than selling all of their older, but still productive cows for next to nothing, many producers have opted to buy a bit more quota so they can have more animals producing. Despite reduced returns in the dairy business, quota values are stronger than ever. I’m Kevin Hursh.

February 23, 2005

Reversal in fortunes for PFRA
One of the items in the federal budget is $5 million to examine how the services of the PFRA can be spread across the country. This would seem to signal a major reversal in policy direction. The Prairie Farm Rehabilitation Administration has helped prairie farmers adopt sustainable practices and technologies for more than 60 years. However, in recent years, the PFRA has been disappearing within the bureaucracy of Agriculture Canada. Now, there’s a study on how to make the PFRA a national resource. In these times of climate change and water issues, it would seem to make sense to expand the existing PFRA mandate, rather than creating something from scratch. You have to think Ralph Goodale is a supporter of this idea. A number of years ago, Goodale was instrumental in moving the head office of Farm Credit Canada to his hometown of Regina. Now there’s money in his budget for an examination of expanding the role of the Regina-based PFRA to the rest of the nation. You wouldn’t think that $5 million would be spent studying the idea unless it had a strong chance of being approved. I’m Kevin Hursh.

February 22, 2005

Growing demand for halaal beef
Unknown to most cattle producers, a new and growing market for beef is emerging. Canada’s growing Muslim population prefers to buy halaal beef. Faiz Jamil, a journalism student from Calgary explained halaal to me and he put the size of the market into perspective. Halaal involves cutting the animal’s throat while reciting religious text. The animal must have been fed only a plant-based diet. Jamil says religious leaders in Calgary and Edmonton are making regular trips from their religious houses to slaughterhouses, to meet growing demands for halaal beef and as well as chicken. In Calgary alone, there are an estimated 50,000 Muslims. The number is far higher in Toronto, making up 5 per cent of the city’s population. Jamil says Toronto has the highest concentration of Muslims in North America. Across Canada, there were approximately 750,000 Muslims in 2003, an increase of 23 per cent in just two years. International prospects are also being explored. Canada’s Muslim population can provide both the religious authority needed, and the ties to markets overseas. I’m Kevin Hursh

February 21, 2005

New Pool will likely look the same
Monday’s decision by a majority of Saskatchewan Wheat Pool delegates signals the beginning of a new era for the organization. As the share structure is revamped, the end of farmer control is near. Many pundits have speculated about a takeover of the Pool now that the 10 per cent cap on ownership will be removed. Unless that happens, farmer customers are unlikely to notice any substantial changes in the company. Sask Pool has long been making business decisions with the best interests of the company in mind. Like other grain companies and farm input suppliers, it has to serve its customers in order to compete. There was a time when out of loyalty, a significant number of producers would go out of their way to do business with the grain company in which they had a stake. That kind of blind loyalty hasn’t existed for a long time. The Pool has to earn its customer base just like everyone else. Even without a farmer majority on the board of directors, the Pool will still be a leading player in the Western Canadian grain industry. It will continue to compete for the business of farmers. In short, it’s likely to be business as usual. I’m Kevin Hursh.

February 20, 2005

Accelerated conversion to RFID tags
The Canadian Cattle Identification Agency says as of September 1, 2006 all cattle leaving their herd of origin will need an approved Radio Frequency Identification ear tag. The agency had wanted January 1 of 2006 as the date, but a lot of producers reported problems getting RFID tags for this year’s calves. With the September date, most of the 2005 calf crop should be cleared out of the system before the deadline. In order to accommodate cattle with bar coded tags that leave their herd of origin before September of 2006, bar coded tags will continue to be recognized until at least December 31 of 2007. While bar coded tags are no longer being manufactured, the tags can still be sold and producers can continue to use them. The overall message is clear though. This is the last year producers will want to use bar coded tags. The RFID tags provide efficient trace back and age verification. With the conversion dates now decided, the new tags will soon be the norm in Canada. I’m Kevin Hursh.

February 17, 2005

Saskatchewan farm income goes from bad to worse
Prince Edward Island, Manitoba, Ontario and especially Saskatchewan. Those are the provinces expected to have a negative realized net farm income this year. The Saskatchewan numbers are by far the ugliest. Livestock receipts are expected to increase a bit, but not enough to offset the drop in grain receipts. Program payments are expected to drop a bit and operating expenses are going up a bit. The result is a forecast for realized net farm income of negative $486 million. This comes on top of a negative $166 million for 2004 and a negative $264 million in 2003. The situation is far different in neighbouring Alberta, where the opening of the U.S. border to live cattle is expected to dramatically increase livestock receipts. Alberta did have a bad year in 2003 but there was a big rebound in 2004 and the forecast for 2005 is a rosy $1.1 billion. That’s a positive $1.1 billion in Alberta and a negative $486 million in Saskatchewan. Those who say Saskatchewan doesn’t need more intensive livestock operations and irrigation should take note of the numbers. I’m Kevin Hursh.

February 16, 2005

CAIS deposits should be axed
Which governments support the requirement for CAIS deposits? When pressed to drop the deposits, federal Agriculture Minister Andy Mitchell says the Canadian Agricultural Income Stabilization program is a federal - provincial agreement. He says changing the deal requires the support of the federal government and at least seven provinces. Saskatchewan’s Agriculture Minister Mark Wartman is apparently on side. In fact, Wartman says he’ll raise the issue at the next national Agriculture Ministers meeting on March 3 and 4. So who is standing in the way and why? If the deposit requirement remains, farmers participating in CAIS will have to put thousands of dollars and even tens of thousands of dollars on deposit by the end of March. For grain producers, this will exacerbate cash flow problems in advance of spring seeding. And for what? Dropping CAIS deposits won’t cost governments anything. No one seems to have a viable reason for the deposits, save for some vague notion that it demonstrates farmer commitment. The accountant bills farmers have to pay should be commitment enough. Here’s hoping for some clear thinking at the upcoming Ag Ministers meeting. I’m Kevin Hursh.

February 15, 2005

CWB launches Daily Price Contract
It’s been a long time coming, but the Canadian Wheat Board finally has a range of pricing choices that approximate what would be available in a dual market. The newest product is a Daily Price Contract. Producers will be able to choose a price for their wheat based on a daily cash price derived from U.S. elevator prices. Some farmers have long wanted to truck their wheat into the states to take advantage of prices that can be higher than CWB pooled prices. The Daily Price Contract is meant to capture that benefit for Western Canadian farmers no matter how far they are from the U.S. border. At least, that’s the claim. It’ll take some time to assess how well it works. The Daily Price Contract is a pilot for the upcoming crop year with a 500,000 tonne sign-up limit. The CWB’s pricing options can not make a silk purse out of a sow’s ear. No matter how you cut it, wheat prices are depressed. But with the Fixed Price Contract, the Early Payment Option, Basis Payment contracts and now the Daily Price Contract, there’s a lot of flexibility for producers to make their own marketing decisions while getting their money much sooner. I’m Kevin Hursh.

February 14, 2005

Maximizing CAIS payments
It’s not too late for many producers to use a little know option of the CAIS farm income stabilization program to improve their returns. The option is known as MAAO, the Modified Accrual Accounting Option. It could be especially useful for cattle producers who increased their inventory of animals. Tim Highmoor, an economist with the Western Beef Development Centre says in many instances the MAAO can increase the reference margin of an expanding livestock operation and therefore increase the potential for a larger support payment from CAIS. Producers wishing to re-file their 2003 reference margin using the option have 90 days to do so from the date at which CAIS issued them a Calculation of Benefits Statement. A person who works for the CAIS program confirms that some producers are losing out. This person doesn’t want their name used, but says a number of producers could significantly improve their 2003 payment with the option. The CAIS person says producers and accountants alike are missing out, sometimes leaving tens of thousands of dollars on the table. Did your accountant consider the Modified Accrual Accounting Option? I’m Kevin Hursh.

February 13, 2005

Paying the price for 2002
The 2002 crop year is still haunting the Saskatchewan Crop Insurance program and it will for a long time to come. The crop insurance premiums paid by farmers for coverage are going up an average of 9 per cent. Due to a favourable claim history, premiums will drop slightly in a few risk zones, but there will be dramatic increases in many zones. It would be different if not for the huge payouts in the 2002 drought year. Well over a billion dollars was claimed that year – more than $800 million above what was collected in farmer and government premiums. In 2003, payouts almost exactly matched premiums. Last year, due to the frost, claims were $335 million, about $43 million more than premiums. Until 2002, there was a nice surplus built up in the program. Since 2002, the program has been carrying a debt of over half a billion. When producers receive their individual crop insurance information in early March, there’s going to be a lot of disappointment over high premiums and low coverage. The low coverage is due mainly to the depressed prices for most grains. I’m Kevin Hursh.

February 10, 2005

Why not a canaryseed cartel?
As farmers, we often complain about our lack of power in the marketplace. For most commodities, that’s true, but there are a few grains where Saskatchewan dominates world production and exports. On those crops, by working together, we could raise prices. The best example is canaryseed. Dave Walker of Walker Seeds provided a market outlook at the annual meeting of the Canaryseed Association of Canada Thursday in Eston. On some commodities, low prices encourage extra consumption. Walker says that’s not the case for canaryseed which is used exclusively as a bird feed. About the same amount is used when prices are low as when prices are high. Currently canaryseed is only 10 or 11 cents a pound. We have a huge surplus of the crop in storage. If we all locked our bins and held out for 20 cents a pound, there would be just as much sold. Competitors like Argentina and Hungary produce only a small amount. Customers have to come to Saskatchewan. Canaryseed is a crop where we have the market cornered. Unfortunately, we never work together with any pricing discipline to take advantage of our monopoly. I’m Kevin Hursh.

February 9, 2005

Beef from older animals won't be crossing the border
You could see it coming. On Wednesday, U.S. Agriculture Secretary Mike Johanns confirmed that the American border will not be opening on March 7 to beef from cattle over 30 months of age. Fortunately, everything is still on track to open the border to live animals under 30 months. When beef for older animals was included in the rule for opening the border back in December, it raised some eyebrows. Canadian authorities had not expected this concession. As the weeks went by, the inconsistency was widely debated. Why would the U.S. accept beef from older animals, but not accept live older animals? American meat packers complained, pointing out that it would put them in a competitive disadvantage. The National Cattlemen’s Beef Association expressed its concern. So, it isn’t a big surprise that beef from older animals will be excluded. On the bright side, it appears that sincere efforts will continue to reopen the border to both older animals and beef from those animals and this may even include breeding stock. In the meantime, prices for cull cows are likely to remain severely depressed. I’m Kevin Hursh.

February 8, 2005

Improved prices and optimism in beef sector
Feeder cattle prices have been moving up dramatically. Beef economist Sandy Russell of Saskatchewan Agriculture says the main reason is increasing confidence that the American border will open March 7 as proposed. U.S. Agriculture Secretary Mike Johanns appears to be firm in his resolve despite opposition from groups such as R-CALF. The greatest price increase has been on light weight feeders. Steer calves in the 400 to 500 pound weight range are averaging $1.31 a pound. That’s up 19 cents a pound since the beginning of the year. Sandy Russell says the volume of feeder cattle hitting the market is likely to remain high and prices are expected to remain strong. Fed cattle prices have been holding relatively steady. There is some worry about a labour problem brewing at one of the major packers. However, there are some small profits being realized in the feedlot sector. That’s a welcome relief after the huge losses racked up since the beginning of the BSE crisis. Optimism is returning to the Canadian beef industry. I’m Kevin Hursh.

February 7, 2005

How low can wheat go?
For producers working on their seeding plans, here are the latest price and acreage predictions from Agriculture Canada. The price of top quality spring wheat in the upcoming crop year is expected to fall by about 50 cents a bushel. That’s amazing considering how low wheat prices already are. The durum price is forecast to stay about stable, but Ag Canada is warning about continued delivery restrictions on durum due to limited export demand. Oat acreage is expected to rise about 6 per cent and canola acreage is expected to fall about 6 per cent. Prices for both commodities are expected to stay about the same. That’s not bad for oats, but it’s not very good for canola. Since 2004 was a disastrous year for flax production, flax prices are at record levels. Ag Canada is calling for a 37 per cent increase in flax acreage with more than a doubling of production. That, in turn, is expected to cause a substantial price reduction. Barley acreage is expected to decline marginally, but prices for both feed barley and malting barley are expected to rise somewhat – making barley the only major grain in Western Canada where some price improvement is expected. I’m Kevin Hursh.

February 6, 2005

Escalating U.S. debt has ramifications
Published reports say U.S. President George Bush will propose a small cut in farm support payments in his upcoming budget. Why? Because the U.S. is drowning in debt. The total accumulated U.S. debt is more than 7.5 trillion dollars and it’s rising by nearly two billion dollars a day. Meanwhile the debt of the Canadian government is slowly being reduced. Some analysts are predicting major changes in currency values as the U.S. economy continues to borrow to support expenditures. Michael Levy of Custom House Foreign Global Exchange is predicting the value of the Canadian dollar will drop somewhat in the short term, but he believes the escalating American debt will cause a devaluation of the American dollar and therefore a rise in the Canadian dollar over the longer term. In fact, Levy is predicting that within an 18 to 36 month time frame, the Canadian dollar and U.S. dollar will be at par. The last time that happened was 1976. One wonders what will happen to agricultural trading patterns if the prediction is correct. I’m Kevin Hursh.

February 3, 2005

Powerful supporters for opening the border
There is a flurry of activity south of the border as the Americans argue over whether or not to open the border to Canadian cattle. U.S. Agriculture Secretary Mike Johanns answered questions before a Senate agriculture committee on Thursday. Under the current proposal, the border will remain closed to cattle over 30 months of age, but beef from older animals will be allowed. This contradiction was not lost on the senators questioning Johanns, but the U.S. Ag Secretary remains committed to the March 7 opening. Meanwhile, Tyson Foods issued a news release saying the temporary suspension of operations at some of its beef plants will continue. Operations were suspended January 10 at two plants in Nebraska, a plant in Iowa and a plant in Idaho. A total of 2100 employees are affected. Tyson is the world’s largest processor and marketer of chicken, pork and beef. According to Tyson, the U.S. beef industry is out of balance with far more slaughter capacity than available cattle. “That’s why reopening the U.S. border to Canadian cattle is so important,” says the CEO of the giant company. While we hear a lot about the opposition, opening the border has some powerful supporters. I’m Kevin Hursh.

February 2, 2005

Low grain prices are an issue in Ontario
Low grain prices aren’t only a worry in Western Canada. Seven of Ontario’s major grain and oilseed groups have issued a call to their provincial government for an immediate $300 million grain market disaster payment. They say current corn and soybean prices have fallen below 25-year lows. What’s more, the contract prices for 2005 production are well below the cost of production. One of the crops with the worst forward price is soybeans. The fall delivery price is only $222 a tonne, more than $100 less than the estimated cost of production. Low prices for soybeans, corn and winter wheat in Ontario mirror the low prices of canola, barley, field peas and spring wheat here on the prairies. Prices are ugly and there aren’t many bright spots for the upcoming growing season. Ontario farm groups are showing some unity on the issue. There have even been some big farm protests in Ontario. That’s not the case in Western Canada. Farmers and farm groups here have not made low grain prices a top-of-mind issue with the general public. I’m Kevin Hursh.

February 1, 2005

Precipitation has been variable
How are we sitting for moisture in Saskatchewan? Has precipitation been above normal or below? There’s no simple answer. Maps published by the PFRA (www.agr.gc.ca/pfra/drought/drmaps_e.htm) show precipitation since November 1 has actually been below normal in most of the province. Regina and an area to the east as well as a pocket around Meadow Lake have had above normal precip since November. Much of the area north of Saskatoon has had near normal precip and that’s also true in many eastern areas including Yorkton, Weyburn and Estevan. But a big chunk of the grainbelt, most everything south of Lloydminster, North Battleford, Saskatoon and Melfort is below normal for rain and snow since November. The picture changes if you look at precipitation levels since the first of September. When you include fall rains, most of the northern grainbelt is normal to above normal for precipitation. An area around Swift Current and an area east of Regina are also about normal. The rest of the south and most of the east central region is below normal since September. How we’re sitting for moisture depends on where you look and what time frame you consider. I’m Kevin Hursh.

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