Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

September 30, 2005

Have a marketing plan
Some crops are difficult to sell at any price this fall. For instance, if you have a lower grade lentil, no one wants it right now. This, despite lentil prices being at historical lows. Canola has slipped to not much over $5 a bushel. It’s been a long times since canola has been that low. Flax prices are much better than canola prices, but flax has been slipping and as more of the crop is harvested. The price probably doesn’t have much upside potential in the near term. A number of market analysts are advising producers to think return per acre rather than getting hung up on the price. Even with such low prices, there are many producers who are going to show a profit per acre simply because they had very good yields. There’s a huge crop to move to market. Many of the prices are unlikely to show significant improvement for a long time. There’s a danger, say the analysts, that marketing opportunities will be missed. It’s important to have a plan with realistic target prices. And when your target price is available, it’s important to make the sale and take advantage of the delivery opportunity. I’m Kevin Hursh.

September 29, 2005

U.S. pulse crops investigated
Saskatchewan Pulse Growers has launched an investigation into American lentils and peas flowing into Canada. There are many pulse growers on this side of the border who would like to see countervailing and anti-dumping duties applied. Corn growers in Canada have set the wheels in motion to get duties on that crop. Substantial duties are widely anticipated before the end of the year. Just like corn, American lentils and peas receive heavy subsidies and the subsidies are encouraging expanded acreage. There is one major difference between corn and pulse crops. U.S. corn is flowing to Canadian end-use customers, specifically hog operations, cattle feedlots and ethanol plants. American peas and lentils are flowing to Canadian processing plants for re-export around the world. It’ll be interesting to see what the Saskatchewan Pulse Growers finds in the course of its investigation. How many American peas and lentils are being sold to Canadian processors? Is the availability of American product hurting Canadian prices? Is a trade action warranted? Stay tuned. I’m Kevin Hursh.

September 27, 2005

Early Payment Option helps cash flow
Initial payments for CWB grains are very low. For that reason, producers are turning to the Early Payment Option in droves. On spring wheat, you can get 100 per cent of the Pool Return Outlook for a cost of $12 a tonne. That’s quite expensive. The 90 per cent option on spring wheat costs $3.25 a tonne, while getting an early payment at the 80 per cent PRO level costs only 50 cents a tonne- just over a cent a bushel. On durum, an 80 per cent Early Payment Option is available for 75 cents a tonne. The 90 per cent level on durum costs $4.50. On malting barley, most producers are choosing the 90 per cent option at a cost of $1.25 a tonne. Some producers are wary of the Early Payment Option because it looks too good to be true. However, the only downside is the premium or discount you pay. The Early Payment Option actually provides downside protection in case prices fall. If prices rise, you still participate in the increase. Hopefully, the federal government will eventually raise initial payments. In the meantime, consider the Early Payment Option as a way to get a lot more of your money up front on wheat, durum and malting barley. I’m Kevin Hursh.

September 26, 2005

Dry and warm October needed
It’s nearly October and the provincial harvest has just passed the half way mark. A long, open fall is needed or there could be a lot of crop left out over the winter. At 80 and 81 per cent complete, south eastern and south western Saskatchewan are in a lot better position that other regions of the province. Saskatchewan Agriculture says the west central region is at 31 per cent complete, which means there’s a lot of chewing left. In the north east, combining is only 24 per cent done and the crop report says some areas need at least two weeks of dry weather before they can resume harvest operations. The north west is the furthest behind at only 20 per cent. I toured around the Lloydminster area on the weekend and you don’t see many fields that have been combined. The crop report says many producers in the north west have yet to start a combine. With the low price of grain and the high cost of natural gas and propane, producers are not anxious to spend money on grain drying. Sometimes there’s lots of good harvesting weather in October. Here’s hoping this is one of those years. I’m Kevin Hursh.

September 25, 2005

No silver lining in poor crop quality
Quality concerns due to the delayed harvest haven’t done a whole lot to help the prices of Canadian Wheat Board grains. In the latest Pool Return Outlook released last week by the CWB, it was noted that North American supplies of high-grade spring wheat have tightened substantially due to the adverse harvest weather in the western Canada as well as vomitoxin problems in the U.S. The PRO for No. 1 CWRS wheat with 14.5 per cent protein is up by $12 a tonne as compared to last month. That’s a nice increase, but on No. 1 with 13.5 per cent protein, the increase is only $5 a tonne. The expected price on a No. 3 CWRS is still the same – just over $3 a bushel. On durum, the strengthening Canadian dollar and pretty good quality in the American crop means a PRO that’s $2 to $4 a tonne lower than last month. The expected price for No. 3 durum is $3.19 a bushel. In designated barley, supplies in western Canada will be reduced due to the harvest weather. However, the strength of the Canadian dollar and expectations for a good Australian crop are more than offseting the smaller western Canadian supply. The PRO on two-row malting barley has dropped by a dollar a tonne and now sits at $2.44 a bushel for the top grade. There doesn’t seem to be much of a silver lining to our crop quality problems. I’m Kevin Hursh.

September 22, 2005

Lentil disappointment
The prices for nearly all grains, oilseeds and specialty crops are depressed right now, but perhaps the biggest price disappointment is on green lentils. As producers evaluated cropping options this spring, lentils were one of the few crops that seemed to pencil out. That’s not the case anymore. The price of large green lentils is as low as anyone can remember. CGF Brokerage and Consulting in Saskatoon estimates that 80 per cent of the large green lentil crop will fall into the number 2 grade. The price for a number 2 is about 10 cents a pound. Even at that low price, it’s tough to make a sale. Bids and movement are extremely slow. A large volume of lentils was carried over from last year. This year, Saskatchewan farmers have produced a monster crop. Over two million acres were seeded and yields are generally very good. There’s a mountain of lentils sitting in farm storage. We’re the largest green lentil exporter in the world and we’ve overproduced what the market can use. Buyers around the world are sitting back, thinking prices might get even cheaper. For the thousands of farmers in the southern grainbelt who rely on green lentils to generate some fall cash flow, the crop is a major disappointment this year. I’m Kevin Hursh.

September 21, 2005

Use falling number to assess sprouting damage
The Western Canadian Wheat Growers Association wants regulatory changes that would allow wheat deliveries to be graded on the basis of falling number. Falling number is a test to assess sprouting damage. It’s more objective that counting sprouted kernels. The Wheat Growers say no grain company should be required to grade on the basis of falling number, but those companies willing to invest in the technology and who are confident they can manage the risks, should be allowed to compete for increased business from farmers by using the falling number test. There’s going to be a lot of sprouted wheat this year. Some of it that visually grades as feed, might make it as a number 3 based on a falling number test. That’s a big difference in value. The Wheat Growers Association is in agreement with the Canadian Wheat Board on this issue. Back in April, the CWB put forward a proposal to have falling number grading introduced on a voluntary basis. The Western Grains Standards Committee did not accept the proposal. The Wheat Growers have written a letter to the Canadian Grain Commission and they’ve gone public with their concerns. It’s an important issue and it’s good to see the Wheat Growers Association working on it. I’m Kevin Hursh.

September 20, 2005

Education taxes on farmland still a huge concern
Everybody’s numbers will be different, but after comparing my farmland property tax bills from this year to last year, I’m not all that impressed by the provincial government’s credit on education taxes. My farm is situated where three rural municipalities join, so I pay land taxes in three different RMs. Overall, the municipal portion of the tax bill has gone up just slightly. The 8 per cent credit being provided by the province on education taxes this year amounts to just over $400 on my tax notices. However, the school tax bill has increased by more than $200 from last year. The net result is only a $200 reduction in school taxes. The municipal side of the bill averages $228 a quarter section. That’s a pretty good value for roads and culverts. The school tax bill, even after the rebate averages $482 for each quarter section. Why are farmland owners saddled with such a huge burden? What sense does it make to fund education through property taxes? A one-time 8 per cent credit just doesn’t cut it. The education tax on farmland needs to be reduced dramatically and permanently. I’m Kevin Hursh.

September 19, 2005

Costly quality losses
As harvest gradually gets back on track, the big question is crop quality. The latest crop report from Saskatchewan Agriculture says only 38 per cent of the province’s barley has been combined. You have to think that what’s left in the field is going to have a tough time making malting quality. An estimated 49 per cent of the durum crop has been harvested. Maybe there’s some number two left in the field, but a lot of it is likely to be a number 3 with a significant amount falling to a number 4 or maybe 5. Only 25 per cent of the spring wheat crop has been harvested. A lot of what’s in the bin isn’t going to make number one according to crop reporters. Of the 75 per cent remaining in the field, there’s no doubt everything from a number 2 all the way down to feed grade. With a large amount of frost damaged low quality wheat held over from last year, the last thing anyone needed was another slug of feed wheat. Hopefully, a lot of the wheat can at least hold a number 3. The expected price for a number 3 through the CWB is about $3 a bushel once freight and handling is deducted. That isn’t great, but it’s a heck of a lot better than feed wheat. The export price of feed wheat is expected to total only $1.72 a bushel – a money-losing proposition no matter how good your yield is. I’m Kevin Hursh.

September 18, 2005

Investigation into U.S. corn imports
Upon the request of corn grower associations in Ontario, Quebec and Manitoba, the Canada Border Services Agency has initiated in investigation into U.S. corn coming into Canada. Corn growers say the American product is heavily subsidized and is being dumped into Canada. They’re confident the investigation will lead to substantial anti-dumping and countervailing duties by the end of the year. Farmers and farm groups across the nation are divided on the issue. Hog and other livestock producers say a duty on American corn will hurt, driving up feed costs and making the Canadian livestock industry less competitive. Some of the Ontario ethanol industry is saying the same thing. On the prairies, the threat of American corn imports keeps a lid on feed barley prices. Some worry that if feed barley is overpriced as compared to American corn that feeder cattle and feeder pigs will flow south to where feed grain is cheaper. Others worry about American retaliation. While it’s easy to appreciate the concerns of Canadian feed grain users, corn producers have every right to challenge American imports. What good are trade rules if you don’t use them? The Americans certainly use every rule in the book and a few that aren’t in the book against us. I’m Kevin Hursh.

September 15, 2005

Increase in wheat and barley check-off
The research check-off on wheat and barley is going to be increasing a little bit starting at the end of the current crop year. The Western Grains Research Foundation is increasing the check-off on wheat from 20 cents a tonne to 30 cents. On barley, the check-off is going from 40 cents to 50 cents a tonne. The check-off is deducted from Canadian Wheat Board final payments and from producer payment option programs. With grain prices so low, no one likes to see more deductions. However, the wheat and barley check-off has been at the same level since its inception in 1993-94. Even with the increase, the check-off is less than a cent a bushel on wheat and just over a cent a bushel on barley. The rate increase was given unanimous support by the 18 member organizations of the Western Grains Research Foundation. That includes a large number of producer groups. Only about 6 per cent of producers have been opting out of the check-off. Hopefully producers will continue to participate even with the small rate increase. The check-off is a critical source of funding for the development of new wheat and barley varieties. Producer investment attracts public research dollars. I’m Kevin Hursh.

September 14, 2005

Potentially profitable crops
Most grain prices are ugly this fall, but there are a few crops where returns should be somewhat better. The price of flax has fallen a long way, but it’s still holding above $7 a bushel. That’s better than canola that has fallen to the $5.50 range. A good crop of flax at $7 plus may not provide a great return, but it’ll be better than a lot of crops. On canola, some of the better opportunities may come on the specialty varieties where there are some locked in prices and some price premiums. The specialty canola varieties typically have lower yields, but in many instances the price premium should more than make up that difference. It also looks like a good year for large kabuli chickpeas. After hitting a million acres a few years back, chickpea acreage crashed. This year, acreage is up a bit to around 150,000 acres. From the fields I’ve seen it looks like producers have managed to control disease this year and the summer has had enough heat to let the crop mature. Kabuli chickpeas are one of the only crops where prices have strengthened. Prices of 35 cents a pound are being quoted for the 9 mm size. With some success this year and with new varieties starting to come on stream with a bit of ascochyta resistance, I would expect chickpea acreage to continue edging upwards in the southern grainbelt. I’m Kevin Hursh.

September 13, 2005

Age Verification Website for cattle
The Canadian Cattle Identification Agency’s Age Verification Website is catching on. It has seen a dramatic increase in participation. As of Monday, 115,000 birth dates had been entered on the system. Most of those have been entered since June. The program allows producers to submit their cattle birth date data at www.canadaid.ca. The age is linked to the individual ID of the animal as established by the bar-coded or radio frequency ear tag. The industry is encouraging producers to do age verification. Some auction marts are planning age verified sales for this fall. Producers want to maximize market opportunities. Age verification can replace dentition, the examination of the teeth, as a way to determine age in animals being exported to the U.S. As well, Japan has indicated that it may allow the import of younger animals that have age verification. Data submitted is subject to a possible audit by the Canadian Food Inspection Agency, but the program is voluntary and free of charge. That website again is www.canadaid.ca. I’m Kevin Hursh.

September 12, 2005

Crop quality losses
The big rain on the weekend may affect the price and demand dynamics of some crops. Heavy precipitation hit southern Alberta as well as most of Saskatchewan. According to Sask. Ag and Food, 42 per cent of the durum crop in this province had been harvested prior to the weekend. Much of what remains to be harvested has probably lost a grade or more. Canada is the biggest durum exporter in the world, but it remains to be seen whether the top grades of durum will now appreciate in value. Thirty-five per cent of the province’s barley crop was harvested prior to the weekend. In the areas that got heavy rain, there probably won’t be much barley in the field that will qualify for malting. The same is true in southern Alberta. That may make malting barley more valuable while increasing feed barley supplies, but there are a lot of other factors also in play within the marketplace. Sask Ag says 72 per cent of the lentils have been harvested. The lentil crop is so big and demand is so slow that observers aren’t expecting a price bounce anytime soon, even if a quarter of the crop is downgraded. Sometimes bad harvest weather can create opportunities for the lucky few who have high quality product, but the losses always far outweigh any gains. I’m Kevin Hursh.

September 11, 2005

Heavy harvest rainfall
It’s a frustrating harvest for most producers. Southeastern Saskatchewan was spared over the weekend, but most of the rest of the province had heavy rainfall. There were amounts of one to four inches. Reports from around Englefeld, about an hour south of Melfort, indicate over 6 inches of rain during the weekend. That area also received extensive hail damage. Around Maidstone, in the northwestern grainbelt, producers have been struggling with wet field conditions ever since 6 inches of rain fell in the latter part of August. Swathers have been routinely getting stuck and very little combining has been done. Maidstone got another inch and a half over the weekend and that will only exacerbate the problems. The weekend rainfall is going to cause quality loss on crops like wheat, barley and durum. Producers hope that canola will be a bright spot. Canola and flax aren’t usually harmed by wet weather. With shortening days and the forecast for cool temperatures, it’s going to take a while before harvest can resume in most of the province. The stress level among grain producers is running high. I’m Kevin Hursh.

September 8, 2005

Grain piles, but no piles of cash
In the part of southwestern Saskatchewan where I farm, more and more grain is being dumped on the ground. Yields are good, grain sales are slow and there was a carryover of grain from last year. Lots of new grain bins have been purchased, but it still isn’t enough. As harvest proceeds, grain piles are sprouting up across the countryside. The harvest is most advanced in the southwest portion of the province. As harvest proceeds in other regions, the same trend is likely to hold true. I expect more grain piles than we’ve seen for a long time. Many producers have been hoping to sell some of their new production, but the system can’t accommodate everyone all at once. Trucks are in short supply and delivery opportunities are limited. Plus, prices are downright ugly. Number 2 large green lentils are worth only about 11 cents a pound. Yellow peas are at about $3.30 a bushel. Even at those low prices, many buyers are pushing deliveries into October and November. Forget about making room for incoming crop. Forget about generating some cash flow to pay some bills. It’s great to have such a big harvest that grain is piled on the ground, but producers are grain rich while being cash poor. I’m Kevin Hursh.

September 7, 2005

No insecticides registered for stored canola
I don’t know about you, but I’ve always assumed you could treat grain bins with the insecticide malathion and that it wouldn’t matter what kind of grain you stored in the bins. That’s not the case. The Canola Council of Canada has issued a memo telling growers it’s extremely important that bins are free of insecticide residues before storing canola. There is no insecticide registered for use in stored canola. The council says there have been cases in the past few years where malathion residues have turned up in shipments. A study is underway on the issue but it’s believed the malathion is coming from treated bins. The rule is if a bin has been treated with malathion, don’t fill it with canola. The Canola Council says insects are more likely to be a problem in stored canola if the seed is damaged or if there’s a lot of foreign material in the crop. Canola goes through a respiration period for the first 6 weeks of storage. Temperature and moisture content increases making conditions more favourable for insects. For long-term canola storage, it’s recommended that temperatures be less than 15 degrees and the moisture be under 8 per cent. I’m Kevin Hursh.

September 6, 2005

Fertilizer prices skyrocket
The price of urea fertilizer, 46-0-0, has jumped to $500 a tonne at a number of retail outlets. There has been a dramatic increase since seeding. A big chunk of that increase has come since Hurricane Katrina affected energy supplies. At $500 a tonne for urea, should we be buying fertilizer this fall? Usually fertilizer is cheaper in the fall than in the spring. However, it’s hard to imagine a lot of appetite for buying ahead. For one thing, bin space is going to be tight for a lot of producers. There’s also the issue of cash flow. Grain movement is slow and there are lots of bills to be paid in the fall. Plus, $500 a tonne will take some getting used to. Maybe fertilizer will be even more expensive by spring, but I expect a lot of producers will take that chance. There will also be a serious reevaluation of cropping practices. Pulse crops look more attractive as nitrogen costs skyrocket. Unless there’s improvement in grain prices, there may also be an increased interest in summerfallow. One of the few costs continuing to come down is generic glyphosate that can be used for chemfallowing. I’m Kevin Hursh.

September 5, 2005

Increased consolidation in beef packing
Cargill Limited has finalized its agreement to purchase Better Beef Limited based in Guelph, Ontario. The deal was originally announced on April 15. Better Beef was a significant Canadian player with 1700 employees. Cargill is saying the deal will be a benefit to everyone in the beef industry. Many others worry about the increased consolidation in beef processing. Two American firms, Cargill and Tyson now account for about 70 per cent of the nation’s slaughter capacity. The Competition Bureau examined the Better Beef deal, but did not stand in the way of the Cargill purchase. In addition to beef packing, the two major players also own cattle and they control many more than they own through supply agreements with feedlots. One wonders how much control is too much in the eyes of the Competition Bureau. You can’t blame the big companies. They’re just doing business. But it is unfortunate that the Canadian beef industry is emerging from the BSE crisis with ever dwindling market options. I’m Kevin Hursh.

September 1, 2005

Trade actions against American corn imports
Producer associations for corn in Ontario, Quebec and Manitoba have teamed up to attack what they see as unfairly traded U.S. corn coming into Canada. The action by Canadian Corn Producers is three-pronged. They want the Canadian government to add U.S. grain corn imports to the list of products targeted for retaliation because the U.S. has failed to repeal the Byrd Amendment that was declared illegal by the WTO. Canadian Corn Producers are also asking the federal government to commence WTO action against American corn. In a case initiated by Brazil on cotton, several of the major U.S. ag subsidy programs were found to violate WTO obligations. The same subsidies apply to corn. The third prong of the attack is a domestic trade complaint claiming injurious subsidization and dumping of American corn. Canadian Corn Producers are hopeful that countervailing and anti-dumping duties will be applied against U.S. corn before the end of the year. Even though Saskatchewan grows hardly any grain corn, the actions are significant for Saskatchewan producers. American corn imports often keep a lid on Canadian barley and feed wheat prices. I’m Kevin Hursh.

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