Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

December 29, 2005

Issues to watch in early '06
Several national and international events early in the New Year are going to be important for the agriculture industry. An obvious one is the federal election on January 23. Who will win? Will it be a majority or minority government? Will the Bloc hold the balance of power? This will all have ramifications for farm policy development. Beyond politics, the grain industry will be watching weather conditions in other regions of the world. There are some concerns of dryness in South America that could help canola prices. The southern U.S., particularly Texas and Oklahoma is also dry and that could effect winter wheat production. It’s a sad commentary when we have to watch for bad news in other grain producing regions, but that’s about the only hope for any short-term grain price improvements. It’ll also be interesting to see what happens with the countervail that was recently placed on American corn. How much will this effect feed grain prices? How much will it hurt the Canadian livestock industry? Will more feeder pigs and feeder cattle move south to access cheap corn in the New Year? Final decisions on whether the corn countervail becomes permanent will come in March. I’m Kevin Hursh.

December 28, 2005

Little appreciation for $755 million
On November 23, in the dieing days of the Liberal government, a $755 million payment was announced. It was targeted specifically to grain and oilseed producers across the country. There were suggestions that the Conservatives would reevaluate this program if they formed the government. The recently released Conservative election platform clearly states that a Conservative government would continue with the assistance and make sure it reaches producers as quickly as possible. Despite support from both major parties, seldom has three-quarters of a billion dollars been so unappreciated. Grain producers, particularly those in Ontario say the money isn’t nearly enough. Producers of horticultural crops have also been lobbying for assistance, but they’re left out. It also appears the program will not provide benefits to producers who grow and feed their own grain. The discontent illustrates just how difficult it is to design farm programs. Governments can go with simplicity, but the distribution of the money may be questionable. Alternatively, as governments try to fine tune programs to treat producers in different regions and industries more equitably, there’s more paperwork, more administration and more delays. Farm safety nets are often a no-win situation for governments. I’m Kevin Hursh.

December 27, 2005

Farm safety net purgatory
You’d think after years of trying, we’d have farm income safety nets that are effective. Unfortunately, they always seem to be a work in progress. In their recently announced farm policy platform, the Conservatives are promising to drop the CAIS program in favour of “a simpler, more responsive program that properly addresses the cost of production, market revenue, and inventory evaluation.” If such a program can be equitable and affordable, while complying with world trade rules, let’s see it. Unfortunately, the Conservatives don’t have an actual program for farmers to scrutinize. If elected, they’ll soon find that it’s easier to promise than deliver. The devil with farm safety nets is in the details. In addition to a new income stabilization program, the Conservatives are promising to fund disaster relief separately. Sounds fine, but what constitutes a disaster and how would money be paid out? An additional $500 million a year would be committed to farm support programs under a Conservative government. It’s interesting to note that that the Liberals have been providing much more than that most years through ad hoc unbudgeted assistance. For their part, the Liberals are promising to review the entire Agriculture Policy Framework. Goodness knows when or if that would lead to farm safety net improvements. I’m Kevin Hursh.

December 22, 2005

Lump of coal in the Christmas PRO stocking
The latest Pool Return Outlook from the Canadian Wheat Board is certainly no Christmas present. Both wheat and durum are down as compared to the November PRO. On No. 1 CWRS wheat with 12.5 per cent protein, the drop is $4 a tonne or about 11 cents bushel. The price after deducting average Saskatchewan freight and handling is now expected to be $3.86 a bushel. The PRO on No. 3 wheat dropped even further - $7 a tonne or about 19 cents a bushel. The Saskatchewan price expectation for No. 3 is now $2.83 a bushel. Many of the durum price expectations have also dropped, particularly on lower grades. No. 3 durum is down by $3 a tonne, while No. 4 is down by $5 a tonne. The higher Statistics Canada estimate of durum production is one of the main factors. The PRO for No. 3 durum in Saskatchewan is now $2.88 a bushel, while No. 4 is a dismal $2.50. About the only good news in the December Pool Return Outlook is that malting barley remained steady as compared to last month. I’m Kevin Hursh.

December 21, 2005

Conservative ag platform
On Tuesday, it was the Liberals. On Wednesday, it was the Conservative Party’s turn to release an agricultural platform. The Conservatives borrowed a few things from the Liberals. They are calling for a 5 per cent renewable fuel content in gasoline and diesel by 2010. And like the Liberals, they don’t seem to have any plan to encourage producer ownership of ethanol and bidiesel facilities. The Conservatives are also promising to continue with the $755 million in emergency assistance to grain and oilseed producers that the Liberals announced in the dieing days of the government. The Conservatives have been taking some heat for suggestions they would reevaluate this payment. As far as new policies, Stephen Harper is promising separate programs for farm income stabilization and disaster relief. CAIS would be replaced with a program that’s simpler and more responsive. It would be nice to see the details, because designing effective programs that are simple is a lot easier said than done. On grain marketing, the Conservatives say farmers should be able to participate voluntarily in the Canadian Wheat Board. The board monopoly may survive the WTO. Apparently, it wouldn’t survive a Conservative government. The Conservatives had the same policy in the last election and it didn’t seem to hurt their results on the prairies. I’m Kevin Hursh.

December 20, 2005

Producers need ownership position in renewable fuels
The Liberals are promising a National Renewable Fuels Standard that will call for a minimum five per cent mix of renewable fuels in gasoline and diesel by the end of 2010. This is a much sounder policy than simply throwing money at the farm income problem. The production of ethanol and biodiesel provides a market for grains and oilseeds and creates jobs while reducing greenhouse gas emissions and cutting pollution. What’s missing is an incentive for producer ownership of ethanol and biodiesel developments. The U.S. has nearly a hundred plants and producers own half of them. That’s not the case here. There should be incentives encouraging direct producer involvement. Liberals like to quote from the report produced by Wayne Easter, Parliamentary Secretary to the Minister of Agriculture, entitled “Empowering Canadian Farmers in the Marketplace”. The Liberals need to take their own advice. Producers will only reap the full benefits of renewable fuel production if they can do more than simply provide the raw materials. At least the Liberals have made some major policy pronouncements on agriculture. The Conservatives and NDP haven’t said much yet. I’m Kevin Hursh.

December 19, 2005

WTO analysis
I spent quite a bit of time yesterday sifting through reports and reaction from the World Trade Organization meeting that concluded Sunday in Hong Kong. The Canadian Wheat Board is pleased saying the organization will remain in the hands of western Canadian producers. The CWB’s existence is not on the table. However, producers will lose government guarantees on initial payments and on CWB borrowing. Canada’s supply managed sectors – dairy and poultry – can also heave a sigh of relief. There was little agreement on market access meaning tariff barriers should remain in place. The most tangible achievement at the WTO is an agreement to end export subsidies in agriculture by the year 2013. That limited amount of progress isn’t sitting well with groups that wanted substantial reductions in trade barriers. For instance, the Canadian Canola Growers Association says the removal of all tariffs on canola within ten years would return over $485 million annually to Canadian canola producers and processors. Canada can’t have it both ways. We can’t get tariff reductions in other nations without reducing our own and putting supply management at risk. There’s an old saying that a bird in the hand is worth two in the bush. I’m Kevin Hursh.

December 18, 2005

92 RMs in farm tax revolt
The Tax Action Group now has 92 rural municipalities involved. Nearly a third of the RMs in the province are withholding the education tax on farmland to protest the inequity and the lack of government action on the issue. The revolt started with 5 RMs. By early November, the number had grown to 17. With 92 now involved and even more expected to join, the Tax Action Group has become a testament to how seriously rural Saskatchewan takes this issue. Rural councilors are not the kind of folks who knowingly break laws, but they realize something has to be done to lessen the burden of education tax. The first RMs to participate are withholding a lot more tax than RMs that have joined recently, but it all puts pressure on school boards and ultimately the provincial government. It’s going to be interesting to see how this plays out in the legal system. Eventually, RM councilors can be forced to forward the money and end the tax revolt, but how quickly will that happen? There are a lot of RMs and a lot of councilors to launch lawsuits against. And when the tax revolt ends for this year, there’s nothing to stop it from starting over again with even more RMs joining the action. When civil disobedience becomes the norm, it means the people are right and the government is wrong. I’m Kevin Hursh.

December 15, 2005

Big duty placed on American corn imports
It may not seem like a big deal here in Saskatchewan, but yesterday’s announcement of a duty on American corn imports is going to have ripple effects across all of agriculture and across the whole country. The Canada Border Services Agency in a preliminary determination has placed anti-dumping and countervailing duties on American corn that total $1.90 a bushel. Corn is only worth about $2.50 a bushel, so the duty is huge. Canadian corn producers in Ontario, Quebec and Manitoba who asked for the duty are pleased. Livestock producers across the country are frustrated. Ontario and Quebec are big net importers of feed grain. They don’t produce enough corn to supply their cattle and hog industries. They rely on imported American corn. Livestock groups estimate the duty will add up to $100 to the cost of finishing a steer and up to $20 to the cost of feeding a market hog. Saskatchewan is unique in the country in that we’re a net exporter of feed grain. A lot of our barley and feed wheat goes to Alberta and Manitoba. The duty on U.S. corn will be supportive to our feed grain prices and our livestock producers will see somewhat elevated costs, but the impact will be nothing like that experienced in Ontario and Quebec. The biggest effect here could be how the duty ultimately influences farm policy debate and formulation. I’m Kevin Hursh.

December 14, 2005

Considering Strongfield durum
A lot of producers are considering whether or not they should grow the new Strongfield durum that is being offered under contract by the Canadian Wheat Board for the upcoming growing season. Strongfield is the wave of the future in durum. It has low cadmium. Buyers in a number of countries are increasingly concerned about the level of this heavy metal in durum. Strongfield has a genetic trait that causes it to accumulate far less cadmium in the seed. On top of that, it appears to have excellent yield potential. The biggest reason to grow it next year is that the Canadian Wheat Board is promising 100 per cent delivery on all the Strongfield that makes the top three grades. Durum delivery opportunities are going to be seriously limited this year because there’s an oversupply. Knowing you’ll be able to deliver Strongfield is a big selling point. However, the price has not been attractive on durum. Guaranteed delivery doesn’t mean the price will be above the cost of production. The main impediment to growing the new variety is the cost of seed - $11 to $12 a bushel. Strongfield is expected to become the dominant durum variety in Western Canada. While some durum producers are going to jump into the variety for 2006, others are going to wait until the seed cost comes down. I’m Kevin Hursh.

December 13, 2005

Agriculture in the federal election
Groups such as the Canadian Federation of Agriculture, Manitoba’s Keystone Agricultural Producers and even the Canadian Renewable Fuels Association are working hard to encourage agricultural policy debate during the current federal election campaign. Farm incomes have been at record low levels. Particularly in the grains sector, there are serious problems. Despite this, there hasn’t been much said about agriculture in the election campaign thus far. Don’t be surprised if the balance of the campaign is similar. Ag policy is complicated and long-term strategies aren’t well suited to 15-second sound bites for the television cameras. Oh, we may hear the three political leaders give lip service to agriculture and the need to support farm families, but it would be nice to have something more tangible. Why not a commitment to pay producers for the environmental goods and services they supply to the general public? It would also be reasonable to have a bigger commitment to the development of bio-fuels. Even though the farm vote is a small percentage of the total, issues such as renewable fuels and protection of the environment could be winners with the general public as well as farmers. I’m Kevin Hursh.

December 12, 2005

WTO in Hong Kong
The 6th Ministerial Conference of the World Trade Organization is underway in Hong Kong. The who’s who of agriculture from across Canada is in attendance. Pascal Lamy, the Director General of the WTO provided an opening speech, urging the more than 140 member nations to make swift progress. The WTO talks are running behind schedule. The hope is that Hong Kong can be the launch pad for “full negotiating modalities”. This is the numerical work plan that would set out in full the rates at which tariffs would be cut and agricultural subsidies reduced. Originally, Hong Kong was going to be the place and time to finalize these specifics. There is deadline overhanging the whole process. In the United States, Trade Promotion Authority expires at the end of 2006. Up until the end of ‘06, the U.S. administration can negotiate a deal and Congress has to either pass it or reject it. After Trade Promotion Authority expires, the U.S. Congress can pick a trade deal apart. It’s no longer a take it or leave it proposition. So there is urgency in the WTO process. No deal by the end of 2006 could send the whole round back to the drawing board. I’m Kevin Hursh.

December 11, 2005

Age verification of cattle becomes the norm
The age verification of calves is catching on quickly. Back in early September, only 100,000 Canadian cattle had been age verified. Now, the Canadian Cattle Identification Agency says that age verifications have surpassed a million head. Japan is reported to be opening its border to beef from North American calves under 21 months of age. To access that market, calves will need to have age verification. The marketplace is starting to reward producers that have taken this extra step. Market analysts are reporting premiums on quality cattle that have registered birth dates. It’s a simple process. Birth date data is submitted at www.canadaid.ca. The birth date is linked to the individual ID of the animal as established by the bar-coded or radio frequency ear tag. Producers without Internet access can have a third party help them out. The program is free of charge and it’s voluntary. The only cost is a bit of time and effort. For next year’s calf crop, age verification is likely to be the norm. I’m Kevin Hursh.

December 8, 2005

No big price premiums from Husky ethanol plant
The Husky ethanol plant near Lloydminster is scheduled to open in March. The facility, adjacent to the Husky heavy oil upgrader will need 350,000 tonnes of wheat a year – about a thousand tonnes a day. They would prefer to buy CPS wheat because it has higher starch content, but the plant can operate on other types of wheat as well. The wheat will be sourced through Agricore United. Once the plant is fully operational, they hope to contract wheat 12 months in advance. They want wheat that has a bushel weight of at least 58 pounds and they can take up to 15 per cent moisture. There are no discounts for sprouted wheat and they can tolerate up to 3 per cent of other grains in the wheat. However, an Agricore rep speaking to a meeting of farmers yesterday in North Battleford made it clear that there won’t be any big price premiums. Husky will have to compete in the market to get wheat, but they don’t anticipate paying significantly above the market price. Any new market is good news, but whether it’s an ethanol plant, a hog barn or a feedlot, grain producers shouldn’t have unrealistic price expectations. A new buyer isn’t going to pay any more than they need to. I’m Kevin Hursh.

December 7, 2005

Oversupply of canola and durum
It’s going to take a long time to work through our surpluses of canola and durum wheat. In yesterday’s Statistics Canada production estimate, there was more canola and more durum than analysts were expecting. The September StatsCan durum estimate pegged production at 5.4 million tonnes. The just released November estimate is 5.9 million tonnes. This year’s crop was 19 percent bigger than last year and 28 per cent larger than the ten-year average. Watch for delivery opportunities to be seriously curtailed on durum for the balance of the crop year. On canola, the latest production estimate is a record, a whopping 9.66 million tonnes. That’s more than a million tonnes over the September estimate. Observers were expecting the number to rise, but everyone was surprised by the magnitude of the increase. Analysts who crunch supply and demand numbers expect the canola carryover at the end of the crop year will top 3 million tonnes. That’s incredibly bearish. Canola prices in the $5 a bushel range could be around for a long time. It’s sure hard to know what to seed next year, with so many commodities in oversupply. I’m Kevin Hursh.

December 6, 2005

Grain still piled on the ground
There’s more grain piled on the ground than any year I can remember. There are no official statistics on this and there are people with a lot longer memories than me, but it’s probably safe to say that there’s more grain being stored on the ground than at any time in recent decades. Some of the grain is in storage rings or surrounded by round bales. Sometimes there’s a tarp cover, sometimes not. Quite often, the grain is piled on the ground without anything to contain it or cover it. Storage on the ground is usually a short-term option. Typically, this is some of the first grain to be marketed. However, we’re into December and a lot of the piles haven’t moved yet. Insect infestations are likely to be more problematic with grain in the open. There can also be problems with deer getting into grain piles. Deer feces in grain can be a big problem. There are already horror stories about grain piles that have been seriously downgraded by spoilage. Producers and the entire grain handling system are going to have more concerns to deal with than in a normal year. I’m Kevin Hursh.

December 5, 2005

Hanging out in Hong Kong
A lot of people from Canadian agriculture will be in Hong Kong later this month to attend the World Trade Organization talks. Federal cabinet ministers are the only ones who will actually have any say. However, provincial agriculture ministers will also be at the WTO, as will a whole host of farm groups. The dairy and poultry industries will be well represented as they try to defend supply management. The Canadian Wheat Board will be there trying to stop the U.S. and Europe from quashing state trading enterprises. The farm groups who want freer trade will also be in Hong Kong. They’re represented by CAFTA, the Canadian Agri-Food Trade Alliance. These groups, including Agricore United, Canadian Cattlemen’s Association and the Canola Council of Canada are convinced that lowering tariff barriers will mean more wealth in Canadian agriculture. They want freer trade even if it means the loss of supply management and the Canadian Wheat Board. Canadian negotiators will continue to get a mixed message from an agriculture sector that’s deeply divided, but it’s not likely to matter. Many of the other 140 plus member nations carry far more weight than Canada. What this country says and does at the WTO is unlikely to make much difference. I’m Kevin Hursh.

December 4, 2005

Rays of hope in grain market
A few bright spots have emerged in this year’s grain market. Admittedly, most of the news is bad. Canola prices are incredibly soft, flax prices have been dropping and no one can remember when green lentil prices have been so poor. The somewhat brighter news comes on oats, high quality wheat and feed wheat. Oat prices are well above the levels seen a year ago. High quality milling oats are in short supply due in part to the terrible growing season experienced in Manitoba. Depending upon location, good quality oats are worth over $2 a bushel. While you wouldn’t describe them as good, wheat prices have in many instances crept above the levels realized last year. Final payments were just announced for CWB grains sold in the past crop year. If you compare the final realized prices on the upper grades of CWRS wheat with the Pool Return Outlook for this year, this year is looking a bit stronger. The news is even better on feed wheat sold into the domestic market. After the frost in 2004, there was so much feed wheat that prices were badly depressed. This year’s domestic price for feed wheat is up substantially as compared to a year ago. I’m Kevin Hursh.

December 1, 2005

Early Payment Options on CWB grains
The Canadian Wheat Board has added 100 per cent Early Payment Options on designated barley and durum. Previously a 90 per cent EPO was the highest you could get on these grains. To get 100 per cent of the durum Pool Return Outlook near the time of delivery, the discount, as of yesterday, was $9.50 a tonne or about 26 cents a bushel. Many producers will probably consider that too expensive. Taking a 90 per cent EPO on durum has a discount of $2 a tonne, or only 5 cents a bushel. The 100 per cent EPO is less expensive on two-row malting barley. The discount is $5.25 a tonne or about 11 cents a bushel. The 90 per cent EPO on designated barley has declined to only 50 cents a tonne or about a cent a bushel. On CWRS wheat, a 100 per cent EPO has been available for quite some time. As of yesterday, it had a discount of $8 a tonne or about 22 cents a bushel. The 90 per cent EPO on wheat is only about 3 cents a bushel. New discount values are posted each day on the CWB website. In addition to getting a lot more of your money a lot sooner, the Early Payment Option acts as a floor in case prices drop. If prices rise, producers still participate in those gains. The EPO is a pricing tool that can make a lot of sense. I’m Kevin Hursh.

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