Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

January 31, 2006

Drought Watch
Precipitation maps from the PFRA (www.agr.gc.ca/pfra/drought/drmaps_e.htm) tell an interesting story. If you look at precip since November 1, the eastern half of the prairies is above normal. Meanwhile, there’s a huge dry area that covers central and northern Alberta where winter precipitation has been minimal. If you look at a longer time period – September first to the present, the picture is somewhat different. Central and northern Alberta is still dry, particularly an area north of Edmonton. Most of Saskatchewan is above normal since September 1. That includes Melfort, Prince Albert and North Battleford, through Saskatoon, Rosetown and Kindersley and down to the Swift Current region. Lloydminster and Moose Jaw are listed as about average for precip since September. The only area below normal since September is east and south of Regina and Melville, including Weyburn and Estevan. Overall, the moisture situation on the Canadian prairies looks better than the drought situation in the southern U.S. The USDA Drought Monitor (www.drought.unl.edu/dm/monitor.html) shows a steadily worsening moisture deficit across large regions. I’m Kevin Hursh.

January 30, 2006

Canadian dollar moving towards par
At a value of over 87 cents, the Canadian dollar is at a 14 year high. The rising value has had a dramatic downward impact on the value of exports. Grain, cattle and hog prices would all be a lot higher if it wasn’t for the strength of the loonie. The head of the country’s largest independent currency exchange says the long-term trend is for our dollar to go even higher. Micheal Levy of Custom House Foreign Global Exchange spoke to the Saskatchewan Cattle Feeders meeting in Saskatoon over the weekend. He is predicting the Canadian dollar will move to par with the American greenback within 18 to 24 months. According to Levy, the macro economic factors cannot be denied. Energy prices are escalating, fueling the Canadian economy. Our national debt is being paid down and we have a positive balance of trade. In contrast, the Americans have a huge trade deficit and their national debt is over $8 trillion and rising. Levy says Asian countries are financing the American debt and that won’t continue indefinitely. While it’s good to hear the comparatively positive outlook for the Canadian economy, with exports priced in American dollars, export oriented industries are facing a tough adjustment. I’m Kevin Hursh.

January 29, 2006

Latest BSE case may hinder OTM exports
The latest case of BSE in a Canadian cow hasn’t created much of a stir in the marketplace. Cattle prices have been largely unaffected. However, this case will not be helpful as we try to reopen the American border to cattle over thirty months of age. Speakers at the Saskatchewan Cattle Feeders Association annual meeting over the weekend agreed that this newest case complicates the issue since the cow was born well after the 1997 ruminant-to-ruminant feed ban. Canada’s beef breeding herd has never been larger and without an export market for cull cows, numbers continue to increase. According to Anne Dunford of Canfax, the traditional cull rate is 11 per cent. Last year, the cull rate was only 6.3 per cent. The good news is that the spread between Canadian and American cull cow prices has narrowed to about 20 cents a pound. While that’s the narrowest spread since BSE hit back in 2003, Dunford says there isn’t much room for further narrowing unless the border opens. Cull cows can’t be exported and neither can the beef from cull cows and there’s only so much that can be consumed domestically. There’s hope the border will open to over thirty month animals before the end of the year, but this latest BSE case has not improved the odds. I’m Kevin Hursh.

January 26, 2006

Grain cheques should start flowing next week
The emergency payment to grain, oilseed and specialty crop producers – the one announced on November 23 just before the election call – should be coming shortly. Program officials say initial payments from the program are supposed to start flowing next week. The payment will be based on net grain sales from 2000 to 2004. All producers with sales of grain will be eligible, but it doesn’t sound like there will be any provision to account for farm fed grain. So far I haven’t been able to find out what percentage factor is being applied to the grain sale numbers to come up with the payment amounts. The total amount being allocated is $755 million and unlike previous programs, the payment is only on grain sales. After the initial payment is made, they’ll figure out how much remains for a second payment. Expect the lion’s share to come out in the first installment. Because of other programs such as CAIS, the administration should have the necessary grain sale statistics for most producers. In those instances, the money will be paid without any need for an application. However, where the grain sale stats haven’t already been submitted and with beginning farmers, application forms will be needed. I’m Kevin Hursh.

Wheat price contradictions
Worsening drought conditions in the southern U.S. plains are taking a toll on the American winter wheat crop. That, in turn, is spurring some optimism about wheat prices for the upcoming crop year. Despite the current bullish tone in the market, it’s interesting to note that the Market Analysis Division of Agriculture and Agri-Food Canada is actually predicting lower wheat prices. In a report released this week, Ag Canada projects rising wheat stocks in the main exporting countries, particularly the U.S. That, says Ag Canada, will cause world wheat prices to decrease. When you factor in an appreciating Canadian dollar, the Canadian wheat price is expected to drop by 11 per cent in the upcoming crop year. Returns for No. 1 CWRS wheat with 11.5 per cent protein are expected to fall from $190 a tonne, basis port position, down to just $170 a tonne. This report is contrary to what many other analysts are expecting. Of course, markets sometimes overreact to weather news. In about a month, the Canadian Wheat Board will come out with its first Pool Return Outlook for the new crop year. Maybe by then, the potential price for new crop wheat will be clearer. I’m Kevin Hursh.

January 24, 2006

Backdoor CWB changes?
Will the new Conservative government try to implement a voluntary Canadian Wheat Board without legislative amendments? Officials at the CWB say legislation would be required to change the mandate. However, the Western Canadian Wheat Growers Association believes the new government could make the necessary regulatory changes through a simple order-in-council. The association has long fought for an end to the marketing monopoly, so they’re “elated” that “marketing choice” will finally be realized. They’re expecting the change “in the coming weeks”. Farmers and particularly western farmers certainly threw their support behind the Conservatives in this election. Some say that gives the new government the moral authority to end the CWB’s marketing monopoly. In truth, farmer support for the Conservatives is due to an array of factors and their position on the board is well down that list of reasons. If the Wheat Growers Association is correct with its legal interpretation, the Conservative election promise of a voluntary board could be quickly fulfilled without bringing the matter in front of the House of Commons. However, that kind of backdoor approach could have political ramifications down the road. I’m Kevin Hursh.

January 23, 2006

Ag policy may take a back seat
Don’t expect rapid farm policy changes under the new Conservative government. The Conservatives have a fragile minority and will need support from other parties to pass legislation. All three national parties support a renewable fuel standard so that’s something that should be accomplished. All the parties agree that the CAIS income stabilization plan is badly flawed, but it may be tough to get agreement on what should replace it. Expect a lot of consultation and a lot of uncertainty over how a new farm income safety net will be structured. Conservative Party policy calls for the Canadian Wheat Board to be voluntary. With the Liberals and NDP opposed to the idea, the Conservatives might have to strike a deal with the Bloc if they want to push that change. There are a lot of distractions when a new government takes over. A new cabinet will be chosen, including a new Agriculture Minister, who will need to get up to speed on a lot of issues in a hurry. Meanwhile, the Liberals are immediately into a leadership contest. Various candidates will be jockeying for Paul Martin’s job. Agriculture received more attention in this election campaign than any in recent memory, but it may be tough to keep the spotlight on farm issues with everything else going on. I’m Kevin Hursh.

January 22, 2006

Corn duty uncertainty
An interesting battle of legal opinions is being waged regarding the duty on American corn coming into Canada. The Canada Border Services Agency has held meetings with livestock producers telling them the duty can be avoided or refunded if the U.S. corn is fed to livestock that ends up being exported back to the U.S. Particularly for the hog industry in central Canada and Manitoba, this appears to be a way around the duty, which has been set at $1.90 a bushel. Not so fast, says Canadian Corn Producers, the group that applied for the duty. According to the corn producers, that loophole is for goods that are imported and used for a manufacturing process. Feeding corn to livestock is clearly not a manufacturing process says the corn association. Even if a legal decision says that livestock qualifies, the corn lobby says the rules are complex and will be difficult to apply. At this point, it’s hard to know what to believe. If a lot of livestock producers can avoid the corn duty, the impact on feed grain prices will be minimized. Canadian Corn Producers is working hard to ensure that doesn’t happen. I’m Kevin Hursh.

January 19, 2006

The Last Cattle Frontier
While Saskatchewan is sending a lot of workers to high paying oil and gas jobs in Alberta, Alberta ranchers are increasingly interested in relocating to Saskatchewan. The migration seemed to slow while the American border was closed to Canadian beef, but now with the beef industry doing well, there’s again a lot of discussion about Alberta cattle producers coming to Saskatchewan to buy land. Next week, an effort called The Last Cattle Frontier centered at Yorkton will hold meetings for Alberta cattle producers in Fort Macleod, Olds and Vermillion. In addition to providing information, there will be listings of land available for sale or rent. Over the past four years, this project has attracted more than a hundred families to east central Saskatchewan (www.lastcattlefrontier.com) With the difficult times in the grain industry, an increasing number of Saskatchewan producers are interested in selling out. Frankly, a lot of land in the province that’s currently growing annual grain crops is better suited to forage or pasture. Meanwhile, land prices in many regions of Alberta keep escalating, pressured by industry and acreage owners. All the elements suggest the migration will only intensify. I’m Kevin Hursh.

January 18, 2006

Costing for forages and fences
If you’re thinking about building fences or establishing pasture or forage, Saskatchewan Agriculture has updated some publications that can help estimate the costs involved. The publication on the cost of producing perennial forage crops includes seed costs, assumptions for land costs, herbicide costs, haying costs and even the cost of breaking up the forage stand after eight years. Based on average yields, the cost of producing grass-alfalfa hay in Saskatchewan is around $60 a tonne. The publication on fencing costs estimates the time, machinery and material requirements to build various kinds of fences. For a fence with four barbed wires, the cost per mile is just over $3200. Electric fence systems are increasingly popular, especially for cross fencing. A two-wire electric fence has a total cost of nearly $1600 a mile for a 12 volt system. A two-wire electric fence than can be hooked to a 110 volt power supply has a total cost of just under $1500 a mile. There are a lot of variables with fences, and that will effect the cost. To obtain copies of these publications, producers can call the Agriculture Knowledge Centre in Moose Jaw. That number is 1-866-457-2377. I’m Kevin Hursh.

January 17, 2006

Bring back NISA
The country appears to be headed towards a Conservative government. The Conservatives are promising to replace the CAIS income stabilization program rather than trying to fix it. Designing brand new farm support programs is not easy. They may want to take a page from the past. One of the most popular farm support programs was the long running Net Income Stabilization Account, which was cancelled by the Liberals several years ago. With some minor modifications, NISA could again be a major pillar of farm support. Contributions to the program were shared by governments and farmers based on sales. When income fell, producers could access the money built up in their account. With NISA disbanded and the accounts now emptied, a new government could revitalize the program with a cash injection. Unlike CAIS, producers and accountants understood NISA and the administration was streamlined. One of its biggest drawbacks was optics. Many producers just let their NISA accounts accumulate money, treating the program as a retirement plan. That problem is easily solved. Limit how much a producer’s account can build-up before money is removed. NISA was never the complete answer as a safety net, but it was a good backstop. Maybe it can be a starting point for a new administration that needs to find ways to fulfill promises. I’m Kevin Hursh.

January 16, 2006

GDC program for low quality durum
There’s some good news for producers who want to market low quality durum. The Canadian Wheat Board is offering a Guaranteed Delivery Contract (GDC) program for No. 4 and 5 durum. On the Series A contract call, only 50 per cent of the durum offered by farmers was accepted by the board. A large carryover of durum is expected at the end of the crop year. However, there’s a need for quick movement on the bottom two grades of durum to meet a sales opportunity. Sign-up is underway for the Guaranteed Delivery Contract. It will terminate January 31 or earlier if sales commitments are met. The board guarantees 100 per cent delivery acceptance on the contracted grades. Once producers are notified by letter, they have 21 days to deliver the grain. Producers will receive an initial payment upon delivery plus all future payments. Producers can also apply for an Early Payment Option on the contracted tonnes. The amount being accepted under the Guaranteed Delivery Contract isn’t being released. There’s also no information on whether future contracts will be offered. However, this program has brightened an otherwise dim delivery outlook for durum. I’m Kevin Hursh.

January 15, 2006

Taking a lesson from Quebec
Saskatchewan’s farm tax revolt is up to 122 RMs and counting. The action has gained a lot of momentum and it will be difficult for the provincial government to ignore. This sort of civil disobedience is unusual in rural Saskatchewan. We should take some lessons from Quebec farmers. They know how to stand together to get things done. The general farm group in Quebec is the UPA and it wields a lot of clout. This fall, in an effort to get reforms to municipal tax laws, the UPA decided to disrupt the province’s snowmobile industry. About a third of the snowmobile trails in the province cross farmland. Without access, the province’s billion dollar snowmobile industry was at risk. Just before Christmas, the UPA reached a deal with the Quebec government on municipal tax reform. It’s amazing what can be accomplished by standing together and it didn’t take demonstrations or tractor parades. The same is true in Saskatchewan. Farmland owners know the education tax burden is unfair. Rural municipalities have tried for years to negotiate. Now they’re standing together in larger and larger numbers. Farmers in Saskatchewan will never get as much government support as Quebec producers, but we can take a lesson from their strategy book. I’m Kevin Hursh.

January 12, 2006

Biodiesel bandwagon
There was a huge crowd yesterday at the biodiesel panel discussion organized by the Saskatchewan Canola Growers Association. There have been major developments and an exponential increase in interest in recent years. Biodiesel has moved from an interesting concept to a growing industry. Biodiesel use in Europe has skyrocketed. They don’t have enough oilseed crushing capacity to meet the demand for biodiesel so they’re importing canola oil from Canada. Canadian crushing capacity is also unable to meet the European demand. In the U.S., there’s a dollar a gallon tax credit for biodiesel, so the industry south of the border is also growing rapidly. Canadian policy makers are often criticized because Canada seems to be lagging behind. However, from the panel discussion it was clear that biodiesel is a complicated issue. Both the Liberals and Conservatives are promising a 5 per cent renewable fuel standard, something advocated by the Canadian Renewable Fuels Association. Hopefully, the new government, whoever it is, will develop policies and strategies so that producers can benefit from biodiesel development. I’m Kevin Hursh.

January 11, 2006

Burning grain
The idea of burning grain as a heat source is gaining momentum. Not long ago, this concept seemed pretty far fetched. With the increasing price of energy, it now appears to make economic sense. A couple of the panelists at the Crop Production Week Special Session last night addressed the opportunity. Agricultural economist Ken Rosaasen says compared to heating oil, the BTU content of wheat makes it worth about $10 a bushel. Trenton Baisley, the CEO of FarmPure (formerly Quality Assured Seeds) said his company is examining the opportunity. Perhaps varieties of crops can be developed specifically for the purpose of generating heat. Some may point to the moral issue of burning food, but using agriculture to produce energy is nothing new. It’s no different that the early days when the settlers grew oats to feed their horses, the power source for the farm. There are grain burning stoves to heat homes and shops, but commercial scale grain burners aren’t available. Very little research seems to have been done in this area. What’s the feasibility of burning grain for electricity? How clean does grain burn as compared to natural gas and coal? We need to know the particulate emissions. We need to know the Kyoto ramifications. Hopefully the issue is now on the radar screen of researchers, government agencies and the politicians. I’m Kevin Hursh.

January 10, 2006

Grain producers losing faith
Crop Production Week in Saskatoon is always a great barometer of what’s going on in the grain industry. Judging from the talk at this year’s event, producer optimism is fading fast. There are reasons for long-term optimism, but the short term isn’t pretty. There are bins full of grain and in many cases grain still piled on the ground. Sales of many commodities have been slow, so cash flow is a problem. On top of that, most commodity prices are at or near historical lows. The prospects for the coming year are terrifying. There is hardly a commodity that will generate a return given current price prospects. Stories abound of mid-size and even large operators calling it quits. In other cases, producers are cutting back by dropping rented land. There’s an expectation that farmland rental rates will decline. In some areas, landlords may have to settle for their tenant just paying the land taxes. Some land may not be farmed. Although there has often been the threat of producers increasing their fallow acreage, it has never really come to pass. That may change in the year ahead. Judging from producer comments, for the first time in many years, there could be a substantial drop in seeded acreage. I’m Kevin Hursh.

January 9, 2006

Up with red lentils, down with green
Murad Al-Katib, the head of Saskcan Pulse Trading near Regina makes a strong case for Saskatchewan producers growing more red lentils. The green lentil market is badly oversupplied. Big crops here in Saskatchewan have driven green lentil prices to record lows. The red lentil market worldwide is much larger. Saskatchewan production is less likely to have such a major price effect. Red lentils are currently 12 or 13 cents a pound for No. 2 or better. The price was stronger at harvest time. No. 2 large green lentils are only 8 or 9 cents. Murad Al-Katib says his company probably won’t forward contract any red lentils this year, but he expects prices to remain relatively stable. His projection for the fall is 13 to 16 cents a pound. Unlike green lentils, red lentils are split before being sold to consumers. Murad says it’s important to produce red lentils with splitting in mind. While 14 per cent moisture is considered dry, Murad says red lentils split better at somewhat lower moisture content and his company sometimes pays a premium for lentils that are drier. Most analysts are predicting an increase in Saskatchewan red lentil acreage this year. Producers are likely to cut back on green lentils given the low prices and large carryover. I’m Kevin Hursh.

January 8, 2006

Top picks from Crop Production Week
It’s Crop Production Week in Saskatoon and there’s so many meetings and speakers that many of us have trouble picking what to attend. Here are my top picks for the week. The Flax Commission has a market outlook presentation at the end of their meeting on Monday afternoon. The Pulse Days meeting has a presentation Tuesday morning by Ray McVicar of Sask Ag and Food on chickpeas that should be interesting. Tuesday afternoon, there are three market outlook presentations at Pulse Days. On Wednesday morning at the mustard meeting, Neil Wagner of Peacock Industries is making a presentation on the use of mustard as a bio-pesticide. Thomas Mielke of OILWORLD will talk about canola markets at the Canola Commision meeting Wednesday afternoon. There is also a presentation on fertilizer markets. The Special Session Wednesday evening entitled “What’s the future of the prairie grain industry?” should prove interesting. On Thursday afternoon, the Canola Growers Association has a panel on biodiesel. On Friday, the Canadian Wheat Board meeting has both market and weather outlook presentations. Those are my top picks, but you may like other presentations and other meetings as you check through the Crop Week agenda (www.cropweek.com). I’m Kevin Hursh.

January 5, 2006

Agribusiness Entreneurship Program
Here’s a great opportunity for producers who want to hone their skills in marketing as well as finance and accounting. The Agribusiness Entrepreneurship Program will run January 22 to 28 in Saskatoon. It’s taught by recognized University of Saskatchewan professors including Dick Schoney and Tom Allen. The program is held at the College of Agriculture. Through the week, participants work on their own business plans with professional help. The program is highly recommended by past participants. In addition to producers, lenders, consultants and economic development professionals also attend. For farm businesses, the registration fee is $1250. However, the AIMS program is offering 10 sponsorships of $1000 each to Saskatchewan producers. There are still a few of these bursaries available to attend. This may be the last year for these sponsorships from AIMS. If you’re interested in more information on the Agribusiness Entrepreneurship Program, contact Patricia Englund, the program coordinator at 306-665-1678. I’m Kevin Hursh.

January 4, 2006

Glyphosate competition
It would appear the import of less expensive glyphosate herbicide from the U.S. is having an impact on Canadian pricing. Over 5 million litres of the glyphosate product ClearOut 41 Plus was brought into Western Canada last year under the Own Use Importation program. Farmers of North America spearheaded the program. At a price of about $4.35 a litre, this glyphosate meant substantial savings for growers. Monsanto Canada has now announced a new lower priced formulation of Roundup for the 2006 season. It’s called Roundup Transorb HC. HC stands for high concentration. It’s in a formulation of 540 grams per litre with a suggested retail price of just under $9 a litre. When you convert to the 360 gram per litre equivalent, the cost is just under $6 per litre. While HC is a lot cheaper than Monsanto’s premier product, Roundup WeatherMAX, it doesn’t come with as many guarantees and money back programs. Monsanto says it’s providing what customers have requested – a lower price without any rebates, memberships or paperwork hassle. You have to think the import of low-priced glyphosate had a lot to do with this new offering by Monsanto. I’m Kevin Hursh.

January 3, 2006

Crop Planning Guides paint poor outlook
Saskatchewan Agriculture has again compiled Crop Planning Guides. While there’s a lot of anguish over rising input costs going into 2006, the guides confirm that a shortfall in revenue is a much bigger problem. Sask Ag has assumed a nitrogen fertilizer price of $472 a tonne for urea. This is up dramatically from last year’s price of $390 a tonne. For 50 pounds per acre of actual nitrogen, the cost this year will be about $23, an increase of about $4 an acre. Diesel fuel has increased from 59 cents a litre in last year’s planning guides to 74 cents for this year. The diesel cost for growing most crops has increased two or three dollars an acre from last year. In crops like canola and lentils, the increase in fuel and fertilizer costs has been largely offset by a decrease in seed costs. What really hurts are the assumptions for what crops will be worth. For budgeting purposes, Sask Ag is using prices of $5.50 a bushel for canola, $6.40 for flax, $1.90 for feed barley, $3.70 for wheat and 12 cents a pound for lentils. Those prices don’t come close to covering the full expenses of growing a crop given typical yields. The Crop Planning Guides should be ready for distribution at next week’s Crop Production Show in Saskatoon. I’m Kevin Hursh.

January 2, 2006

Market analysis at Crop Production Week
A number of market analysts are putting the finishing touches on presentations to be delivered at Crop Production Week in Saskatoon starting next Monday. Most of the groups holding meetings include market analysis in their line-up. During Pulse Days, there will be several presentations on the price outlook for lentils, peas and chickpeas. The flax meeting will conclude with a market outlook as will the canaryseed and mustard meetings. The Saskatchewan Fruit Growers Association is new to Crop Production Week. One of their presentations is entitled “Can I make money growing fruit?” The Canadian Wheat Board meeting will feature a market outlook for 2006 as well as a weather outlook. The Saskatchewan Canola Development Commission is bringing in world-renowned oilseed market expert Thomas Mielke of OILWORLD. They’ll also have a presentation on the fertilizer market outlook. In addition to the producer organizations that make up Crop Week, a number of agri-business firms will be holding their own market outlook meetings. Producers will be listening intently, trying to find glimmers of hope in commodity markets that are badly depressed. Details on the Crop Production Week meetings are available at www.cropweek.com. I’m Kevin Hursh.

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