Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

March 30, 2006

Protecting canola export markets
Letters are being sent to canola producers across the prairies informing them about Canola Export Ready. It’s a program by the Canola Council of Canada to protect Canadian export markets. Many markets are becoming very strict about the products they except. Most growers will know that seed treatments containing lindane insecticide are not allowed because the U.S. market has a concern with lindane. Producers are less likely to know that certain varieties of canola have been de-registered. One of these is HySyn 101 Roundup Ready canola. This is a Polish variety of Roundup Ready. The Japanese won’t accept it and they’re testing shipments. Something else that producers may not realize is the restriction on malathion use. Malathion is registered for the control of insects in canola crops and it’s registered for the control of insects in various stored grains. However, malathion should not be used to treat canola in storage or even the empty bins where canola will be stored. Detection of unregistered products or de-registered varieties could result in canola shipments being turned away by export customers, causing millions of dollars in losses and placing future business at risk. I’m Kevin Hursh.

March 29, 2006

Biofuels lag in Canada
The Canadian Renewable Fuels Association has released a report on how Canada ranks compared to other countries in the production of ethanol and biodiesel. As you might expect, Canada doesn’t measure up very well. Brazil is the largest biofuels producer in the world. The Brazilians got started in the 70s and currently produce more than 15 billion litres annually. Second in the world is the United States where a renewable fuels program has been in place since the 80s. Current production is about 13 billion litres a year. Under the new U.S. Energy Bill, production should double by 2012. In the European Union, biofuel production is about 3 billion litres a year, with most of that being biodiesel. By comparison, Canada produces relatively low volumes, with almost all of being ethanol. The production in 2004 was estimated at a quarter of a billion litres, just 0.7 per cent of the country’s total gasoline consumption. As the report by the Canadian Renewable Fuels Association notes, the good news is that in the last federal election, both the Conservatives and the Liberals promised to implement a Renewable Fuel Standard of 5 per cent by 2010. If the standard along with three new provincial initiatives are implemented, this could raise Canada’s production of renewable fuels to 3.1 billion litres by 2010 - a twelve-fold increase from where we are today. That sort of progress in biofuels would have tremendous benefits for agriculture. I’m Kevin Hursh.

March 28, 2006

Possible funding for Sask Soil Conservation Association
There’s good news for the Saskatchewan Soil Conservation Association. The five SSCA agrologists across the province were facing layoff notices at the end of this week. Now, it looks like they’ll be able to keep their jobs. Soil Conservation Canada is hoping it can tap into an existing government program for the next six months. That announcement is still pending, but officials are hoping for positive news within the next week. This interim funding should allow the new federal government time to develop a replacement for the Greenhouse Gas Mitigation Program. That program funded demonstrations and increased awareness on everything from nutrient management to composting to direct seeding. It was a major source of funding for the activities of the Saskatchewan Soil Conservation Association. With the country supposedly moving to carbon credit trading and with farmers hoping to get some returns for sequestering carbon in the soil, this isn’t the time for funding to stop. The SSCA has been a lead organization in the work on carbon credits. It has been examining carbon trading systems and the mechanics of quantifying sequestration. This was a natural progression following the years the organization spent helping producers adopt minimum tillage and direct seeding. I’m Kevin Hursh.

March 27, 2006

New crop predictions
The Market Analysis Division of Agriculture Canada has released new acreage and price projections for the upcoming year (http://www.agr.gc.ca/mad-dam/e/index2e.htm) . On wheat, Ag Canada believes farmers across the country will plant an additional 2.6 million acres – an increase of 14 per cent over last year, even though price prospects remain poor. The projected acreage decline of 16 per cent on durum is understandable given the low price and the poor delivery opportunities. The projected drop in canola acres is 8 per cent. The average price for canola in the upcoming crop year is projected to be $15 a tonne lower. On barley, the acreage is expected to increase by 8 per cent. Although malting barley prices are expected to decline, the price projection on feed barley is improved somewhat. On oats, an acreage increase of 15 per cent is expected, even though the new crop price projection is down by $15 a tonne. Both canaryseed and mustard are expected to see a 20 per cent acreage decline while average prices are expected to increase by about $20 a tonne. Green lentil acreage is expected to drop while red lentils increase. Overall, a decline of 10 per cent is expected in lentil acreage with prices locked in the same low range. A 3 per cent increase is expected in dry pea acreage with prices expected to be slightly stronger. On chickpeas, a 50 per cent acreage increase is projected, with prices tumbling by $65 a tonne. I’m Kevin Hursh.

March 26, 2006

What would the CAIS replacement be?
Can the CAIS program be transformed into something useful or does it need to be scrapped and replaced with something totally different? During the election campaign, the Conservatives said they would replace the largely unpopular farm income stabilization program. However, the provincial agriculture ministers have convinced the new federal minister Chuck Strahl that a transformation is preferable. That isn’t sitting well with everyone in the Conservative Party. Saskatoon-Humboldt M.P. Brad Trost issued a news release last week saying CAIS must be replaced with a more responsive program by the end of 2006. Trost didn’t mention the new stance of the agriculture minister, choosing instead to quote from Stephen Harper’s promises during the election campaign. There are also mixed messages from accountants and farm financial advisors who deal with CAIS applications each day. Some say CAIS generally works well for farmers who have treated their operations as a business. According to others, there’s so much administration and confusion and so many mistakes that the program isn’t salvageable. As ugly as CAIS is, before pulling the plug on it, I’d like to see the details on any proposed replacement. Designing a program that works for individual producers in all types of agriculture in all parts of the country is not a simple task. I’m Kevin Hursh.

March 23, 2006

A missed opportunity in wheat pricing
Opportunities are always easy to recognize in hindsight, but 10 days ago a Fixed Price Contract for wheat looked a lot more attractive than it does now. On March 10, the Canadian Wheat Board’s Fixed Price Contract for No. 1 CWRS wheat with 13.5 per cent protein hit a price of $4.27 a bushel assuming average Saskatchewan freight and handling deductions. The Fixed Price Contract is based off American futures prices. Dry conditions in the southern U.S. pushed up the futures. At $4.27, the Fixed Price was well over the Pool Return Outlook of $4.00 a bushel. Then the rain and snow started to come in many of the dry areas and futures prices declined. Yesterday, a new Pool Return Outlook was released. The expected wheat price for the upcoming crop year has declined from $4.00 a bushel to $3.83. Yesterday’s Fixed Price Contract was $3.91. A lot of producers have been watching the Fixed Price Contracts and a few locked in some wheat around the high. Now that prices have slipped, that $4.27 back on March 10 looks pretty attractive. Hopefully, there will be other opportunities in the weeks ahead. I’m Kevin Hursh.

March 22, 2006

Seal hunt has a lot in common with agriculture
You’ve probably seen the news reports about Paul McCartney and Brigitte Bardot protesting the east coast seal hunt. Maybe you’re one of those people who think it’s barbaric to harvest baby seals. While the seal hunt may seem far removed from agriculture, that’s not the case. In agriculture, we also harvest animals for food and profit. The only real difference is that baby seals are cute and the slaughter takes place outdoors with the blood staining the ice and snow. Slaughter steers, market hogs and broiler chickens aren’t as cute and cuddly and the slaughter takes place within the confinement of specially designed facilities. Some say that clubbing seals is cruel. In reality, the animal is dispatched quickly. There’s probably less chance of error than with hunters shooting deer or ducks. It’s also interesting that few people consider fishing to be inhumane. The activists are aghast at the size of this year’s seal hunt in Canada – 325,000 animals. That’s tiny compared to the number of farm animals that go to market. Those who want to stop the seal hunt could just as easily be pointing their public relations machine at farmers and ranchers. Movie stars, music stars and much of the general population have become far removed from the reality of where they food comes from. I’m Kevin Hursh.

March 21, 2006

Prepared feed purchases reduce GOPP payments
Even farm programs that seem straightforward have some hidden rules when you dig a little deeper. That’s the case with GOPP, the Grains and Oilseeds Payment Program that is currently flowing payments to grain producers across the country. One of the complaints about GOPP is that farm fed grains are excluded. GOPP payments are based on grain sales and there’s no mechanism to account for grain that’s fed on the farm. Little known to most people, the program goes a step further. To ensure that producers who purchase feed are treated in a similar manner as those who produce their own feed, purchases of prepared feed are removed from grain sales revenue. The standard ratio used for prepared livestock feed assumes a mixture with 65 per cent grain commodities and 35 per cent supplements, minerals and other additives. Therefore 65 per cent of prepared feed purchases are deducted from a producer’s eligible grain sales. If you’re a mixed farmer – grain and livestock – and your GOPP payment is a lot smaller than you expected, this may be the reason. I’m Kevin Hursh.

March 20, 2006

No more money before seeding
Provincial Agriculture Ministers met yesterday in B.C. with federal Agriculture Minister Chuck Strahl. The ministers agreed to work on transforming the CAIS program rather than replacing it, saying they didn’t want to throw the baby out with the bath water. They are pressing forward in eliminating the CAIS deposit and replacing it with a fee. Details on the fee are to be announced by the end of March. One of the election promises of the federal Conservatives was an additional $500 million a year in farm support funding. However, Chuck Strahl says he can’t allocate any new money until it’s approved by Parliament and even then the $500 million may not be spent on a direct cash payment. In recent weeks, Ontario grain farmers have rallied for additional assistance, while on the prairies groups such as APAS and SARM have called for more cash before seeding. Strahl made it clear that the money currently flowing to producers under the Grains and Oilseeds Payment Program is all that can be expected in the foreseeable future. In fact, the Agriculture Ministers didn’t even spend much time discussing the possibility of an additional payout. This isn’t the news many grain producers have been hoping for, but they need to know so they can plan accordingly. I’m Kevin Hursh.

March 19, 2006

Who wants to start the bidding?
It’s auction sale season and there’s lots of talk about the number and size of sales. Every spring, there seems to be a lot of auctions. This year though, the sales listings arriving in farm mailboxes resemble Christmas catalogues for size. One sale is particularly noteworthy. Near Stockholm on the eastern side of the province, there’s an auction sale that involves over 80 quarter sections of land. It’ll be interesting to see if local producers buy the land or whether out-of-province buyers are attracted. Will the land stay in grain or be converted to grass. The sale also features a huge amount of large equipment. There are even some 75,000 bushel steel bins up for sale. While other sales aren’t of that magnitude, there’s going to be a lot of farm equipment on the auction block this spring. Some equipment dealers are holding their own stock reduction sales. Producers are wondering how prices will hold up given the current outlook for the farm economy. With the strengthening Canadian dollar, American buyers may be less of a factor than in previous years. I’m Kevin Hursh.

March 16, 2006

GOPP complaints
There are a number of comments and complaints floating around regarding the federal Grains and Oilseeds Payment Program. A lot of producers seem to be pleasantly surprised by the size of their payment. Calculated at 7.47 per cent of eligible net sales, the payment is a bit bigger than many were anticipating. Every little bit helps. One of the complaints is that some retired producers are getting a payment. Program officials confirm it was the intent that payments should go to those actively farming. However, the government and producers wanted the funds to go out quickly. The most sales recent data available was 2000 to 2004. Officials say this means that some producers who left the business in 2005 may have automatically received a payment. Based on the stories, some people who are receiving money have been out of the business much longer than that. Another problem with the program is that farm fed grain is excluded. That penalizes many mixed farms. There are trade-offs in any program. If you want to keep it simple and make payments quickly, the delivery will be rough justice. The more you want to target funding, the more paperwork and delays there will be. No matter how it’s done, there will always be complaints. I’m Kevin Hursh.

March 15, 2006

APAS calls for $75 an acre
I’m a supporter of APAS, the Agricultural Producers Association of Saskatchewan. I believe every RM in the province should be a member of APAS and actively participate in farm policy formulation. That said, the latest APAS news release is outlandish. The news release points to the tremendous difficulty many grain producers are facing this spring and then says, “APAS supports an investment of $75 an acre average to enable seeding in Saskatchewan.” Depending how it’s calculated that $75 an acre would be about $3 billion just in Saskatchewan. Of course the federal government couldn’t just give money to Saskatchewan. It would have to treat producers in an equitable fashion across the country, meaning this one time payment would be absolutely huge. The APAS proposal doesn’t appear to be tied to acreage set-asides or the development of biofuels or value added. Just pay us a big gob of money so we can keep doing what we’re doing. Of course, we’ll be back next year for another big handout. Yes, the grain sector is in a bad situation right now. And yes, APAS wants to convey the magnitude of the income problems. But anyone with even a passing knowledge of farm policy development knows that such a huge payment is not going to happen. APAS is not helping its credibility with such an unrealistic request. I’m Kevin Hursh.

March 14, 2006

Age verification of new calves
It’s important for cow-calf producers to age verify their 2006 calf crop. Only beef from cattle under 21 months of age can be exported to Japan and age verification is required. As well, Alberta intends to make age verification mandatory for all cattle born in 2006 or later that are marketed in Alberta. Market premiums are expected for age verified feeders as well as fed cattle. Or perhaps it will be the other way. There could be discounts for animals that aren’t age verified. To date on the www.canadaid.com website, 1.75 million birth dates have been registered for cattle from across Canada. Less than 6 per cent of the animals registered are from Saskatchewan. Ages are entered on the website to correspond with each animal’s identification ear tag. Producers say the process is easier if you can buy tags that are sequential. Other than some time, there’s no cost involved. A producer can just enter the birth date of the first calf of the season and then all the calves are assumed to be that age. However, it’s better to have an actual date for each calf. There should be a back up written record in case a producer is ever audited. Producers who don’t go to the bother of age verification this year may end up regreting their decision. I’m Kevin Hursh.

March 13, 2006

Canada needs bilateral trade deals
Canadian agricultural organizations do not have a history of unity when it comes to international trade issues. For that reason, it’s noteworthy to see a coalition of groups warning the Canadian government that we’re being outflanked on trade by the U.S. Signatories on a letter to the federal government include Pulse Canada, Cavendish Farms, the Canada Pork Council, the Canola Council of Canada and the Canadian Wheat Board. The concern is bilateral trade agreements between the U.S. and Canada’s traditional customers. When it comes to trade deals, the World Trade Organization is the one attracting most of the attention. However, the U.S. has signed agreements with a number of individual nations that put Canada at a disadvantage. One of these is a free trade agreement between the U.S. and Morocco that is to be implemented in the next few months. The agreement gives Americans preferential access to Moroccan markets - bad news for Canadian durum producers. Morocco has been a major customer for our durum – typically 400,000 tonnes a year. The U.S. has also recently concluded free trade agreements with Peru and Columbia giving U.S. grain a significant tariff advantage. When diverse farm groups agree that there’s a problem, the Canadian government should take the advice and start working on bilateral trade deals of its own. I’m Kevin Hursh.

March 12, 2006

Nesco Meats has innovative proposal
Since the beginning of the BSE crisis in Canada, there has been lots of talk about new beef slaughter and processing facilities. Although there have been scores of proposals, only a few have proceeded. Nesco Meats of Melfort has maintained a low profile, but has developed what looks like a viable plan. Most of the 25 initial shareholders are producers and they’ve investigated technology from a company in New Zealand that allows a slaughter plant to do a number of different species in an efficient and hygienic manner. The result is a plan for a federally inspected slaughter and processing facility that would do 50,000 to 80,000 animals per year in a single shift. While beef will be the mainstay, the plant will also be able to custom slaughter bison, elk and wild boar. Nesco Meats has purchased 18 acres of fully serviced industrial land from the city of Melfort. The environmental assessment is nearly complete. A prospectus should be complete in the near future at which time there will be a share offering. The $15 million capital project would create about 40 direct jobs. After all the failed plans for slaughter and processing facilities, it’s easy to dismiss these sorts of proposals, but Nesco Meats seems to have done its homework and it has an innovative plan. I’m Kevin Hursh.

March 9, 2006

Fixed Price Contract opportunities
A lot of producers are watching the Canadian Wheat Board’s Fixed Price and Basis Payment contracts looking for new crop pricing opportunities. Each day, new contract prices are posted on the CWB website for wheat, durum, feed barley and malting barley. On durum, the price you can lock in under the Fixed Price Contract is less than the expected pooled price so that’s not very attractive. However, on malting barley and hard red spring wheat, the Fixed Price is better than the Pool Return Outlook. On No. 1 CWRS wheat with 13.5 per cent protein, the Saskatchewan farm gate pooled price for the upcoming crop year is projected to be $4.00 a bushel. Yesterday, a Fixed Price Contract for that grade was being offered at $4.22 a bushel. If a producer wants a “force majeure” clause in case of a crop failure, that reduces the locked in price by $3 a tonne or about 8 cents a bushel. With that protection, the locked in price drops to $4.14 a bushel. That isn’t a great price for top grade wheat, but it is better than the expected pooled price and it is a price guarantee. The fixed prices are based off American futures prices. Hopefully, the values will continue to improve. I’m Kevin Hursh.

March 8, 2006

What to sell and what to hold
Along with seeding decisions, producers are also struggling with what crops to sell and what crops to continue storing in the hope of a better price. The strong demand for biodiesel in Europe has increased canola usage. Some analysts say that bodes well for canola prices, but most don’t expect significantly better canola prices until 10 or 12 months from now. Canaryseed is a crop that many producers store for long periods of time waiting for price peaks. However, inventories are so high that barring a major cut in acreage or a major crop disaster, it’s difficult to imagine canaryseed staging a big price rally any time soon. While 8 to 9 cents a pound is a low price for canaryseed, it isn’t as bad as green lentils. No. 2 large green lentils are down to about 7 cents a pound with lower grades at absolutely ridiculous price levels. Selling lentils at record low prices hardly seems wise. On the other hand, green lentil quality deteriorates over time as the seeds oxidize. Markets are cyclical and crop prices will eventually improve. Unfortunately, it’s hard to predict which crops will rally first and how long it may take. For reasons of cash flow and bin space, a producer can’t store everything. I’m Kevin Hursh.

March 7, 2006

The Case Against CAIS
A new report released by the Canadian Federation of Independent Business has interesting information about the CAIS farm income stabilization program. Called The Case Against CAIS, the CFIB report is based on a survey of the organization’s members who participate in the program (www.cfib.ca/agri/default.asp). Not surprisingly, the report paints CAIS as time-consuming, difficult to understand and costly to participate in, while offering inadequate support. What’s different about this report is that it puts some numbers around the complaints. Ninety-four per cent of respondents indicated both the volume and complexity of paperwork is problematic. Two out of three farm operations hire outside professionals to complete their application forms. The survey found the average producer pays $1,000 for professional help to deal with CAIS paperwork. Nine per cent of respondents reported paying more than $5,000 a year. Meanwhile, barely half of the respondents reported receiving a CAIS payment. Of those receiving a payment, 43 per cent said the payment did not adequately assist their business in handling the margin loss for the year. It’s clear that a different approach to farm income support is needed, but it isn’t clear how a new program should function. I’m Kevin Hursh.

March 6, 2006

Farm assistance in various forms
Friday’s announcement of $52.8 million in farmland education tax relief in Saskatchewan is welcome news. Producers attending this week’s SARM convention will want to hear the details and know the relief is permanent. It isn’t only Saskatchewan taking measures to help producers. Yesterday in Ontario, $125 million in financial assistance was announced. Cheques will be issued before spring seeding. $80 million will go to Ontario grain and oilseed producers and this program will include farm fed grain. $35 million will go to producers of edible horticultural crops and $10 million will go to help with a livestock and poultry traceability system. Alberta had another announcement yesterday. Alberta grain and oilseed producers will see a 20 per cent drop in their share of Production Insurance premiums this year. Alberta says this $20 million premium reduction will be absorbed within existing budgets. Cheques from the federal Grains and Oilseeds Payment Program are currently going to producers across the country. At last count, about a third of the $755 million had been issued. Most of the payments should be complete by mid-April. Even as that money is going out, the federal government is under an intense lobby to do more. I’m Kevin Hursh.

March 5, 2006

American increases in peas and lentils
American production of field peas and lentils has risen dramatically in response to government support under the Loan Deficiency Payment program. Back in 2002, the U.S. placed pulse crops under the LDP effectively guaranteeing producers a floor price. A report just released from Agriculture Canada shows the subsequent acreage and production increases. On lentils, the seeded area in the U.S. has more than doubled since 2001 hitting 450,000 acres last year. Most of the growth has been in North Dakota and Montana. American lentil acreage is expected to increase again this year, even though market prices are badly depressed. Saskatchewan produces far more lentils than the U.S., but it isn’t helpful to have a competitor that has returns guaranteed by a government program. On peas, the U.S. acreage increase is even more dramatic. In 2001, the U.S. had only 227,000 acres of peas. Last year, the acreage hit 850,000 and this year it’s expected to surpass 1.1 million. According to Ag Canada, the Loan Deficiency Payment has sometimes accounted for more than a quarter of the total price received by producers for peas. Market prices for lentils and peas are very low, but when you get an extra dollar or two per bushel from the government, they’re suddenly much more attractive. I’m Kevin Hursh.

March 2, 2006

What to seed
It’s the time of year when analysts are making guesses about seeded acreage. Some analysts have been forecasting a significant decline in western Canadian canola acreage. I don’t subscribe to that view. While canola prices are certainly low, yields were so good in 2005 that it was still the best paying crop for many producers. On top that, there seems to be an expansion of canola acres in southern regions, particularly specialty canola varieties. While the canola acreage may be debatable, there seems little doubt that durum acreage will fall sharply. The price is low and the Canadian Wheat Board has only accepted half of the No. 1, 2 and 3 durum offered by producers. Meanwhile, wheat acreage is expected to increase. Producers are hoping winter wheat production problems in the southern U.S. and Eastern Europe lead to price improvements on spring wheat. The barley acreage is a hard one to call. While many growers are disenchanted with the returns from malting barley, in some areas there’s increased interest in growing feed barley because it can easily be turned into cash in the fall. Of course, if too many think that way, it won’t be good news. I’m Kevin Hursh.

Pulse crop acreage shifts
Substantial acreage shifts are expected in pulse crops this spring. No doubt there’s going to be a big switch from green lentils to reds. The green lentil market is badly oversupplied and prices have been an absolute dog, especially on lower grades. The red lentil market worldwide is much larger than the green market, and while red prices aren’t stellar, the product has at least been saleable. Some observers worry that the swing to reds may be more than the market will absorb. Some of the green lentil acres will go to kabuli chickpeas. This is about the only commodity where prices are attractive. They’re an expensive and high-risk crop to grow, but many producers in the southern part of the province had good returns from them last year. Last year’s plantings of 165,000 acres could double. While prices are expected to decline from the current lofty levels, it’s hoped that kabuli prices will still be reasonable by the time next fall rolls around. While chickpeas are confined to southern areas, field peas are grown everywhere in the province. Although the price is low at about $3.30 a bushel, field pea movement has been good and if you have your own seed, it’s a relatively inexpensive crop to grow. While green peas may be down and yellow peas up, the overall pea acreage is likely to remain relatively steady. There were nearly 2.7 million acres of field peas in the province last year. I’m Kevin Hursh.

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