Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

July 30, 2006

Harvest Cashflow
Cash flow is tight as producers look ahead to their harvest expenses. The federal government has come out with a couple of announcements that provide a little bit of help in that regard. Remember the $755 million Grains and Oilseeds Payment Program. It was announced by the Liberals and the first payments came out after the Conservatives had assumed power. Most of the money was distributed in the initial payment. However, there’s a little bit left over for a final payment and that money is now starting to flow. The initial payment was 7.47 per cent of net grain sales. The final payment is based on 1.28 per cent of grain sales. If, for example, you got $6,000 in the first payment, the amount still coming will be about $1,000. The feds have also announced that they have approved the requests from several commodity organizations for a stay of default on the repayment of cash advances. Producers who took out a 2005-06 cash advance for wheat or durum through the Canadian Wheat Board and those who took out a cash advance on lentils through the Canadian Canola Association have until January 31 of next year to repay the advances without being charged an interest penalty. This also applies to cash advances on honey. The stay of default has been granted due to a lack of market opportunities for these commodities. I’m Kevin Hursh.

July 27, 2006

Wheat, durum and barley price projections
The Canadian Wheat Board has released new Pool Return Outlooks for both the current crop year and the upcoming crop year. Expected price levels for wheat, durum and barley in the new crop year have finally taken a turn for the better. They’re all up by more than 20 cents a bushel as compared to last month’s PRO. However, the main difference between the current crop year and the new crop year is in the price of wheat. There isn’t much difference in durum and barley prices between the two years. Note that all the prices I’m about to quote have average Saskatchewan freight and handling deducted. No. 1 CWRS wheat with 12.5 per cent protein in the current crop year is expected to have a final realized price of $3.64 a bushel. The new crop year price projection is $4.16 a bushel. That’s not great, but it is an improvement. On No. 1 durum with 12.5 per cent protein, the current crop year price is pegged at $3.83 a bushel, while the new crop year has now improved to $3.89. Feed barley for both years is in the $1.45 a bushel range. The new crop price projection for the top grade of two-row designated barley has shot up by 28 cents. That puts it at $2.50 a bushel, which unfortunately isn’t much above the current crop year PRO of $2.43 a bushel. New crop PROs are going in the right direction, but they still aren’t exactly inspiring. I’m Kevin Hursh.

July 26, 2006

Hold a vote on dual marketing
I don’t often find myself agreeing with the National Farmers Union, but I applaud the meeting they’ve organized today in Saskatoon to support the Canadian Wheat Board. The meeting is to counteract the closed-door meeting the federal government is holding with groups that support dual marketing. The groups invited to the government meeting include the Canadian Chamber of Commerce and the Federation of Independent Business. Since when should those groups be making farm policy? There are many reasons why a majority of farmers voted Conservative in the last election. Marketing choice was an election promise, but the issue was barely on the radar screen. Liberal dishonesty and even gun control were much bigger issues. The Conservatives should fulfill their marketing choice election promise by having a producer plebiscite. Draft a clear question and then let producers decide. It’s apparent that isn’t going to happen unless producers make their displeasure known. The NFU organized meeting in Saskatoon is a calculated risk. If it isn’t well attended, the government will be able to move ahead without much obstruction. I’m Kevin Hursh.

July 25, 2006

Alberta administration of CAIS
In provinces like Saskatchewan and Manitoba, the federal government administers the CAIS program. In other provinces, CAIS is delivered provincially. That’s the situation in Alberta, where they’re doing a number of things to make the farm income stabilization program more accessible and user friendly. Alberta’s Agriculture Financial Services Corporation has developed a secure website that allows producers to check the status of their 2005 CAIS application. Producers can also view their historical CAIS information, including their CAIS benefit history and margin data from previous program years. Initially this will be available only to producers, but there are plans to expand it so that a producer’s accountant and other authorized reps could also have access. In addition to the website, 12 new CAIS Field Analysts are being established in rural communities across Alberta. The internal CAIS computer system has also been upgraded to provide increased efficiency in processing claims for the 2005 program year. Many observers say producers in Alberta are being better served by CAIS than producers in Saskatchewan and the difference is provincial administration rather than federal. I’m Kevin Hursh.

Basic questions of survival
A lot of grain farmers are asking some very basic questions about the future of the industry. Here’s a sampling:
-Who is going to farm all this land? Young people sure aren’t interested and how can you blame ‘em.
-Every year, I say I’m going to give it one more try. I’m still here, but should I be getting out while I still have some equity?
-Is there any hope for a grain price rally? We never seem to have any good times.
-The cost of everything is just out of whack with our returns. How are we supposed to make ends meet?
-Can ethanol and biodiesel make a difference in the markets? If so, how long will it take? Will I be able to last that long?
If you talk to farmers at length, you’ll hear these sorts of questions. Some producers do remain aggressive and optimistic, but they’re an endangered species. The biggest ray of hope isn’t world trade talks, Canadian Wheat Board reform or changes to farm safety nets. The biggest positive producers see on the horizon is the emerging market for biofuels. I’m Kevin Hursh.

July 23, 2006

Hursh's 2006 crop guesstimate
For the past half a dozen years, I’ve taken a shot at estimating the size of the Saskatchewan crop. My guesstimates have been in advance of the official crop estimates. I haven’t traveled the entire province, but there’s no doubt that the unprecedented heat wave of recent weeks is taking a big toll. June was rainy and crop potential looked excellent. Now, even in areas with good subsurface moisture, crop burning is evident on lighter soils. In parts of southern Saskatchewan, there’s burned crop everywhere you look. Field peas are already being combined in some areas and that’s the earliest I can remember. Besides the heat wave, another major factor is the wet seeding conditions this spring. Many acres in northeastern and east central areas didn’t get seeded and much of the mudded in crop has not thrived. This is particularly true of canola that in many cases looks spindly. The heat wave has hit during flowering and that’s bad news as well. The ten-year average for Saskatchewan production is about 24 million tonnes of grains, oilseeds and specialty crops. Last year, there was a record crop of about 30 million tonnes. Unfortunately crop quality was poor and prices were ugly. Even with this year’s extreme heat, I believe the Saskatchewan crop overall has the potential to be average or a bit above average. However, the longer the heat lasts, the more the yield potential will slip. I’m Kevin Hursh.

July 20, 2006

Support for unseeded acreage disproportionately high
The Saskatchewan government has announced an additional $10 an acre for land too wet to seed this spring. This is on top of the regular $50 an acre unseeded acreage benefit from Saskatchewan Crop Insurance and the $15 an acre in ad hoc federal support. Although some deductions apply, producers enrolled in Crop Insurance who were unable to seed are eligible for up to $75 an acre. Producers not enrolled in Crop Insurance are eligible for up to $25 an acre. It’s nice to see producers getting this support, but a lot of other producers who spent money to seed a crop have Crop Insurance yield coverage that’s very low. In many cases, it’s less than $75 an acre. Producers with crop shortfalls due to dry conditions or hailstorms are going to be out a lot more money than those who never put a crop in the ground. Even for producers within the wet areas, the extra support creates inequities. Producers who struggled to seed as much as possible would have been better off to not try so hard. They’re missing out on the unseeded acreage money on acres that may have been mudded in and won’t yield very well. It’s always good to see government help for farmers, but support for unseeded acreage has become disproportionately high compared to the support available for other producers. I’m Kevin Hursh.

July 19, 2006

Wheat harvest record attempted
How long would it take for 100 combines to harvest a quarter section of winter wheat? If all goes according to plan, the answer should come on August 5. An event called World Harvest for Kids hopes to break the record for the fastest harvest of 160 acres of wheat in a field near Winkler, Manitoba. The current record was set in 1998 at Westlock, Alberta, where 64 combines did the job in just under 16 minutes. Organizers believe that with a hundred combines, it should all be over in about ten minutes. Getting all the combines in place is no doubt the hard part. It should be quite sight with all those machines coming down the field side by side. Of course, combining doesn’t always go as planned, so there’s always the possibility something will go wrong. The event is about more than big combines and setting records. The group behind the fundraiser is Children’s Camp International based in Winkler. All proceeds will go to help send children in Asia to camp. The goal is to raise enough money to send 40,000 kids to camp where they can receive a message of hope for their future. I’m Kevin Hursh.

July 18, 2006

Money for minimum tillage
Some Saskatchewan producers are selling their carbon credits. The company compiling the credits and putting the deal together is C-Green Aggregators of Regina. C-Green has a deal with the Chicago Climate Exchange. The current contract from C-Green applies to 2003 to 2006, so a producer will actually be paid retroactively for past farming practices. Producers who have been using minimum tillage to seed their crops qualify. Land that was cultivated is not eligible. Producers have to sign an authorization with Saskatchewan Crop Insurance for a release of cropping information. A producer with 3,000 acres maintained for those four years in minimum tillage should end up with $7,000 to $14,000 depending upon the final price on the exchange and what soil zone the producer is in. The Saskatchewan Soil Conservation Association has had Melfort lawyer Mel Annand review the contract. Annand confirms that there is nothing that would impose liabilities on the farmer after 2006. The signing deadline for this retroactive contract is August 3, so there’s currently a big push to explain the deal. If you’re interested, it’s important to read the contract carefully and maybe even have your lawyer take a look. More information is available at http://www.c-green.ca/. I’m Kevin Hursh.

Saskatchewan crop potential slips
Soil moisture conditions vary widely in Saskatchewan. In areas where soil moisture is short, the hot weather of recent weeks is taking the greatest toll on crops. According to this week’s crop report from Saskatchewan Agriculture, 80 per cent of east central and northeast regions have adequate soil moisture. Those were the regions hit the hardest with surplus moisture earlier in the growing season. In northwest and west central regions, about 45 per cent of cropland has an adequate soil moisture rating. In southeastern and southwestern Saskatchewan, less than 20 per cent of cropland has an adequate soil moisture rating. In the southwest, 82 per cent of cropland is now rated as short or very short of moisture. Crops have advanced at a rapid pace, pushed by the dry, hot conditions. In addition to the harvest of winter wheat and fall rye, some producers in the southwest expect to be combining field peas before the end of July. While official production estimates have not yet been issued, the province appears to be on-track to produce an above average crop overall. However, the recent heat wave has trimmed a lot of bushels especially in the south and any chance at a record crop is long gone. I’m Kevin Hursh.

July 16, 2006

CWB showdown
The political maneuvering on the Canadian Wheat Board issue has been elevated to a new level. Federal agriculture minister Chuck Strahl has called a meeting for July 27 in Saskatoon to discuss Wheat Board reform. His parliamentary secretary, long-time Wheat Board opponent David Anderson is chairing the meeting and the only folks invited are those “who support the advancement of marketing choice for farmers.” Canadian Wheat Board representatives are not invited. The meeting will please those who have long pushed for a dual market and the Conservative government can point to the meeting and say that it’s working to deliver on an election commitment. The reaction from the farmer elected directors to the CWB has been predictable. They say farmers haven’t been asked if they want fundamental reform in the first place. In many ways, the meeting is a big trial balloon. If the government takes a lot of heat for its one-sided meeting, it may be forced to back down and perhaps hold a plebiscite on ending the CWB monopoly. If there isn’t much adverse reaction to the stacked meeting, the Board may be compelled to participate in future restructuring discussions so that it doesn’t end up watching from the sidelines. You can bet the spin doctors on both sides are working overtime. I’m Kevin Hursh.

July 14, 2006

Latest case of BSE is disconcerting
The latest suspected case of BSE, this one in an Alberta dairy cow, has now been confirmed. Officials say it isn’t surprising to discover a few new cases of BSE and each new finding seems to make less news. While the Canadian beef supply is well protected, this latest case is disconcerting. The cow was only 50 months old – a little over four years. Several of our BSE cases have now been in animals born well after the 1997 ruminant to ruminant feed ban. Officials say that isn’t unusual based on what has happened in other countries. However, this animal was born years after the ban. While it may be possible to have traces of contaminated feed around for a long time, cases such as this one raise the possibility of inadvertent mixing or cross-contamination of ruminant feeds by feeds destined for non-ruminants and pets. It’s a good thing that the Canadian Food Inspection Agency has moved to ban specified risk materials in all livestock feeds and even fertilizers. In hindsight, it’s too bad the ban wasn’t implemented long ago. Disposing of the specified risk materials that may harbour BSE has a cost, but it could very well be much less than the cost of not acting. I’m Kevin Hursh.

July 12, 2006

Canada's biggest ethanol plant
The biggest ethanol plant in the country is now in production. It’s the St. Clair Ethanol Plant located in St. Clair Township near Sarnia, Ontario. The St. Clair Plant owned by Suncor Energy Products has an expected production volume of 200 million litres a year. The $120 million plant is expected to use 20 million bushels of corn annually. By comparison, the Husky ethanol plant near Lloydminster will produce 130 million litres a year while using about 13 million bushels of wheat. Suncor is also involved in wind power projects. It has SunBridge in southwestern Saskatchewan and Magrath in southern Alberta. A third wind farm near Taber, Alberta is under construction. Pending regulatory approval, Suncor’s fourth and largest wind farm is planned for a location east of Lake Huron in Ontario. It’s interesting that Suncor has built the country’s largest ethanol facility in Ontario, when that region is a net importer of corn. While Suncor may intend to use locally grown Ontario corn, that could prove difficult, especially as more ethanol plants come on stream. Meanwhile, Saskatchewan is a surplus region for feedstock. I’m Kevin Hursh.

July 11, 2006

$5 wheat
It’s been a long time since wheat has been a bright spot in prairie agriculture, but it is this year. Yesterday, under the Canadian Wheat Board’s Fixed Price Contract, producers could lock in a price for the upcoming crop year of about $5.00 a bushel for No. 1 CWRS wheat with 13.5 per cent protein. That’s the price with average Saskatchewan freight and handling deducted. Not everyone ends up with top grade, high protein wheat. A producer locking in $5.00 a bushel under the Fixed Price Contract would end up with about $3.80 a bushel on a No. 3 CWRS with no protein premium Some producers have locked in as much as half of their expected wheat crop. Fixed Prices were attractive in early April and then again in mid-May. Lately they’ve hit new highs. At $5.00 a bushel, the price of wheat is still too low. Back in 1995-96, the pooled price to Saskatchewan farmers was close to $6 a bushel. Back in 2002-03 when a terrible drought hit much of the prairies, the price was in the $5.50 range. However, compared to crops like durum, barley and flax, $5 for wheat looks pretty good. I’m Kevin Hursh.

July 10, 2006

Retroactive CAIS changes slow to pay
More information has been released on how the federal government is handling the retroactive changes to CAIS. Changes to the inventory valuation should mean sizable payments for some producers, but it’s going to take a while to do all the calculations and get the money out. Eligible participants are those who participated in CAIS for any of the 2003, 2004, or 2005 program years. There is no need to apply. Payments to eligible producers will automatically be made based on information they have already submitted on their CAIS application. The feds say payments will be issued as applications for each program year are recalculated. However, there’s a $900 million spending cap so producers will only receive a percentage of their total payments to start with. For 2003, payments are to be issued starting in September and the payment will be at 50 per cent. For 2004, 50 per cent payments are to be issued starting in November. Payments for 2005 are to be made starting in January of next year. Final payment percentages will be figured out once all the years have been calculated. This method of providing support has some merit, but it’s certainly not going to be delivered quickly. I’m Kevin Hursh.

July 9, 2006

Hot dry weather trims crops
Even though Saskatchewan has had normal to above normal growing season precipitation, the recent hot, dry weather is taking a toll on crops. Saskatchewan has done better for rain than the neighbouring provinces. Most of Manitoba has been drier than normal. In fact, precipitation maps from the PFRA show the farther east you go, the drier it’s been. East of Winnipeg has received only 40 to 60 per cent of normal precipitation since April 1. The other big area of Western Canada with below normal precip is central and northern Alberta at 60 to 85 per cent of normal. That dry region extends into the Meadow Lake area of Saskatchewan. While the rest of Saskatchewan is normal to above normal for precip, the hot weather is reducing the flowering time for crops like canola and peas. In some southern regions, producers expect to be combining peas before the end of July. Last week’s crop report from Saskatchewan Agriculture rated over 80 per cent of spring cereal crops as good to excellent. Expect crop ratings to drop if the dry weather persists. Earlier in the year, the biggest problem facing Saskatchewan crops was flooding. Now, the biggest problem has become not enough moisture and too much heat. I’m Kevin Hursh.

July 6, 2006

Keeping durum deliveries honest
The Canadian Wheat Board has announced a number of changes to delivery contracts for durum in the upcoming crop year. The CWB doesn’t say so directly, but a lot of the changes are aimed at making durum deliveries more honest. It was no secret going into the crop year that durum deliveries would likely be limited. As a result, some producers and maybe a lot of producers contracted more durum than they actually had to sell. In the new crop year, there will be two delivery contracts rather than three. There will be Series A and Series B, but no Series C in order to simplify the process. Assuming a normal harvest and grade pattern, the CWB will move to the sole use of Guaranteed Delivery Certificates for No. 4 and No. 5 durum. If there’s a lot of low quality durum produced, the CWB says its prepared to provide a select contract that will give farmers a market incentive to preserve the highest quality grain for premium markets. Lastly, farmers offering durum on CWB delivery contracts could be subject to a bin audit to verify stocks. This should help discourage the practice of contracting more than you have as a way of maximizing deliveries. I’m Kevin Hursh.

New canola crushing plant
JRI, James Richardson International has announced that it will build a $100 million state-of-the-art canola crushing plant with construction starting this fall. However, the location is still up for grabs. The new plant could be in Saskatchewan, Manitoba or North Dakota. This is reminiscent of the Cargill canola crushing plant built back in the 90s. The two major shortlist locations were Red Deer and Saskatoon. The Saskatoon area eventually won and the big new plant was built near Clavet. A canola crushing plant brings jobs and a lot of economic spin-offs. Producers who are closest to the new plant stand to benefit the most. There will no doubt be stiff competition from the three jurisdictions in the running to attract this big investment. Pioneer Grain is a subsidiary of James Richardson International. JRI also owns and operates Canbra Foods Ltd at Lethbridge. In addition to crushing canola, this plant refines, processes and packages the canola oil. The new plant will triple JRI’s canola oil production. The company says the canola oil from the new plant will primarily be destined for human consumption, but might also be used to supply the emerging bio-diesel industry. I’m Kevin Hursh.

July 4, 2006

Skimping on inputs
When you’re running dry on cash and credit, it’s difficult to invest all you should to grow a good crop. Fertilizer is perhaps the primary input that isn’t optimized. Everyone preaches the value of soil testing so you have a better idea of how much fertilizer the crop will need to reach target yields. It’s good advice, but if you’re not prepared to pay for all the fertilizer that should be applied, a soil test may have little value. In a good year, when the weather cooperates, the proper inputs will pay for themselves and add a return on investment. But there are no guarantees. Weather can be too wet, too dry or too hot. Insects can take a toll. Disease can wreck havoc. Wet harvest weather can ruin crop quality. A hailstorm can destroy the crop in a matter of minutes. Even when the yield and quality are favourable, it can be tough to get your money back. Prices and/or marketing opportunities can be limited. Producers with last year’s green lentils and durum wheat still in the bin can attest to that. However, with less than optimum inputs, the crop can’t reach its full potential even if the weather cooperates. There are still many hurdles to overcome and many things that can go wrong, but in most areas of Saskatchewan this year’s crop potential is very good. No doubt many producers now wish they’d have spent more money on inputs such as fertilizer. I’m Kevin Hursh.

July 3, 2006

Less barley malt production in Canada
Over the past five years, oilseed crushing has increased in Canada. So has wheat flour milling and oat processing. Durum milling has seen a slight increase over the past five years. However, the malting industry has seen an 11 per cent decline over that time. Statistics from Agriculture Canada show a 6.5 per cent drop in barley malting in Eastern Canada and a 12.9 per cent decrease in Western Canada. Here in the west, Dominion Malting in Winnipeg has stayed at the same capacity, but Canada Malting in Calgary has dropped its production over the past five years. So has Rahr Malting of Alix, Alberta. The biggest decline is at Prairie Malt in Biggar. Owned by Saskatchewan Wheat Pool and Cargill, Prairie Malt is the second largest malting company in the country. In 2001-02, Prairie Malt processed 804 tonnes of malting barley per day. In 2006-07, Agriculture Canada estimates production at 602 tonnes per day. Both the domestic and the export market for barley malt have declined. In Canada, beer consumption is dropping due to an aging population and there’s also more consumption of imported beers. On the export side, Canada’s share of the market for barley malt has trended upwards for twenty years. More recently that trend has gone the other way. The end result - domestic malting plants are not buying as much malting barley as they once did. I’m Kevin Hursh.

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