Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

August 31, 2006

Big decrease in school taxes
One of the few input costs to decrease this year is farmland property taxes. With the changes made by the provincial government, producers will be paying far less school tax this year. Most producers now have their property tax notices. On my notices, the Provincial Education Property Credit averages more than $200 per quarter section. Last year, the credit was less than $50 a quarter. The saving is substantial and appreciated. There’s no doubt that it was rural municipalities standing together in a property tax revolt that finally pushed the province to make this long overdue adjustment. Unfortunately, the credit doesn’t address the root of the problem. Check your school tax before the credit is applied and compare it to last year. On my tax notices, the school tax has increased a little bit on each quarter section. The way the system is set up, the school tax on property will continue to edge upwards as school boards use property taxes to backfill funding shortfalls. It might not be many years before the tax increases are eating up a big part of the provincial credit and we’ll be back to where we started. However, for now the relief on school taxes is certainly welcome. I’m Kevin Hursh.

August 30, 2006

Freight and handling are huge expenses
Freight and handling charges are higher in this crop year. The Canadian Wheat Board calculates average deductions so it can publish Pool Return Outlooks for each province. In the last crop year, the average Saskatchewan freight and handling deduction for wheat was $1.50 a bushel. This crop year, that has risen to $1.57 a bushel. Most of the increase is due to higher grain freight rates. On a 30 bushel per acre crop of wheat, it now costs an average of over $47 an acre to get grain to export position. That’s an increase of about $2 an acre from last year. On durum, the average freight and handling deduction has increased from $1.34 to $1.41 a bushel. Feed barley has gone from $1.28 to $1.35. The deduction is almost as big the total payments farmers are expected to receive on export feed barley. On designated barley, the freight and handling increase is somewhat less. It’s gone from $1.29 a bushel to $1.33. Still, on a 50 bushel per acre malting barley crop, freight and handling is more than $66 an acre. Ouch. I’m Kevin Hursh.

August 29, 2006

CAIS replace?
Yesterday, out of the blue, agriculture minister Chuck Strahl issued a news release reaffirming the promise of his government to replace the current CAIS program with simpler, more predictable and bankable programs. “During the election campaign, we promised to replace CAIS,” said Strahl in the new release, “and we are carrying through on it as we have done with all other campaign promises.” Based on what the feds and the provinces are discussing, the word “replace” is pretty strong. The CAIS replacement is going to be another margin-based program. The inventory valuation and handling of negative margins will be improved, but expect any new program to work a lot like the current CAIS program, even if it carries a different name. The feds have also promised a separate catastrophic disaster assistance program, but don’t expect any miracles from that. If Chuck Strahl really wanted to replace the CAIS program with something that would address the problem of declining margins, it would take billions of dollars more in funding every year and there’s been no indication that the government is willing to make that sort of commitment. Despite the smoke and mirrors, I’m betting the federal government will revamp CAIS, not replace it. I’m Kevin Hursh.

August 28, 2006

Weather Based Insurance payouts likely
Precipitation statistics for August are still pending, but a number of weather stations look like they’ll pay out under the Annual Crop Weather Based Insurance Program that’s available under Saskatchewan Crop Insurance. The program pays out when conditions are abnormally dry or when there’s an early frost. Back in 2004, a lot of weather stations paid out for the early frost. In 2005, there were a few frost payments and a very small number of drought payments. For precipitation, a claim is triggered when the precip falls below 70 per cent of normal at the selected weather station for the May 1 to August 31 time period. For each percentage point of precipitation below 70 per cent, 2.5 per cent of the liability is paid. Producers could chose a $10 an acre or a $25 dollar an acre top up to regular Crop Insurance or they could chose a $75 an acre stand along option that works on the same criteria. For this year, the weather stations where drought payments appear likely include Shaunavon, Hazlet, Lancer, Grasslands, Yellow Grass, Cypress Hills, Coronach, Assiniboia and Estevan. Benson and Midale will be close, but August precipitation could push them above the 70 per cent cutoff. The stats are posted at www.saskcropinsurance.com. I’m Kevin Hursh.

August 27, 2006

Reduced canaryseed and mustard production
The most recent production estimates from Statistics Canada show small mustard and canaryseed crops this year. The harvested area of canaryseed in Saskatchewan is pegged at 295,000 acres, the lowest acreage since 1997. This year’s yield is estimated at an average of 892 pounds per acre for an estimated production of just over 119,000 tonnes. The only smaller crops of canaryseed in the past decade were in 1997 and 2001. The production drop on mustard is even more dramatic. This year’s harvested acreage of mustard in Saskatchewan will be only 267,000 acres. That’s the lowest by far in the past ten years. Saskatchewan’s mustard production is estimated at 89,500 tonnes, about half of last year’s production and about a third of the production in 2004. Saskatchewan is the world’s largest producer and exporter of both canaryseed and mustard. What happens here has a major influence on world prices. In addition to production, carryover stocks are an important part of the equation, but it would seem reasonable to assume that there will be better prices ahead for both of these commodities. I’m Kevin Hursh.

August 25, 2006

Yellow pea prices should improve
Many observers are predicting better prices ahead for yellow peas. In its most recent market newsletter, CGF Brokerage and Consulting of Saskatoon says the Indian subcontinent has a deficit in yellow pulses and this will continue until its next harvest in the February to April time period. The Indian deficit has produced desi chickpea prices of 18 cents a pound. Yellow peas are a substitute. CGF says with current yellow pea prices in the $3.50 a bushel range, there’s a record wide price spread between them and desis. Substitution usually kicks in when the price spread hits $200 a tonne. The current price spread is in the $270 a tonne range. Yellow pea prices have started to firm up in the past couple weeks and that trend is expected to continue. CGF says that even if desi chickpeas were to drop a couple of cents per pound, edible peas could easily run to the $4.25 to $4.50 a bushel range and still be considered economically viable for substitution. Better prices are expected through the winter if growers are patient. It should be noted that green peas are a different story than yellows and are likely to take a back seat in terms of price. Greens could well trade at a discount to yellows, which is not the normal situation. I’m Kevin Hursh.

August 24, 2006

BSE should not be routine
BSE has been found in yet another Alberta cow. Preliminary information indicates this beef animal was between eight and 10 years of age meaning its exposure to BSE likely occurred before Canada’s feed ban or during early implementation. That doesn’t raise as many questions about Canadian safeguards as the cases in animals born well after the 1997 feed ban, but this is still worrisome. There hasn’t been much response to this newest case from Canadian media and the Canadian public – it seems that BSE discoveries are becoming routine. However, each case creates problems for Canada south of the border. The protectionist U.S. farm group known as R-CALF uses each additional discovery to push its political agenda. R-CALF is now saying that its obvious BSE has a much higher prevalence in Canada that anybody anticipated. They say Canada could continue to discover BSE for years to come and question the effectiveness of our feed ban. Faced with pressure from R-CALF, the U.S. administration has withdrawn its proposed rule on importing cattle over thirty months of age as well as beef from those animals. Of course, R-CALF would like to see a return to no importation of any Canadian cattle or beef and each new case of BSE gives them more ammunition. On this side of the border, we shouldn’t become complacent. I’m Kevin Hursh.

August 23, 2006

Wildlife theories
I’m certainly no authority on this, but every year there seems to be more wildlife on the farmland of the province. Harvest is a great time to see all kinds of animals. At one time, it was rare to see a deer. Now, there are deer and antelope all over the place. As a kid, it was a rarity to see a coyote. Now there are so many coyotes that they are often a problem around farmsteads. There are now regular sightings of raccoons and moose in areas of the province where those animals rarely appeared. Cougar sightings are also more common. Big owls and hawks seem to be everywhere. I have some theories about the increase in wildlife. For one thing, abandoned farmyards now dot the landscape and they offer a new habitat. There are fewer people in rural areas and there is a wider array of crops. For instance, deer seem to love chickpeas. With the gun laws and an aging rural population, there’s less hunting and less control of pest species. Whatever the reasons, agriculture seems to be supporting a large and diverse wildlife population, the likes of which hasn’t been seen for decades. Now, if we could just get paid for this public service we’re providing. I’m Kevin Hursh.

August 22, 2006

Year ago grain price comparison
Compared to a year ago, some grain prices are substantially better and some have declined. Saskatchewan Agriculture and Food publishes a regular report comparing prices from one year ago. At harvest time last year, flax prices were substantially higher than the $5.50 a bushel range we’re currently seeing for flax. On canola, prices were very similar a year ago – around that $6 a bushel range. However, last year, canola declined as harvest proceeded. Our feed wheat prices are quite a bit better this year. The glut of feed wheat has finally worked its way through the system. On feed barley, prices are similar to year ago levels. That’s also the situation with field peas. On lentils, one of the most notable differences is that reds are several cents a pound below the prices of a year ago. One of the biggest specialty crop price improvements is on desi chickpeas. They’ve almost doubled in price from last year and are sitting well over 18 cents a pound. Kabuli chickpea prices, on the other hand, are a nickel or more a pound lower than last year. The value of the Canadian dollar continues to work against us. At harvest time last year, it was in the 82 cent range, as compared to current levels in excess of 88 cents. I’m Kevin Hursh.

August 21, 2006

The Alberta advantage
Canada has long pushed for a level playing field when it comes to the international trade of grains and oilseeds. That’s ambitious considering the playing field isn’t level from one province to another. Take for example the $261 million program announced last Friday in Alberta. The funds will be used as additional support under the CAIS program. Based on the 2004 claim year, reference margins will be increased by 25 per cent of the fuel and fertilizer costs and there will be a general reference margin increase of 15 per cent. Alberta producers who participated in CAIS for 2004 will automatically have their claims reprocessed and will be advised of any adjustment to their benefits. It’s estimated that about 60 per cent of 2004 CAIS program participants will see a payout under this new program. Funds are expected to flow this fall. Alberta says the initiative will bridge the gap while producers wait for the promised disaster assistance component to be developed for CAIS. This is just the latest example of a support program available only in Alberta. Alberta, like Quebec, seems to make up its own rules when it comes to agricultural support. Here in Saskatchewan we’re supposed to be happy that the province has decided to fully fund its share of the basic CAIS program. I’m Kevin Hursh.

August 18, 2006

Canadian dollar has hammered grain prices
The Market Analysis Division of Agriculture and Agri-Food Canada has published a paper on how the appreciating value of the Canadian dollar has affected grain and oilseed prices and trade. Over the last five crop years, the Canadian dollar has appreciated by 26 per cent against the U.S. dollar. Each year, the effect has become greater. As compared to the 2001-02 crop year, the value of Canadian wheat exports was cut by $81 a tonne in the 2005-06 crop year. That’s a massive $2.20 a bushel. Meanwhile, the appreciation of the Canadian dollar is estimated to have lowered canola export prices by $99 a tonne or $2.24 a bushel. If our wheat and canola prices were a couple of dollars a bushel higher right now, it would make a world of difference. Unfortunately for export oriented industries, the market fundamentals for the Canadian dollar remain solid and any possible pullback in value is expected to be modest. The Americans continue to run huge deficits which cuts the value of their dollar, while high energy prices remain supportive of the Canadian dollar. Based on the average of the projections made by the five Canadian banks, the value of the Canadian dollar is expected to be up slightly in the current crop year, as compared to last crop year. I’m Kevin Hursh.

August 17, 2006

Cattle numbers plummet
We’ve become accustomed to hearing about rising cattle numbers in this country, but the numbers are now going the other way. Estimates just released by Statistics Canada show Canada’s cattle herd has plunged by 810,000 head in the past year, a near record decline. The decrease is due to the American border opening to live animals. As of July 1 of this year, cattle producers reported 16.2 million head on their operations, down 4.7 per cent from the same date last year. This was the first decline in the national herd in seven years. The American border reopened to live cattle under 30 months of age on July 18 of last year. The export ban due to BSE had been in place since May 20 of 2003. Exports of live animals to the U.S. rose rapidly once the border reopened. However, Statistics Canada reports that recently monthly exports have tumbled as drought stricken U.S. ranchers have shipped cattle early, pushing U.S. slaughter numbers up and prices down. Cattle numbers have fallen in all provinces over the past year, but the decline was most dramatic on the Prairies. Alberta’s herd, the largest of any province plunged 6.0 per cent, Saskatchewan fell 4.8 per cent and Manitoba was down 2.0 per cent. The national cattle herd is still 814,000 animals above the level recorded on July 1, 2002 prior to the border closure. I’m Kevin Hursh.

August 16, 2006

Gardiner Dam Terminal handles 200,000 tonnes
Many observers have said the grain handling system is overbuilt on the prairies. The wave of big concrete as well as steel terminals to replace wooden grain elevators appears to have resulted in excess grain handling capacity. In this competitive environment, it’s interesting to see how well most of Saskatchewan’s farmer-owned inland terminals are doing. There are a few that are struggling, but most that dot the provincial landscape appear to be on solid financial footing. The Gardiner Dam Terminal Joint Venture near Loreburn is an example. General Manager Andy Travers notes that in the 2005-06 crop year that just ended, Gardiner Dam Terminal handled 200,000 tonnes of grain. That’s 7.4 million bushels. He calls it a significant milestone for the locally owned business. Gardiner Dam Terminal has a storage capacity of 17,000 tonnes, so the capacity was turned 12 times in the last crop year. Travers says that’s well above the industry average of 7.8 turns. It’s been a great rural business initiative in the local area creating a viable delivery option as well as a profit for shareholders. Most of the farmer-owned terminals have ties to one of the major grain handling companies, but have retained their own distinct identity. They’re success stories of rural investment that often go unheralded. I’m Kevin Hursh.

August 15, 2006

What varieties are you growing?
The most popular Canada Western Red Spring wheat variety on the prairies remains AC Barrie, followed by Superb and McKenzie. The leading variety in Manitoba is Barrie, while in Saskatchewan it’s McKenzie and in Alberta it’s Superb. These are preliminary results based on the first 5,000 responses to the Canadian Wheat Board’s variety survey. On durum, the top prairie variety is AC Avonlea, followed by Kyle. Both those varieties have lost ground as compared to last year, with the new contract variety Strongfield going from zero percent of the durum acreage last year to over 18 per cent this year. The variety AC Navigator holds down fourth spot. On two-row malting barley, 60 per cent of the prairie acreage belongs to AC Metcalfe. CDC Kendall is a distant second followed closely by CDC Copeland. It’s interesting that Harrington, the one time king of two-row malting barley, now makes up only 5 per cent of the prairie acreage. The top two-row feed barley by far is Xena. It dominates in Saskatchewan and Alberta, while a two-row feed barley named Conlon takes up the majority of the Manitoba acreage. All the results from the preliminary variety survey are posted on the CWB’s website at www.cwb.ca. I’m Kevin Hursh.

August 13, 2006

Hold onto red lentils
There should be better prices coming in the months ahead for red lentils. That’s the view of Murad Al-Katib, the head of Saskcan Pulse of Regina. Saskcan is a major red lentil splitting facility and the largest Canadian buyer of red lentils. Last winter, with green lentil prices dismal, there was a lot of talk about how Saskatchewan farmers should be growing more red lentils, since this is a much larger market worldwide. Well, Saskatchewan farmers did make a major switch from greens to reds. The red lentil price last fall was 13 to 14 cents a pound. The price right now is only in the 10 to 11 cent range and it’s been dropping. Murad Al-Katib doesn’t think the price has much to do with our elevated production and he believes there’s room for price improvement. He points out that our harvest is 10 to 15 days earlier than normal and the Turkish red lentil crop is still working its way through the system. The Turkish crop was average to a bit above average, but the Australian crop coming in December will be reduced by drought. India is both an importer and an exporter of red lentils. There’s currently a ban on pulse crop exports from India, so that should help the market as well. While some factors are working against us, such as increase in ocean freight and our strong Canadian dollar, the advice from Murad Al-Katib is to hold off on most of your red lentil sales if you can. The price should get a bit better. I’m Kevin Hursh.

August 10, 2006

Minor league barley premium
Three more companies have joined the Canadian Wheat Board’s program that pays protein premiums on two-row malting barley. Many companies are now offering the premium, which work the opposite to protein premiums on wheat and durum. The lower the protein on two-row malting barley, the higher the premium. Lower protein barley is more useful for producing malt. While this is a good program, it’s a minor league premium for a crop that’s offering disappointing returns. The maximum protein premium is $5 a tonne which is about 11 cents a bushel. To get that, the barley must have a protein of 11 per cent or less. When the protein is low, a lot of yield has been sacrificed by not having adequate nitrogen to reach the yield potential. The prices paid for malting barley have been a major disappointment for several years. Even with the recent increase in the Pool Return Outlook, the top grade of two-row malting barley is only projected to return $2.50 a bushel for this crop year once average Saskatchewan freight and handling is deducted. The last two years have seen the lowest malting barley prices in more than a decade. On top of that, producers are often overcharged for various deductions and barley that’s initially selected for malting is all too often rejected. The protein premium is welcome, but the crop has other, bigger concerns. I’m Kevin Hursh.

Glyphosate resistant weeds
Glyphosate herbicide has become a vital part of crop production in Western Canada and in many regions around the world. When Roundup was first introduced by Monsanto 30 years ago, it was extremely expensive and used in only limited quantities. Today there are a whole host of companies selling glyphosate products at a fraction of the original cost. It’s used for pre-seeding weed control, chem fallow, pre-harvest applications and in Roundup Ready canola, corn and soybeans. From time to time, there are reports about weeds developing resistance to glyphosate. That’s cause for worry given our heavy reliance on this one herbicide. Quoting reputable independent researchers such as Dr. Hugh Beckie of Agriculture and Agri-Food Canada, Monsanto has issued a news release to try and set the record straight on glyphosate resistance. Although there have been some media reports suggesting a glyphosate resistant weed was found in Canada, officials say there have been no confirmed cases. The one suspected case Dr. Beckie was exploring did not meet the criteria for classifying as a resistant weed. There’s an international survey of herbicide resistant weeds and with the assistance of weed scientists in more than 80 countries, a one stop information source has been developed for all confirmed cases of resistant weeds worldwide. If you’d like to know more, the website is www.weedscience.org. I’m Kevin Hursh.

August 9, 2006

CWB bluster
Here’s an interesting take on the Wheat Board debate by an Ottawa insider. According to this source, the Conservative government is taking a lot of heat to make good on its election promise and bring in dual marketing. MP David Anderson has been a staunch Wheat Board opponent and one of the people working in Anderson’s office is Randy Hoback, a former chair of the Western Canadian Wheat Growers Association. Anderson and his office are pushing agriculture minister Chuck Strahl on the issue. The Ottawa insider says the way things stand, there’s almost zero hope for the Conservatives that farmers would vote to end the monopoly, especially on wheat. There’s also almost zero hope that the Liberals, Bloc and NDP would support amending the act to do away with the central desk. Thus the Conservatives are left to stir things up by making it appear they are making progress. There are things the government could do that would win majority support. For instance, they could clean up the CWB voter’s list and limit any perception of CWB influence in director elections. Even without opposition support, the current government appointments to the CWB board could be cancelled and new people appointed. The government isn’t moving on any on the changes it could accomplish. Instead, notes the Ottawa source, they’re creating a lot of debate without advancing the issue in any meaningful way. I’m Kevin Hursh.

August 8, 2006

Heat effects crops and markets
Yesterday was one of the hottest combining days I can remember. The mercury in southwestern Saskatchewan soared to around 35 degrees. Temperatures were a bit more moderate in northern and eastern areas of the grainbelt, but overall there has been a great deal of heat this summer. Beyond the obvious reductions in yield, particularly in areas that were dry, the heat may have a number of other effects on crops. One would expect overall protein levels to be up in wheat and durum. High protein is a good thing, but in extreme cases, kernels may be shrunken and bushel weights may be down and that could cause downgrading. For malting barley, plump kernels and low protein are the desired attributes. The heat may make it difficult for some barley to be accepted for malting. On the other hand, there hasn’t been much rain during ripening to stain kernels or produce mildew and sprouting. For the lentil harvest, the lack of recent rain should help many producers get their crops off with good quality. Particularly for large green lentils that could be advantageous. Large greens have seen horrible prices since last harvest, but some better prices have developed for the No. 1 grade. Some companies are listing a No. 1 large green price of over 14 cents a pound for delivery later in the fall, about six cents a pound better than the price for a No. 2. I’m Kevin Hursh.

August 4, 2006

CWB drama
Place your bets. How do you think the Canadian Wheat Board debate is going to turn out? On one side you have the Conservative government seemingly determined to fulfill an election promise and appease right wing supporters by axing the CWB monopoly. They say farmers should have the right to choose how they market their wheat and barley. On the other side are the majority of CWB farmer elected directors and a number of farm groups who believe in the value of central desk selling. They say farmers have the right to choose that system and they’re calling for a producer plebiscite before any changes are implemented. According to Ralph Goodale, a prominent Liberal and former Wheat Board minister, the CWB Act requires a producer vote before marketing changes can be made. Conservative Wheat Board and Agriculture minister Chuck Strahl is proceeding as if there’s no such requirement. Even with only a minority government, the Conservatives seem to believe they can push forward. From a public relations point of view, the Conservatives have a perception problem. It’s inconsistent for them to argue for marketing choice while denying producers the right to vote. There seems to be no middle ground on the CWB issue. Either the monopoly stays or it goes. At this point, it’s difficult to know how this drama will unfold. I’m Kevin Hursh.

August 2, 2006

Bertha outbreak
The Canola Watch report organized by the Canola Council indicates spraying for bertha armyworm larvae is occurring in many locations including Lemberg, Govan, Biggar, North Battleford, Rosthern, Birch Hills, Tisdale, Preeceville and Kamsack. High numbers have been found in some fields, but numbers and larvae stage vary widely from field to field. Pest specialists say scouting for larvae should occur in the cool parts of early morning or late evening when they are actively feeding. Due to the widespread bertha outbreak, access to custom aerial applicators can be a problem. Growers are advised to ensure that their crops and insects are at the proper stage before spraying. Spraying just because the plane is in the area is likely to mean poor results. Although the use of high clearance ground sprayers will cause some losses from wheel tracking, it may be worth it to get the staging right . Although canola yields may have already been hurt by the heat and drought in many areas, the use of appropriate thresholds is recommended to determine whether control of bertha armyworm larvae is warranted. The larvae will eat plant material in proportion to their populations and crops with a lower yield potential will suffer similar yield loss in terms of bushels per acre. Assuming a crop price of $7.00 per bushel and a spraying cost of $10.00 per acre, the economic threshold is 25 bertha armyworm larvae per square metre. I’m Kevin Hursh.

August 1, 2006

Support for low-income farmers
The new Canadian Farm Families Options Program will provide a couple years of income support to farmers with very low income levels. In return, the producer must make a commitment to take part in either a farm business assessment or skills training. Farm families earning less than $25,000 a year and individuals earning less than $15,000 a year are eligible. As well, the farm must have gross revenue of at least $50,000. For many, off farm income is being offset with farm losses. Statistics indicate there could be as many as 26,000 farm operations across the country, which meet the income criteria. The Options program will provide a direct subsidy to bring farm family income up to $25,000 for each of 2005 and 2006. For an individual, the program increases income to the $15,000 level. The income support is a carrot to get producers participating in some of the existing renewal programs that are underutilized. Some producers after working on a farm business assessment or taking some training may decide their best course of action is to exit the industry. At least they’ll be making decisions based on more than just emotion. The Canadian Farm Families Options Program targets farmers with the lowest overall incomes and gives them a hand up while providing an avenue for them to help themselves. It may not buy many votes, but it’s been designed with some thought and purpose. I’m Kevin Hursh.

Estimated yields and production
In its latest crop report, Saskatchewan Agriculture is estimating the province’s total production of grains, oilseeds and specialty crops at 24.5 million tonnes, which is just a hair below the ten year average. However, some crops are quite a bit higher and others quite a bit lower than normal. The expected yield on durum is 25.7 bushels an acre – down about four bushels from average. This combined with much lower durum acreage puts the production estimate way below normal. On barley, this year’s expected yield is 49.6 bushels an acre, slightly above average. Barley acreage, like that of durum is below normal meaning overall production will be down. Higher than normal production is expected for oats, flax, canola and field peas. The average oat yield this year is pegged at 60.7 bushels an acre – about two bushels better than normal. Oat acreage is also higher. At 25 bushels an acre, the expected canola yield is a bit higher than normal. Acreage is also up. Flax at 18 and field peas at 29.1 bushels per acre are both down a bit from the ten year average. However, their acreage is up substantially putting their expected production higher. It’ll be interesting to see whether production estimates change as harvest proceeds. I’m Kevin Hursh.

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