Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

October 31, 2006

Barley plebiscite announced
Chuck Strahl has been asked the question about a thousand times since becoming Ag Minister. Are you going to hold a vote on the Canadian Wheat Board issue? Strahl has always been non-committal. That changed yesterday as he announced that a plebiscite will be held early next year on the marketing of barley. There will likely be disagreement over how the question should be phrased and who will be allowed to vote. However, Strahl is promising a clear question and a broad base of voters. There’s more support for ending the CWB’s monopoly on barley than there is for wheat, so this will be an interesting exercise. Market choice supporters have a good chance of winning. Strahl isn’t saying that he will be bound by the result. He’s calling it an important way of consulting. However, majority support for marketing choice could give the Conservatives what they need to get the necessary changes through Parliament. Strahl isn’t saying anything about a future wheat plebiscite, but one would presume that producers would eventually be asked that question as well. If the questions are fair, this is a logical way for the government to proceed. I’m Kevin Hursh.

October 30, 2006

Task force report avoids political realities
The report from the task force established by Agriculture Minister Chuck Strahl has been released. The 30-page report provides recommendations on how to remove the monopoly powers from the Canadian Wheat Board on wheat and barley sales, and how to and turn the organization into a farmer-owned grain company, competing with others in the marketplace for the business of producers. While the task force report could serve as a blueprint for change, the first step in the recommendations is for the government to put a Bill before Parliament to repeal the Canadian Wheat Board Act and provide authority for a new commercial entity. The task force envisions Royal Assent on this legislation by June of 2007. Marketing choice for barley would then begin in February of 2008 with marketing choice for wheat in July of 2008. The trouble for Chuck Strahl and the Conservatives is getting the changes through Parliament. Opposition parties have vowed to oppose such changes unless they’re supported in a producer plebiscite. If the government wants to follow the task force template, it will either have to wait until it has a majority in the House of Commons or it will have to hold a producer vote. The task force didn’t deal with those political realities, but Chuck Strahl will have to. I’m Kevin Hursh.

October 29, 2006

Can quota values increase forever?
All is not well in Canada’s supply-managed industries including dairy in central Canada. Dairy Farmers of Ontario and its counterpart in Quebec have cancelled quota exchanges, while potential quota policy changes are discussed. Dairy quota values continue to escalate. On paper, people who own quota are getting richer, but many observers say the situation isn’t healthy or sustainable. The Ontario and Quebec boards have been discussing a system whereby a significant amount of quota would be withheld every time quota is sold in an arm’s length transaction. This transfer assessment would enable the withheld quota to be distributed to all producers or it could be made available to new entrants. This sort of policy change is likely to meet a lot of opposition. Existing producers could take a significant hit in their net worth, because their quota will no longer be as valuable. Dairy Farmers of Ontario says it is hoping to have producers focus on the income flow that quota represents rather than speculating on the potential value realized upon its sale. That change in mindset could be a difficult given that a lot of producers like the steadily escalating value of the intangible asset known as quota. I’m Kevin Hursh.

October 26, 2006

October Pool Return Outlook
They’re improving, but wheat, durum and barley price expectations still aren’t very good. The October Pool Return Outlook from the Canadian Wheat Board was released yesterday. No. 1 CWRS wheat with 13.5 per cent protein now has a Saskatchewan PRO of $4.36 a bushel. That’s the highest in a few years, but it’s well below the $4.90 a bushel that was briefly available as a Fixed Price Contract back in early July. Durum has come up a bit, but it isn’t great - $4.31 a bushel for No. 1 with 13 per cent protein. The biggest improvement in this month’s PRO is on feed barley. It increased by $28 a tonne. That brings the average price on feed barley in Saskatchewan to $2.34 a bushel. Over most of the province, the domestic price of feed barley is still higher than the CWB’s expected price, but the two are now a lot closer together. If the CWB price gets high enough to attract significant deliveries, that will put additional pressure on the domestic price. Special Select two-row malting barley now has a Saskatchewan PRO of $3.02 a bushel. Most producers don’t get the top grade. Standard Select two-row malting barley has a PRO of $2.92. By the time you calculate dockage and trucking, the domestic feed barley price is just about as good. I’m Kevin Hursh.

October 25, 2006

Saskatchewan crop yields
In its final crop report of the season, Sask Ag and Food is estimating this year’s total production of grains, oilseeds and specialty crops at 24.96 million tonnes. That’s two per cent above the 10-year average. Just to gloat for a minute, back on July 24, I predicted the Saskatchewan crop would be average to a bit above average. It’s interesting to look at this year’s yields. At an average yield of 38.7 bushels an acre, this was a good year for winter wheat. That’s more than 3 bushels an acre above the 10-year average. Spring wheat at 30.7 was only slightly above average, while durum at 28.3 was a bushel and a half below average. Durum is grown mainly in the south and the south was hurt more by hot, dry weather. Oats at 63 bushels an acre was about four bushels better than average. Barley at 51.2 was a couple bushels above average. Flax at 18.7 was only slightly above average while canola at 26.1 was more than two bushels above average. That kind of performance from canola in such a hot year is probably a credit to the newer varieties.. There are a couple of surprises in the Sask. Ag numbers. Field peas yielded only 29.8 bushels an acre – about on par with the long- term average. Since peas mature early, I would have expected them to make better use of all the rain in June. The other surprise for me is canaryseed. Sask Ag pegs this year’s provincial yield at over a thousand pounds -- more than a hundred pounds above average. I’m surprised canaryseed faired that well. I’m Kevin Hursh.

October 24, 2006

Fixed Price versus Pooled Price
A lot of producers will be watching for the Canadian Wheat Board’s new Pool Return Outlook which is due to be released Thursday afternoon. As of yesterday, the Fixed Price for CWRS wheat was 37 cents a bushel higher than the Pool Return Outlook. After deducting average freight and handling No. 1 CWRS with 13.5 per cent protein had a Fixed Price of about $4.50 a bushel. On winter wheat, the Fixed Price was 61 cents a bushel higher than the Pool Return Outlook. The PRO is widely expected to improve when the October estimate is released on Thursday. After that, producers will be checking the value of the Fixed Price Contract to see whether or not it continues to be higher. October 31 is the deadline for signing Fixed Price Contracts so there isn’t a lot of time to act. Sticking with the pooled price, the actual value at the end of the crop year could end up higher or lower than the PRO. Going with the Fixed Price, a producer will get paid much sooner and the amount is guaranteed. You can check out the PRO versus the Fixed Price Contract at www.cwb.ca. I’m Kevin Hursh.

October 23, 2006

Farmers get paid for carbon credits
Mike Walsh, the senior vice president of the Chicago Climate Exchange spoke last night to a couple hundred farmers at a meeting in LeRoy, Saskatchewan. Walsh says various companies want to get ahead of any regulations for greenhouse gas emissions. They want hands on experience with carbon trading and their shareholders like them taking environmental action. Thus, there is a market for farmers wanting to sell carbon credits. To qualify, producers must have their land under minimum tillage. Saskatchewan farmers through C-Green Aggregators will soon be selling carbon credits on the Chicago Climate Exchange. For this first major offering from C-Green, Saskatchewan farmers have committed 5.1 million acres for the years 2003 to 2006. Saskatchewan Crop Insurance is doing the verification and then the credits will gradually be sold. In the near future, watch for another offering from C-Green. This time it will be for the years 2006 to 2010. Farmers aren’t going to get rich from the sale of carbon credits. The current price is around $4 a tonne. The brown and dark brown soil zones are assumed to sequester 0.2 tonnes per acre of carbon a year while black and gray wooded soils are at 0.4 tonnes per acre. Still it’s a bit of additional revenue for producers who are already using minimum tillage anyway. I’m Kevin Hursh.

October 22, 2006

The Big Dry Down Under
The drought in Australia is one of the reasons for increasing world grain prices. The Aussie wheat crop will be less than half of normal. Their canola crop will be so small that they may import canola just to keep their domestic crushing industry running. Many producers in eastern Australia will have to rely on imported grain to feed livestock. Cereals are being cut for hay. Reports from down under talk about escalating livestock feed prices and the sell-off of herds at depressed prices. While some areas of Australia will have decent production, other areas have been suffering through multiple years of drought. There’s a debate over whether many regions are still suitable for agriculture. The drought threatens to put a lot of producers out of business. Just like in Canada, an agricultural disaster leads to political debate. Drought assistance programs have been announced, but there’s the usual polarization between those who say it isn’t enough and those who argue that farmers shouldn’t be insulated from economic reality. The “big dry” in Australia is good news for grain prices, but behind the statistics, there’s a lot of personal tragedy. I’m Kevin Hursh.

October 19, 2006

Weather based insurance provides little help
Fifteen rural municipalities in southwestern Saskatchewan are lobbying for drought aid. While most of Saskatchewan had average to above average precipitation this growing season, that wasn’t the case in parts of the south. Despite very poor crops in those areas, it’s interesting to note that the Annual Crop Weather Based Insurance Program will have limited payouts. This is an extra, optional program offered by Saskatchewan Crop Insurance and payments are triggered by low precipitation or an early frost. In order for precipitation payments to be triggered, the weighted average precip has to fall below 70 per cent. If you look through the stats on the Crop Insurance website (www.saskcropinsurance.com) you’ll find only a few points that will trigger. Coronach at 59.9 per cent is the only weather recording station I can see that will pay out significantly more than the premium paid by farmers. Assiniboia at 66.2 per cent and Yellow Grass at 68 per cent of normal precip will trigger very small payments. A number of locations are just over the 70 per cent level and will miss payouts. This includes Hazlet, Lancer, Benson, Val Marie and Midale. It seems to take a major drought for the Annual Crop Weather Based Insurance Program to trigger anything significant. I’m Kevin Hursh.

October 18, 2006

CWB voter's list alterred
The newest criticism of Agriculture Minister Chuck Strahl on the Canadian Wheat Board issue is his removal of 16,000 names from the voter’s list for the current CWB director elections. Strahl’s timing is bad. You shouldn’t be messing with a voter’s list when the election process is already underway. However, removing producers from the list who haven’t had grain deliveries to the CWB in the last two years is a reasonable move. Some producers will not be on the list because they’ve moved away from CWB grains. Some have gone right out of grain and into cattle. Others will have sold wheat and feed barley on the domestic market rather than through the board. There’s little reason to believe that dropping these producers from the list will change voting patterns a great deal. You’d think that a high percentage of producers who haven’t delivered through the board wouldn’t vote anyway. Producers with zero sales can still be added to the list by filing a statutory declaration with the Election Coordinator. That isn’t a difficult process. Given Chuck Strahl’s gag order on the CWB and given his one-sided task force examining how to dismantle the single desk, the optics of altering the voter’s list are not good, but it isn’t an unreasonable act. I’m Kevin Hursh.

October 17, 2006

Feeder cattle prices hurt by rising feed grain values
Recent weeks have seen a sharp increase in feed barley prices. As feed grain prices have strengthened, the price of feeder calves has dropped. With the fall calf run underway and thousands of head hitting auction markets, it isn’t unusual to see prices slip a bit. However, prices have declined for several weeks in a row and the drop last week was significant. Saskatchewan Agriculture and Food says just over 18,000 head were sold by auction during the week of October 9 to 13. Their market report says lightweight steer calves took the biggest price hit, down $7 to $13 per hundredweight. While there are always a number of factors at work in the marketplace, there’s no doubt that rising barley prices are having an effect on the feeder market. Market analysts also point out that last year there was a heavy flow of feeder cattle from Saskatchewan to the U.S. to take advantage of low corn prices. With corn prices strong this fall, feeder cattle exports are down dramatically. This is another way that rising feed grain values are affecting the livestock industry. For feed grain producers, the jump in prices is welcome news. That’s not the case for the livestock industry. I’m Kevin Hursh.

October 16, 2006

Buggy grain
The last two years have seen a big increase in bug problems within grain. Observers blame the large amount of tough grain that was harvested in 2005. Then this fall, grain went into the bin at high temperatures. The result is a lot of wheat and durum infested with rusty grain beetles and red flour beetles. The problem is being aggravated by inadequate availability of phostoxin. Phostoxin is a nasty, but effective product for getting rid of bugs in grain. Some retailers are making it available. Others are not. Technically, it’s only supposed to be sold to people who are licensed applicators. Diatomaceous earth and malathion dust are sometimes used to treat bugs, but they’re not as effective when you have a severe infestation. Cold temperatures will kill grain bugs, but you need minus 20 for a week. Running the wheat through a grain vac will get rid of a large percentage of the bugs, but no one seems to know whether it’s completely effective. No matter how you deal with them, bugs in grain cost money and time to treat. Plus, grain deliveries are stalled until the problem is solved. I’m Kevin Hursh.

October 15, 2006

Low income producers shouldn't miss out on Options program
The deadline to apply for the Canadian Farm Families Options program is October 31. As government programs go, the Options program is relatively simple. It’s based on the 2005 tax return. Farm families with less than $25,000 in income or individuals with less than $15,000 qualify. A loss on the farm can be used to offset off-farm income. Another qualification is that there must be at least $50,000 in gross farm income. Some are critical of this requirement, but it’s meant to channel the support to producers who have a significant farm operation. The program brings a farm family up to the $25,000 income threshold or up to the $15,000 threshold for individuals. In return, a producer must commit to using the business assessment or skills development programs that governments offer. Another payment will be made to applicants based on 2006 income. The Options program is meant to provide temporary support while encouraging producers to get help to chart a better financial future. Cheques totaling over $30 million have been sent out with the average payment being over $10,000. Almost 5,000 applications have been received, but there should be four or five times that many qualified producers across the country. The website to find out more is www.agr.gc.ca/options. I’m Kevin Hursh.

October 12, 2006

Rising dollar hurts Maple Leaf
Trouble in the meat packing business isn’t unique to Maple Leaf Foods. Yesterday, Maple Leaf announced that it wouldn’t be proceeding with the previously announced hog slaughter plant in Saskatoon. Not only that, Maple Leaf will close the Mitchell’s Gourmet Foods slaughter plant over the next three years. The company is going to concentrate on further processing where returns are better. In Quebec, another meat packer, Olymel, is bleeding red ink and looking for solutions. It has hired former Quebec Premier Lucien Bouchard to negotiate with producers and with workers. Both Maple Leaf and Olymel cite the strength of the Canadian dollar as one of the reasons for their financial difficulties. The same force is insidiously holding down our grain prices. In recent days, there’s been lots of talk about wheat prices hitting ten-year highs. That’s true on American exchanges in American dollars, but our wheat prices aren’t breaking any records. They’ve improved, but they’d be truly exciting if we were back to a 65 or 75-cent dollar. Canola prices would move from mediocre to highly profitable. Export oriented industries from pork to canola to lumber have suffered greatly from the escalating value of the loonie. I’m Kevin Hursh.

October 11, 2006

Strahl makes another PR gaff on CWB issue
The Conservative government is losing the public relations battle over the Canadian Wheat Board. Agriculture Minister Chuck Strahl has shown no finesse on the issue. The latest gaff is a muzzle order, a directive from the government that the Canadian Wheat Board stop promoting its monopoly powers. A gag order of this nature is unprecedented. Recently the government appointed Ken Motiuk as a director to the CWB’s board. His main qualification is that he’s a staunch opponent of the single desk. Before that, Strahl held the now infamous meeting in Saskatoon to discuss the future of the CWB – a meeting at which supporters of the single desk were not invited. Now, he’s got a stacked task force compiling a quick report on how to proceed with dismantling the CWB’s powers. Farmers are divided on the Canadian Wheat Board issue. You’ll never get agreement between the two extreme points of view. However, a lot of producers are united by the view that farmers and not government should make the decision on the CWB’s future. Groups such as SARM and APAS that have seldom played an active role in the CWB debate have now joined forces to oppose the government’s direction. Chuck Strahl has managed to push a lot of producers off the fence. His actions are increasingly unpopular. I’m Kevin Hursh.

Does Canada want biodiesel production?
Biodiesel production is going to dramatically increase the consumption of vegetable oils. The question for Canada is whether we want to produce biodiesel here or whether we want to continue exporting canola and canola oil so that the biodiesel can be produced in other countries. Brant Randles is President and CEO of Louis Dreyfus Canada. Randles was doing media interviews yesterday so that the normally publicity shy company could reassure everyone that it is indeed serious about the new canola crushing plant it has announced for Yorkton. Randles admits that having both the Louis Dreyfus plant and the JRI plant in Yorkton will put stress on canola supplies in that region, but he believes canola acreage will continue to increase. Asked if Louis Dreyfus might put a biodiesel production facility beside its Yorkton crush plant, Randles says that if there’s the right tax environment, the company might get into biodiesel production in Canada. However, he says incentives similar to those offered in the U.S. would be required. Otherwise the canola oil might as well move to biodiesel plants across the border or to Europe. Assuming that crude oil stays at $60 a barrel or higher, Randles thinks biodiesel plants will continue to be constructed. This is a large and growing demand component that didn’t exist just a few years ago. I’m Kevin Hursh.

October 10, 2006

Organic carrot juice
Just because a product carries an organic label doesn’t mean it’s immune to food safety problems. The Canadian Food Inspection Agency is warning consumers not to drink certain brands of carrot juice due to botulism concerns. The specific products are Bolthouse Farms 100% Carrot Juice, Earthbound Farm Organic Carrot Juice and President’s Choice Organics 100% Pure Carrot Juice, all from a company in California. Two botulism cases in Toronto are now confirmed from the affected carrot juice. In the U.S., four cases of botulism have been reported. Carrot juice is the kind of product you’d expect to see as organic. Spinach is another such product and a recent CFIA warning about U.S. spinach included organic brands. The spinach, also from California, is believed to have caused an outbreak of E. coli 0157:H7 illnesses in the U.S. In fact, the U.S. reported at least 50 cases of illnesses in eight different states, including one death and eight cases of a form of kidney failure. An organic label on a food product is meant to ensure that it was produced without the use of artificial fertilizers and pest control products. It doesn’t make the food any less prone to very real food safety concerns such as E. coli and botulism. I’m Kevin Hursh.

October 5, 2006

Feed barley prices show strength
Over most of Saskatchewan, feed barley is now worth $2.00 a bushel or more picked up on the farm. In the last two months, prices have increased by about 50 cents. Brokers who trade barley note the price hasn’t moved so dramatically in years. The exact price is highly freight dependent. The closer you are to Alberta’s feedlot alley or the large hog operations in Manitoba, the better the price you can get. So far, all the factors are working in favour of continued price increases. Only a small amount of wheat was downgraded to feed this year and the price of feed wheat has shot up. Barley quality is good and selection rates for malting should be high. The overall barley production in Western Canada was well below average production due to reduced acres. As well, American corn prices have shown some strength. The question on barley is the same as it is on many commodities. The price is increasing, but how far will it go? As producers, we’re reluctant sellers when the market is rising. Unfortunately, you’ll rarely hit the top of the market. Those who try often end up bailing out as the market plummets. For now though, it’s marvelous to sit back and watch as many commodity prices continue to increase. I’m Kevin Hursh.

October 4, 2006

Incentives for biofuels
Even oil rich Alberta has recognized the potential for biofuels. The Alberta government is committing $239 million to strengthen and expand the province’s bioenergy sector. A total of $209 million over four years will be used to administer the Renewable Energy Producer Credit program that will help Alberta industry compete with other jurisdictions that provide programs and tax exemptions to distributors who blend biofuels. An additional $30 million, three-year commitment called the Energy Innovation Fund will support establishment of the infrastructure required to market and distribute bioenergy products within the existing market for fuel or electrical power. Canola Council of Canada president Barb Isman is congratulating Alberta for their bioenergy investment while noting that a federal renewable fuels policy is required quickly. The biofuels industry is anxiously awaiting the federal government’s long promised renewable fuel strategy, which is expected sometime this fall. It’s widely anticipated that the federal program will include incentives to encourage producer investment beyond primary production. I’m Kevin Hursh.

October 3, 2006

Farmland values still rising
It’s good to see that farmland values in Saskatchewan are continuing to edge upwards. The Farmland Values Report from Farm Credit Canada shows a 0.8 per cent increase in Saskatchewan farmland prices in the first half of 2006. This was the smallest increase in Western Canada. B.C. land values increased a whopping 10.3 per cent. Alberta was up 3.9 and Manitoba was up 2.8 per cent over the six-month period. Given commodity prices and farm input costs in the first half of this year, it’s amazing that Saskatchewan saw any increase at all. There are no statistics of farmland rental rates, but I believe there was an overall decrease in rents this spring. FCC says in general, farmland in Saskatchewan is still considered a good investment. Current owners are holding land and investors are buying land with the expectation of future capital gain. From 1999 to early 2002, farmland values fell in Saskatchewan. Since that time, there have been increases in each six-month period, but most of the increases have been modest. This is the fourth six-month period with an increase of less than one per cent. Increases, even very small ones are certainly better than dropping land values, which mean eroding equity. I’m Kevin Hursh.

Lots of combining left
What sort of an October are we going to have? It’s been an early harvest, but very little has been accomplished for weeks. The 8 per cent remaining to be combined in Saskatchewan is more than 2.5 million acres. In many central and northern areas of the grainbelt, there’s a lot of crop still in the field. With the ground wet and the days getting steadily shorter, there are worries about getting harvest finished this fall. Sometimes October can be nice, but there are no guarantees. Back in 1984, much of the province was hit with a big snowstorm on October 16 and the snow never left. In areas where harvest has been completed, the October weather is going to affect fall work such as herbicide applications. Mid to late October is a great time to control next year’s winter annual weed problems with an inexpensive application of 2,4-D. It’s also the time frame for soil applied herbicides such as Avadex and Edge. Sometimes late October weather is conducive to field work and sometimes it isn’t. A lot of producers, for various reasons, are hoping for some good weather between now and Halloween. I’m Kevin Hursh.

October 1, 2006

Breakeven yields attainable
Grain prices are significantly better than what was expected back at seeding time. Still, it takes an above average crop to cover all the expenses and make any money. Last winter’s Crop Planning Guides from Sask Ag and Food estimated the total cost of growing most crops in the dark brown soil zone to be in the range of $145 to $150 an acre. Crops like lentils and canola are more expensive with more than $170 an acre required to cover all the cash and fixed expenses. This includes no return for labour and management. Plugging in current price levels, here are the breakeven yields for various crops direct seeded into stubble. On spring wheat and durum, the breakeven yield is 36 to 38 bushels an acre. On malting barley, the breakeven yield is about 56 bushels an acre. Field pea prices have been a pleasant surprise this fall, rising to well over $4 a bushel on yellow edible. That puts breakeven at about 35 bushels an acre. On canola, at current prices, the dark brown soil zone breakeven yield is about 27. Of course everyone has different costs. As well, prices depend on quality, marketing and trucking costs. But with better quality and better prices this fall, it is possible to make a dollar if you had good yields. I’m Kevin Hursh.

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