Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

January 31, 2007

N fertilizer expensive and scarce
The price of nitrogen fertilizer is going through the roof and there are worries about adequate supplies for seeding. Last fall, urea (46-0-0) was retailing for about $340 a tonne in Saskatchewan. Since then, the price has skyrocketed. At some retail outlets, urea is now well over $500 a tonne. For a producer applying 70 pounds per acre of actual nitrogen, urea at $340 a tonne is a cost of about $23.50 an acre. At $500 for a tonne of urea, the price tag for 70 pounds of actual N is about $34.50 per acre. While producers have seen big price swings in the past, this time there is also a serious worry about availability. There appears to be an adequate supply of anhydrous ammonia even though its price has also escalated. Granular urea is the main concern. Analysts say producers who haven’t locked in a supply may not be able to get it on a timely basis. There have been other years when people worried about spot shortages of fertilizer, but serious supply problems have seldom materialized. For 2007, many are convinced that urea will be in short supply and it could be more than localized and temporary shortages. I’m Kevin Hursh.

January 30, 2007

Bull grain market will continue says analyst
Is the bull market dead or merely taking a break? According to David Drozd, president of Ag-Chieve (www.ag-chieve.ca), the bull market in grain isn’t done yet. Drozd likes to do technical chart analysis and usually I’m not a big fan of that approach. However, I caught a presentation by Drozd last week at the Keystone Agricultural Producers meeting in Winnipeg and I was impressed. Drozd points out that in six of the past seven years, the world has consumed more wheat and corn than it has produced. In April of ’96, U.S. wheat hit $7.50 a bushel and Drozd believes there’s a good likelihood this will happen again. On corn, he doesn’t believe the U.S. price will drop below $3.96 a bushel, the price when the last USDA report came out. He says we could see corn go back to the ’96 high of $5.50 a bushel. The Manitoba market analyst harkens back to the heady days of ’72 and ’73 when oats, wheat, corn and soybeans tripled in value. He says a production shortfall in the current environment could make markets very exciting. If you don’t think big market moves are possible, note that crude oil saw a 700 per cent increase in 7 years. While the supply/demand picture isn’t tight on oilseeds, Drozd notes soybeans are a dollar a bushel too cheap relative to corn. He believes nearby canola futures should challenge chart resistance at $400 a tonne and they have the potential to hit $440. You’ll get different opinions from different analysts, but David Drozd’s advice is don’t price too much grain too early. I’m Kevin Hursh.

January 29, 2007

American farm policy perspective
At the Saskatchewan Cattle Feeders Association meeting on Saturday, one of the speakers was Dr. Barry Flinchbaugh, a renowned agricultural economist from Kansas State University. A new U.S. Farm Bill is under construction, but Flinchbaugh is predicting that programs will only be tweaked. On average, the U.S. spends about $20 billion a year on farm support programs. While this sounds like a lot of money, Flinchbaugh says it’s less than acceptable accounting error in the massive American budget. With grain prices high, the farm bill could increase the loan rates that act as a floor on farm returns, without actually incurring additional costs in the short run. Flinchbaugh is hopeful that Rule 2 will be implemented allowing older cattle exports from Canada. However, he predicts the U.S. will implement Country of Origin (COOL) labeling on beef and pork. This could act as a deterrent to trade. Flinchbaugh says world trade talks are on life support, but are not dead. He notes that Trade Promotion Authority for the U.S. President runs out in July and the democrats will not extend this fast track ability. Thus, for the WTO to have any chance, a breakthrough will be needed by March. While some observers believe biofuel production has created a paradigm shift in grain markets, Barry Flinchbaugh says the future of ethanol is from cellulose. He says we’ll see $2 a bushel corn again. I’m Kevin Hursh.

January 26, 2007

Pulse and special crop acreage and price forecasts
Yesterday, I reported on Agriculture Canada price and seeded acreage predictions for a number of the main crops. Ag Canada believes the year ahead will see price drops in wheat, durum, barley and especially oats. On the other hand, small increases are expected in the average prices of flax and canola. They also have predictions on pulses and specialty crops. The Canadian seeded area of field peas is forecast to drop by 5 per cent due to the increase in canola acres. The average price of peas is expected to rise slightly because of lower world supply. Canadian lentil acreage is forecast as relatively stable. The average price of lentils is forecast to rise about a cent a pound. On chickpeas, acreage is expected to be up 15 per cent, while the average price is expected to be down by 4 cents a pound. Canadian mustard acreage is expected to rise 25 per cent. However, average mustard prices are forecast to be up nearly 3 cents a pound. On canaryseed, the price forecast is a rise of 2.5 cents a pound despite a 15 per cent acreage increase. These sorts of forecasts can, of course, be way off the mark. However, along with the forecasts, there are good supply and demand numbers. You can plug in your own acreage and yield assumptions and draw your own conclusions. The report is available under the Market Analysis area of the Agriculture Canada website (www.agr.gc.ca/mad-dam). I’m Kevin Hursh

January 25, 2007

Acreage and price predictions
Agriculture and Agri-Food Canada has come out with seeded acreage and price projections for the upcoming growing season. Although it’s just a projection, it’s still very interesting. On wheat other than durum, Ag Canada is predicting a 10 percent drop in acreage and the analysts predict a new crop year Pool Return Outlook that’s 8 per cent below the current year. On durum, acreage is projected to rise by 15 per cent. Durum prices are expected to decline, but not by as much as wheat. The area seeded to barley is forecast to increase by 21 per cent. Domestic feed barley prices are expected to fall by $15 a tonne. Malting barley returns are also expected to decrease. On oats, Ag Canada is predicting a 12 per cent rise in acres and the price prediction is for a decrease of $30 a tonne. An 11 per cent increase is forecast for canola acres generating a record production. However, the average canola price is expected to rise by about $10 a tonne due to higher American soybean prices, lower carryout stocks and a forecasted drop in the value of the Canadian dollar. On flax, the area seeded is forecast to fall by about 38 per cent. The average price for flax is expected to increase, but only marginally. Tomorrow, I’ll take a look at the Ag Canada forecast for peas, lentils, chickpeas, mustard and canaryseed. I’m Kevin Hursh.

January 24, 2007

Government cost sharing if you have an EFP
Environmental Farm Planning workshops are popular these days. Of course, the incentive is the matching government funding for improvements such as GPS guidance systems, new fuel and fertilizer storage, shelterbelts and cross fencing of pastures. The government kicks in either 30 or 50 per cent depending upon the category. For many of the projects you can value your own labour. Each category has a funding cap and the overall funding cap is $50,000 per farmer. To be eligible for the funding you have to attend two workshops and fill out your own environmental action plan. The plan goes to a peer review panel and it usually isn’t a problem to get your certificate. Then you can apply for the projects that supply matching funds. Your environmental information remains confidential and your areas of funding don’t have to relate to your plan. As for the workbook you have to wade through, there is some good information and it makes you think about potential risks, but I found it tedious and sometimes confusing. Matching funding is to end on March 31, 2008 so time is running out for a lot of projects. It’s widely expected that Environmental Farm Planning will continue in the next version of the Ag Policy Framework, but that’s not a sure thing. In Saskatchewan, the program is being run by PCAB, the Provincial Council of Ag Development and Diversification Boards. Go to www.saskpcab.com for further information. I’m Kevin Hursh.

January 23, 2007

Intellectually dishonest barley plebiscite
According to Chuck Strahl, farmers can have their cake and eat it too. The barley plebiscite is designed to make the number 2 option seem the most appealing. It states, “I would like the option to market my barley to the Canadian Wheat Board or any other domestic or foreign buyer.” Strahl obviously thinks a majority of farmers will choose this option on the ballet. He says the board will be there for farmers. Those who say this is the end of the board are fear mongering, says Strahl. What the Agriculture Minister doesn’t seem to realize is that economics rules. Whether you’re a board supporter or not, you sell your product where you think the return will be the greatest. Without elevators or port facilities, the Canadian Wheat Board will not be in a good position to offer the best return. Open markets have many advantages. Especially in barley, an open market may be a good alternative. But it’s misleading to pretend that the Wheat Board option will remain viable in that sort of marketing system. Chuck Strahl can say that the Wheat Board will be there for farmers, but why would farmers deal with the Wheat Board if it can’t provide competitive returns? A barley plebiscite is a good idea, but the results are going to be badly skewed by the intellectually dishonest approach to the questions. I’m Kevin Hursh.

January 22, 2007

Barley plebiscite details today
The battle will begin in earnest today. Agriculture Minister Chuck Strahl will announce the barley plebiscite question or questions (plural) and he will lay down the parameters for who is eligible to vote. This is all supposed to take place this afternoon in Red Deer. Strahl has chosen to go to Alberta where support for market choice is the greatest to make the announcement. More details on the plebiscite are likely to evoke even more controversy. Market choice supporters say barley can be removed from the Canadian Wheat Board’s single desk monopoly and the board can still be a marketing option. Wheat Board supporters say that with no elevators and no port facilities, the Canadian Wheat Board’s role in an open market would be marginal at best. In my opinion, farmers should simply be asked whether they support the removal of barley from Canadian Wheat Board’s single desk. That is the central issue. Producers can then make up their own minds on what role the CWB might play in an open market. Maybe the Wheat Board would have a role. Maybe it would be an inconsequential player in barley. I don’t think anyone knows for sure, so the plebiscite shouldn’t have an implied outcome one way or the other. I’m Kevin Hursh.

January 19, 2007

Cargill invests in ethanol

Here’s an example of the booming ethanol industry south of the border. Cargill recently announced that its subsidiary, Emerald Renewable Energy plans to develop four new ethanol plants in the Midwestern U.S. Each plant will be 100 million gallons. By comparison, the big Husky plant near Lloydminster is 130 million litres. Cargill will provide the initial development capital for the projects. Emerald will contract with Cargill for services to support the facilities, including the corn supply, natural gas, price risk management and the marketing of the ethanol and distillers grains. Each plant will use 40 million bushels of corn a year. The plant sites being considered include bare land as well as sites that would be co-locations with Cargill elevators. American ethanol plants have had a couple years with astounding profitability. When a big player like Cargill still wants to build more plants, it would seem to be an indication that the boom isn’t over. Meanwhile, north of the 49^th parallel we’ve yet to get our act together when it comes to biofuels. We continue to fall further behind our American neighbours. I’m Kevin Hursh.

January 18, 2007

Mustard, lentil and canaryseed contract prices
New crop prices are now being quoted on some specialty crops. New crop mustard prices have been available the longest. Contracts are available for yellow mustard at 22.5 cents a pound, about the same as the current price. On oriental mustard, a new crop price of 16.5 cents a pound is published. This is a couple cents a pound above the current price. New crop brown mustard is posted at 18.5 cents. CGF Brokerage and Consulting of Saskatoon says one company is offering new crop contracts on canaryseed at 16.5 cents a pound delivered. That’s about a cent below the current price. A few prices have recently surfaced on new crop lentils as well. Number one large green lentils are posted at 16 cents a pound, with number two at 14 cents. These are close to the current cash prices. Merv Berscheid of CGF doesn’t think very many producers will sign up for canaryseed at 16.5 or lentils at 16 cents. At those price levels, many other crops look more profitable. However, it is nice to have some benchmarks for new crop and perhaps over time they’ll move up. What a difference a year makes. Last year at this time, these contract prices would have been very appealing. I’m Kevin Hursh.

January 17, 2007

News from Manitoba
The province of Manitoba issued a couple of interesting news releases yesterday. One release was on the results from that province’s plebiscite on the Canadian Wheat Board’s single desk marketing system. Sixty-five per cent of eligible Manitoba producers mailed in their ballots. The results were 61.8 per cent in favour of retaining the single desk for barley, while 69.5 per cent voted in favour of retaining the single desk for wheat. The other interesting release from Manitoba was on their crop insurance program. On average, the insured values are up by 21 per cent as compared to last year. Details of Saskatchewan Crop Insurance for 2007 have yet to be announced, but we can also expect insured values to be much higher. For 2006, the insured price for hard red spring wheat was only $2.97 a bushel. Barley was a mere $1.96. Oats were only $1.51 a bushel, while canola was a ridiculously low $5.06 a bushel. The 2007 values will be based on price forecasts made last month, so we should see a 30 to 50 per cent increase in a lot of crops. That will be a double-edged sword. Coverage levels will be up, but so will the premiums per acre. Finally, a note about yesterday’s commentary where I complained about Sask Ag and Food’s new website. The department is making improvements to the site and some of the new information that was buried is now posted on the home page. I’m Kevin Hursh.

January 16, 2007

Good information if you can find it
Saskatchewan Agriculture and Food has put together a lot of interesting and useful information in recent weeks. The November 1 Stubble Subsoil Moisture Map shows it’s dry across much of the southern grainbelt and in areas along the west side. The rest of the province has good or very good stubble soil moisture. The grasshopper forecast map for the upcoming season has been published. Except for a few isolated areas, grasshopper numbers should not be high. Sask Ag and Food also generates forecast maps for bertha armyworms, cabbage seedpod weevils and wheat midge, and some of those maps are now available for 2007. New Crop Planning Guides have been generated for the brown, dark brown and black soil zones along with a Crop Planning Guide for Specialty Crops. These guides are a useful starting point for calculating potential returns and expenses for the various crops. If you were by the Sask Ag and Food booth at last week’s Crop Production Show in Saskatoon, you’d have seen some of the new forecast maps and you’d have been able to pick up a Crop Planning Guide as well as other publications. Unfortunately, new material is difficult to find on the recently revamped Sask Ag and Food website (www.agr.gov.sk.ca). I find you have to go digging or use the search engine and you have to know what you’re looking for, because the site does not highlight these sorts of new postings. I’m Kevin Hursh.

January 15, 2007

Barley vote is six months late
Ballots will be mailed to barley growers on January 31 for the long-awaited plebiscite on Canadian Wheat Board marketing. The ballots will have to be returned by March 6 with the results announced by the middle of March. It looks like the voter’s list will include anyone who has grown barley since 2002. What isn’t known is the wording of the question. Hopefully, it will be clear-cut. Otherwise, the result will be disputed. Agriculture Minister Chuck Strahl has handled the CWB issue poorly. Rather than inflaming this old debate, Strahl could have started with a barley vote six months ago. There’s a lot less support for having barley under the board than there is for wheat and durum. Six months ago, the market choice forces could probably have won a clear-cut question on removing barley from the board’s single desk. Rather than gaining strength, market choice has lost ground with Strahl’s handling of the issue. A lot of other important agricultural issues have been put on the backburner while farmers and farm organizations on the opposing sides traded barbs, news releases and letters to the editor. The government could have had a vote and a better chance of getting the answer they want without all the acrimony. I’m Kevin Hursh.

January 12, 2007

Alternate weather forecasts
Environment Canada missed the boat on predicting the huge blizzard that hit much of the province on Wednesday. Speaking at Canola Days in Saskatoon, Larry Weber of Weber Commodities noted that other weather prediction services such as the U.S. based Accuweather were predicting a major storm several days ahead of Environment Canada. Other weather watchers share the same concern. It’s not that the analysts at Environment Canada are incompetent. Rather it seems that their resources are focused on trying to predict the next day or two rather than looking farther ahead. For agriculture, knowing about the possibility of a major snowstorm or a big rain event is a big deal. The more time you have in advance to prepare and plan the better. Larry Weber also says that Environment Canada missed the big frost in August of 2004, while other forecasting services could see it coming. No service will be right all the time. Personally, I have no use for the forecasts generated by looking at pig spleens. Nor do I have any faith in the generalities provided by The Farmer’s Almanac. However, I am going to start paying more attention to science based weather forecasts other than just Environment Canada. I’m Kevin Hursh.

January 11, 2007

Profitable ethanol production on a small scale
Usually when you hear about ethanol plants, they’re big. The Husky Ethanol Plant at Lloydminster has a capacity of 130 million litres per year. The facility planned by North West Terminal at Unity is 25 million litres per year. However, at Minto, Manitoba, a producer named David Rourke is just about finished building an ethanol plant with his own investment money. This is a half million litre a year facility which fits inside a 36 by 60 foot building. It will use about 50,000 bushels of wheat per year. David Rourke was one of the presenters last night at the Special Session of Crop Production Week in Saskatoon. How can a half million litre facility be viable? Rourke has sought out equipment and processes that are economical. Plus, he’s combining the plant with his feeder pig facility. This is a straw based custom feeding operation for 12,000 feeder pigs per year. Rourke plans to use the distillers grains from the ethanol facility directly in his hog ration. Construction on the ethanol plant started last summer and should be complete in a month. Rourke has an ethanol pricing agreement through Husky Energy and his economic projections look very good. Through the Western Feed Grain Development Co-op, Rourke is also working to develop a fusarium resistant, high yielding wheat variety with improved starch content. Since the variety will be used exclusively within the ethanol and livestock feed industries, it should get around any licensing requirements. A brief slide presentation on Rourke’s fascinating innovations will be posted soon on the Crop Production Week website at www.cropweek.com. I’m Kevin Hursh.

January 10, 2007

Market dominance fails to deliver profitability
One grower at Pulse Days said he usually seeds 2,500 acres of lentils each year. This year, he’s contemplating a 50 per cent cut because other crops look more profitable and carry less risk. Saskatchewan Pulse Growers commissioned Marlene Boersch of Mercantile Consulting Venture of Winnipeg to study green lentil profitability and the results were presented yesterday as part of Pulse Days at Crop Production Week in Saskatoon. Canada has about 80 per cent of the world’s green lentil market. Almost all of the Canadian production comes from Saskatchewan. With such a dominant position in the world market, you’d think we would be price setters. Instead, says Marlene Boersch, we’re price takers. Her research shows examples where Canadian green lentils have been dramatically under priced relative to competing products in the international marketplace. Marlene Boersch has a number of possible solutions that she suggests growers consider. Some are highly interventionist such as quotas to limit lentil production. Others could be as simple as improved market intelligence to maximize sales value and give producers proper pricing signals. Saskatchewan Pulse Growers isn’t endorsing any of Boersch’s suggestions. The report is being provided for information and to get feedback from growers. The full report is available at www.saskpulse.com. I’m Kevin Hursh.

January 9, 2007

New herbicide options
Both the Pulse Growers and the Sask Flax meetings at Crop Production Week heard about some new herbicides that should be available in Western Canada in the not too distant future. Sulfentrazone is registered for use in peas, chickpeas and flax in the U.S. It’s a soil applied herbicide that can be tank mixed with glyphosate in the spring. It will not be suitable for lentils which are very sensitive to the product. Sulfentrazone can provide good control of kochia, wild buckwheat, lambsquarters and redroot pigweed. However, it won’t control wild mustard and stinkweed. There are several other drawbacks. You need rain after application to activate the product, so in a dry spring control will be reduced. As well, there will likely be some recropping restrictions. For instance, canaryseed the year after will probably be a no-no. Still, many flax, chickpea and pea producers will be happy to have another tool for controlling difficult weeds like kochia and wild buckwheat. NuFarm will be marketing sulfentrazone in Canada and they hope to have it approved and available for the spring of 2008. NuFarm is also working on a related product called Carfentrazone ethyl. It has no soil residual activity and therefore no cropping restrictions. It’s mixed with glyphosate in the spring to get better control of kochia and Roundup Ready canola volunteers. Carfentrazone can be used prior to any crop and it may be approved and available in limited amounts this spring. I’m Kevin Hursh.

January 8, 2007

What happened to the big bull?
Grain markets went through a sharp downside correction last week. It wasn’t a good start to the New Year. March wheat on the Chicago Board of Trade ended the week down as much as 54 cents a bushel as compared to the highs of the previous week. March soybeans were down about 26 cents a bushel. March corn fell more than 30 cents a bushel before regaining some support late in the week. Corn hit its lowest price since mid-November. Wheat was at its lowest point since early October. Here in Canada, March canola closed at $368 a tonne on Friday. On January 2, March canola was at a contract high $382 a tonne. Why the drop in prices? Analysts say the big snowfall in Colorado and Nebraska has improved the moisture outlook for the American winter wheat crop. On top of that, commodity funds have been pulling out of the market. The funds have the power to push prices higher, but they can also trigger a large downside correction. Has the big bull market run its course or is it just taking a break before pushing higher? It will be interesting to see what happens in this first full week of trading in the New Year. It will also be interesting to hear various experts analyze the market at Crop Production Week which starts today in Saskatoon. I’m Kevin Hursh.

January 5, 2007

Details slow on biofuels incentive
On December 20 when Agriculture Minister Chuck Strahl and former Environment Minister Rona Ambrose made their biofuel announcement in Saskatoon, there was an expectation that details would be available shortly on the promisied incentives for producer investment in biofuel facilities. Through the Capital Formation Assistance Program for Renewable Fuels Production, $200 million was allocated over four years. It’s been a couple of weeks since the announcement, but when you phone the number provided for more information, you find out that details are still a work in progress. It wasn’t really clear at the news event, but the funding commitment is for the government’s next fiscal year beginning April 1. An official I spoke to in Ottawa assured me the program would be ready to go by April 1, but it didn’t sound like the details would be announced any time soon. Of course, a federal election could cause even more delays. There are many producers and producer groups working on biofuel facilities. The government incentive for producer investment is an important part of their business plans. It’s unfortunate that the government’s biofuels strategy is being rolled out so slowly. I’m Kevin Hursh.

January 4, 2007

Railway miscalculation provides money for research
$4.4 million is a significant amount of money for research. That’s how much the Western Grains Research Foundation and is going to receive from the two major railways. The Canadian Transportation Agency has determined that both CN and CP exceeded the grain revenue cap for the last crop year. Unlike past times, when the excess was relatively small, this time the amount comes to $4.4 million. When most of us think of the Western Grains Research Foundation we think of the levy that comes off of final Canadian Wheat Board payments. This money is used to fund plant breeding on wheat and barley. However, the farmer-directed Western Grains Research Foundation also has an Endowment Fund that it received back in the early 80s from a discontinued federal farm support program. The fund is never spent, but interest earned from the fund has been used to support all sorts of research projects in the grain industry. With the $4.4 million from CN and CP, the Endowment Fund will be approaching $14 million. Using the railway cap excess for this purpose certainly makes a lot more sense than trying to return the grain freight rate charges back to individual producers. That would be very costly as well as very difficult to do equitably. Besides, research provides a great return on investment that should benefit the entire industry. I’m Kevin Hursh.

January 3, 2007

Agribusiness Entrepreneurship Program
Here’s a learning opportunity to consider. The Agribusiness Entrepreneurship Program will be held at the College of Agriculture and Bioresources in Saskatoon from January 21 to 27. The course is structured around the essentials of understanding and developing good business plans. It includes accounting and finance, marketing, strategic planning and leadership. Taught by University of Saskatchewan professors, the weeklong course has been running since 1999. Service providers as well as producers attend. The cost per person is $1500 for the week with a special rate of $1250 for producers. This includes lunches, some evening meals and all materials. While $1250 for a course is quite a bit of money especially if you have to add on accommodations and travel, there are ten scholarships of $1000 available for producers to help defray some of the costs. The scholarships are offered by the AIMS program. This is the last year for this support and it would be a shame to have the scholarships underutilized. Applications for the scholarships need to be sent in by January 8th. Further information on the Agribusiness Entrepreneurship Program as well as an application form for the scholarship is available from the AIMS website. Just go to www.sccd.sk.ca/aims and then look under Agribusiness Entrepreneurship Program. I’m Kevin Hursh.

January 2, 2007

Top-notch market analysis
Crop Production Week (www.cropweek.com) begins Monday in Saskatoon and as always market analysis will be a big part of the event. On Tuesday at Pulse Days, Larry Weber of Weber Commodities will examine the lentil market. Marlene Boersch of Winnipeg will provide a market outlook for chickpeas and Rob Tisdale of Agricore United will deal with field peas. The Saskatchewan Oat Development Commission is part of Crop Production Week for the first time. Randy Strychar of Ag Resources Publishing will analyze the oat market. On Wednesday at the Mustard meeting, Steve Gadient, who is now with Montana Specialty Mills will provide a mustard market outlook. Also Wednesday, Merv Berscheid of CGF Brokerage and Consulting will give a market update for the canaryseed meeting. Larry Weber will be back Thursday to analyze canola markets. On Friday at the Canadian Wheat Board Day, CWB market analyst Jason Newton will provide an outlook for the upcoming year on CWB crops. The Western Canadian Crop Production Show (www.cropproductiononline.com) runs Monday to Thursday and it’ll be interesting to see what sort of new crop contracting opportunities are available from the various companies. Last year, the market outlook was particularly gloomy. This year, there’s considerable optimism for most commodities. I’m Kevin Hursh.

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