Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

January 31, 2008

Food Freedom day is arriving earlier
Sunday, February 3 is Food Freedom Day in Canada. The Canadian Federation of Agriculture working with numbers from Statistics Canada says February 3 is the day the average Canadian consumer has earned enough money to pay his or her individual grocery bill for the entire year. This year, Food Freedom Day is happening even earlier because in recent years the disposal income of Canadians has risen more rapidly than the price of food. Over the past year, the Canadian grocery bill has increased by only 0.6 per cent while Europeans are paying 4.3 per cent more for their groceries and Americans are paying 5.4 per cent more. According to the CFA, Canadians get the best deal in the western world for their food dollar. Some of the media coverage you hear about record grain prices and rising food costs probably leads consumers to believe that food price inflation is rampant. While grain prices are high, cattle and hog prices are much lower than a year ago. Bread and pasta may be worth marginally more, but beef and pork prices in the store should be down. It’s a useful service to all of agriculture for the CFA to distribute the Statistics Canada numbers showing that our food remains a bargain. I’m Kevin Hursh.

January 30, 2008

Barley caught in marketing debate limbo
As a producer considering barley as a cropping option, I like the idea that under the Canadian Wheat Board’s proposed CashPlus program I could sign a contract and have some price certainty. The CWB claims that with current market conditions, the CashPlus program could be offering malting barley prices for the upcoming growing season of around $6.50 a bushel. CashPlus seems more transparent and bankable than the pooling system. Pending the specifics of the contract, I might be interested in locking in a new crop price. In an open market, malting barley buyers would be offering their own contracts without the CWB’s involvement. I’d consider participating in that as well. Unfortunately, with the continual bickering no one knows how barley marketing is going to work in the upcoming crop year and there aren’t any pricing deals to consider. Agriculture Minister Gerry Ritz says an open barley market could be legislated by August first, but that’s only if there’s enough support from the opposition parties and if there’s actually time to move the legislation forward and if there isn’t a federal election this spring. One way or the other, it would be useful for producers to know what system is going to be in place. I’m Kevin Hursh.

January 29, 2008

Is it really organic?
Mischa Popoff, an organic crop inspector based in Osoyoos, B.C. is advancing a proposal for fixing organic certification. Popoff says more is needed than just the current written records and auditors that simply look at the paper trail. He proposes that organic crops be randomly tested in the field to ensure that no herbicides have been applied. Popoff claims that organic farmers detest the mountain of paperwork the current system requires and they know it’s ineffective against fraud and negligence. What about certified organic products that originate in Mexico or China? How reliable is that paperwork? Federally-certified labs can readily test plant samples for the most common crop protection products. Popoff claims that the vast majority of independent organic farmers follow the rules and he says there’s a great deal of support for the concept of random crop testing so that the industry has a greater scientific basis. Organic farming continues to grow. It would seem reasonable to give consumers better assurances that they’re getting what they’re paying for. I’m Kevin Hursh.

January 28, 2008

Targeted Advance Payments turn into cruel joke
There often seems to be a huge gap between what farm safety net programs promise to deliver and what they actually deliver to producers. In response to the financial difficulties in the hog and cattle sectors, the feds quote all the millions and billions of dollars that will be flowing through CAIS, and its replacement called AgriStability. Saskatchewan, like many provinces applied to have Targeted Advance Payments for the hog sector. For the hog sector, it should be relatively easy to look at prices and costs in 2007 and make an estimate of payouts to producers based on their individual numbers from 2006. The Targeted Advance Payment is 60 per cent of the amount calculated for an individual producer. Targeted Advances haven’t been applied for in the cattle sector because there are too many variables. Now, it appears the bureaucracy can’t get it right for hog producers either. Sask Pork says most Saskatchewan hog producers received the promise of sizable payouts last week, only to be told a few days later that they would be receiving substantially less and in many cases nothing. What a cruel mistake for producers facing extreme financial pressure. The Conservative government brags that it has replaced the CAIS program, but you have to wonder how much has been improved. I’m Kevin Hursh.

January 25, 2008

CWB bashing session
Agriculture Minister Gerry Ritz has called a meeting for next Tuesday in Ottawa which he says will focus on finding ways to move towards marketing choice for barley producers. Based on the list I’ve seen of those invited, the Canadian Wheat Board is going to feel pretty lonely. The list includes four people from Ritz’s office, four from the Western Grain Elevator Association, four from the Malting Industry, three from the Western Barley Growers, two from the Grain Growers of Canada, two from the Marketing Choice Alliance, one from the Brewers Association, one from the Western Canadian Wheat Growers, one from the Alberta Barley Commission and just two from the Canadian Wheat Board. Notably absent are any organizations even remotely sympathetic to the board. The CWB has offered a program called CashPlus for malting barley. Open market supporters won’t be happy with anything less than an open market. So far the courts have said that the government can’t change the CWB’s mandate by order-in-council. And so far, the feds haven’t had the courage to introduce legislative changes. It might make the open market crowd feel good to have a wheat board bashing session, but it’s hard to believe that much will be resolved. I’m Kevin Hursh.

January 24, 2008

Some crops shining brighter than others
Canola prices dropped sharply yesterday, but for commodities that aren’t caught in the daily ups and downs of the futures market, there are some amazing prices available. Prices as high as $10 a bushel are listed for yellow and green peas. Red lentils have been roaring higher the past few days. Prices of 30 cents a pound and higher are now being quoted. Large green lentils are also strong with prices quoted as high as 27.5 on the top grade with No. 2 close behind. Flax is now commonly being quoted in the $15 a bushel range. On yellow mustard, there are price quotes sitting only a couple cents short of 60 cents a pound. There are a few crops where prices are disappointing, even though they’re high from a historical perspective. Oats at under $3 a bushel, canaryseed at around 23 cents a pound, kabuli chickpeas at 29 cents a pound on an 8 mm size, and small green lentils at about 21 cents a pound are lagging behind other cropping options. Not long ago these would have been considered wonderful prices, but now these crops seem likely to be headed for a drop in seeded acreage. I’m Kevin Hursh.

January 23, 2008

A farmer's share of the food dollar
With the dramatic rise in grain prices, farmers are in the unusual position of having to defend against critics who are complaining about escalating food prices. Farmers could use some authoritative analysis on their share of the retail food dollar. Bits and pieces of information are available, but most producers don’t have ready access to the ammunition they’d like to have. Here are a few tidbits I’ve been able to dig out. A bushel of top quality Canadian wheat makes approximately 67 loaves of bread. Those are 16 oz loaves. Assuming a wheat price to producers of $8.00 a bushel, there’s about 12 cents worth of wheat in a loaf of bread. The value of durum to farmers is roughly 30 per cent of the total cost of pasta. On beer, the value of the malting barley is a tiny percentage of what consumers pay, but you hear varying reports on just how many pennies worth of barley are in a bottle of beef. When Canadian shoppers go to the supermarket, they’re more likely to take note of the price of beef and pork. The prices being received by cattle and hog farmers are terrible – well below the prices a year ago. Are pork chops and beef steaks cheaper than a year ago? The price producers receive is just one of many factors involved in retail food pricing. I’m Kevin Hursh.

January 22, 2008

Fertilizer investigation warranted
APAS, the Agricultural Producers Association of Saskatchewan, is calling on the provincial and federal governments to launch an investigation into the escalating price of fertilizer and the price differences between the Canadian Prairies and the northern U.S. states. The APAS complaint is timely. Some sources indicate that phosphate fertilizer which is already sky-high at $650 a tonne is on its way to $750 or $800 a tonne. Is there truly competition in the fertilizer industry? On its website, the Canadian Fertilizer Institute quotes a federal government report that claims there was no significant difference in American and Canadian fertilizer prices between 1993 and 2006. According to the report, “The fertilizer market is global in nature and the North American fertilizer market is completely open and integrated.” However, Manitoba’s Keystone Agricultural Producers did a study last year that showed dramatically lower fertilizer prices just south of the line. What’s the truth? And if there really are big price differences, why are we getting ripped off? An investigation is certainly warranted. I’m Kevin Hursh.

January 21, 2008

Wheat is cheap compared to oil
On Thursday of this week, the Canadian Wheat Board will come out with its new Pool Return Outlooks. Based on what has been happening in the marketplace, it’s reasonable to assume PROs will see another increase. In nominal terms, many grain prices are the highest in history, but they’re still very low compared to many other commodities. Agricultural economist Ken Rosaasen has done some work to compare the price of wheat to the price of oil. From 1961 to 1970, the price of oil was static at about $1.80 per barrel. Based on the quality of wheat produced in Saskatchewan during that 10-year period, the average price received by farmers was $1.58 a bushel. In other words, a barrel of oil and a bushel of wheat were about the same value back in the 60s. In the new PRO that’s coming out this week, the farm gate price for Saskatchewan producers for No. 1 CWRS wheat with 13.5 per cent protein might surpass $8 a bushel. That’s a great price, but as we know a barrel of oil is sitting just below $100. A bushel of wheat has gone from being on par with a barrel of oil to being worth less than a tenth as much. Comparisons like this are useful as criticisms surface regarding rising food costs. I’m Kevin Hursh.

January 18, 2008

New crop prices show the battle for acres
It is not uncommon for new crop prices to be lower than current prices at this time of the year. As time passes, eventually the two have to converge. In the past that has meant that old crop prices have eventually declined to match the new crop values. This year, the opposite may be happening. Instead of old crop values declining, a number of new crop values seem to be rising. Yesterday the nearby March futures price for canola and the new crop November canola futures both ended the day at about $581 a tonne. The market believes canola prices will remain high even after the next harvest. New crop pea prices seem to be improving. CGF Brokerage of Saskatoon is listing new crop yellow pea contracts at $7.25 a bushel, but there is talk of new crop contracts as high as $8.00 a bushel. There have also been some new crop flax bids at around $13 a bushel. On large green lentils, current prices have improved to as high at 27.5 cents a pound for No. 1 grade. New crop contract prices have kept pace and are as high as 24.5. Yellow mustard is very high at over 50 cents a pound. New crop contracts are very attractive at over 35 cents. On oriental mustard, the new crop contract price is higher than the current price at around 26 cents a pound. The market is showing some interesting values as the battle intensifies for seeded acres. I’m Kevin Hursh.

January 17, 2008

Get your kickstart money
Federal officials say they’re getting a number of questions about the $600 million kickstart being paid to producers through the new AgriInvest program. Officials say it’s very important for producers to respond to the letter that was sent to indicate if they want to withdraw their money or leave it on deposit. For those who want to withdraw the money, they can just send in the bottom portion of the letter indicating their wishes and the cheque is supposed to be sent in 30 to 60 days. For producers who choose to leave the funds on account, they will receive interest as soon as the deposit is made. Deposits are made after a producer responds to the letter. The interest rate varies monthly and is 3.49 per cent for January. For now, the accounts are being held by the federal government. Producers do not need to make a deposit and they do not need to open an account at a financial institution at this time. The kickstart payment is based on 2.63 per cent of Allowable Net Sales. There may be a small additional payment later. The deadline to respond to the letter is June 30. For producers who have not received a letter or anyone who would like more information check out www.agr.gc.ca or call 866-367-8506. I’m Kevin Hursh.

January 16, 2008

Crop Week, Ag Days and Farm Tech
There are three big farm information events on the prairies this month. Crop Production Week and the Western Canadian Crop Production Show were last week in Saskatoon. Ag Days is currently underway in Brandon and then the Farm Tech conference will be January 30 to February 1 in Edmonton. All three events have interesting speakers. Even if you’re able to attend the events, you can’t take in all the presentations. Crop Production Week is posting the PowerPoint presentations from a number of last week’s speakers at www.cropweek.com. A number of presentations are already up and more are going to be added. Flipping through a PowerPoint isn’t as good as watching the speaker live, but it does provide some interesting information. Sometimes it’s nice to go back and review the PowerPoint even if you saw the original presentation. As far as I can tell, Brandon’s Ag Days doesn’t post presentations, but Farm Tech in Edmonton does. The Ag Days website is www.agdays.com, while you can find out all about Farm Tech at www.farmtechconference.com. I’m Kevin Hursh.

January 15, 2008

CashPlus for malting barley
On Friday, at the Canadian Wheat Board Day that’s part of Crop Production Week, the most anticipated presentation was on the new CashPlus plan for malting barley. The plan has been widely criticized by CWB opponents who say it doesn’t go far enough. Agriculture Minister Gerry Ritz has been particularly nasty in his condemnation. At Friday’s meeting, there were both CWB supporters and detractors in the crowd, but the questions were thoughtful and there wasn’t much grandstanding. Under CashPlus, the CWB will remain the single desk seller of malting barley, but cash prices will be offered for the new crop. The cash price will vary with market conditions. The deals will be between interested farmers, malting barley selectors and the CWB. Selectors and farmers will be able to negotiate the specs for the barley and the selector can pay more than the cash price. Will the prices paid to farmers be higher or lower than what an open market would provide? That depends on who you believe. It strikes at the heart of the debate over whether the CWB actually extracts price premiums. However, unless the federal government is victorious in a late February court appeal, farmers will not have an open barley market next crop year. Instead, they’ll have a choice between the regular pooling of malting barley and the new CashPlus program. A lot of producers will be watching CashPlus to see what it has to offer. I’m Kevin Hursh.

January 14, 2008

Will the market rocket continue?
Grain buyers and sellers around the world will be watching markets even more diligently that usual today. On Friday, the USDA released a surprisingly bullish supply-demand report and markets took off. Corn was up the 20 cent limit on the Chicago Board of Trade with March closing at $4.95 a bushel. March soybeans posted a new all-time high of $13.10 a bushel. Here in Canada, canola on the Winnipeg Commodity Exchange was up by $23 to $25 a tonne for all the futures months through July of 2009. The market has rarely seen canola futures of $500 a tonne. Now, many of the canola futures are closing in on $600 a tonne. Even with the abnormally high basis on canola, cash prices on Friday topped $12.50 a bushel for some of the deferred months in some locations. Many analysts say outside investment in agricultural commodities is pushing prices higher than the supply and demand fundamentals. In the past, major bull runs have often been short lived with prices coming down even faster than they went up. This time around, most market analysts say strong prices will be around for the foreseeable future, but many are also predicting a lot of volatility. I’m Kevin Hursh.

January 11, 2008

Many farmers selling out
Market analyst Larry Weber says lots of farmers these days are asking him when they should sell - not when they should sell their flax or canola, but when they should sell their farm. During Crop Production Week, I’ve talked to a surprising number of farmers who are pulling the pin. Some are renting out their land. Many others have received an offer to purchase that they just can’t refuse. The industry has some young people returning home to farm, but most of the stories seem to be small and medium sized operations being swallowed up by larger players or outside investors. If the good times continue in the crops sector, land prices and cash rents will continue to rise and more producers are likely to exit the business. It’s a common assumption that farmers sell out during tough times. However, there’s probably more consolidation during the good times. It isn’t just farmers nearing retirement. It’s also younger producers who are making choices to do other things with their lives. Many are wondering how long the current boom will last. They want to maximize their return, but not get caught in a downturn. Thus the question, “When should I sell?” I’m Kevin Hursh.

January 10, 2008

Poor railway performance is a major cost for farmers
Last night’s Special Session at Crop Production Week in Saskatoon was about grain transportation – the challenges and solutions. Although the session attempted to be forward-looking and focus on improvements, some horror stories emerged on just how bad the performance is from our two major railways. Earlier this week, I had a conversation with an Australian attending Crop Production Week and he had an interesting perspective. He works for an Aussie grain company that buys from farmers in Saskatchewan, but the company has operations in many other parts of the world. They move sugar out of Brazil and they move pulse crops by rail in and out of remote parts of India. Nowhere, said the Aussie, is grain transportation as unreliable and slow as in Western Canada. We think we’re a developed nation, but our grain transportation system is less reliable than emerging economies such as India. There’s no doubt that Canadian grains, oilseeds and specialty crops are being discounted in world markets because we can’t deliver in a timely manner. The world is telling us that we have some of the best products and the worst transportation system. The two major railways were invited and even coaxed to participate in the Special Session panel discussion. They declined. It’s pretty sad when the railways won’t even talk with their farmer clients in a public meeting. I’m Kevin Hursh.

January 9, 2008

Fertilizer prices escalate
If you haven’t checked fertilizer prices recently you’re in for a shock. Prices have continued to increase since last fall and they’re now way above the levels we saw last year at this time. One major retailer told me that his company stopped providing fertilizer prices over the Christmas holiday season because the price was going up too fast for them to track. Merv Berscheid of CGF Brokerage and Consulting was asked by Saskatchewan Pulse Growers to research fertilizer prices and provide a report at Pulse Days. Bersheid collected retail prices from east of Saskatoon. Urea, 46-0-0, was $410 a tonne at this time last year. Now it’s $620 a tonne. Anhydrous ammonia that was $650 last year is now $880 a tonne. Sulfur has gone from $275 a tonne last year to a current price of around $355. The biggest increase has been on phosphate. Berscheid pegs the price last January at $385 a tonne. The price now is $650, a rise of 68 per cent. On nitrogen, producers often ask why it’s so high when natural gas prices haven’t risen nearly as much. The price of natural gas is a major input cost for manufacturing nitrogen fertilizer, but fertilizer is its own market. It goes up and down with supply and demand. It’s just like grain in many respects. No one asks about our costs of production when they’re bidding for our grain. I’m Kevin Hursh.

January 8, 2008

Sask dominates specialty crops
Crop Production Week is when a number of important publications are released. The 2008 Seed Guide from the Saskatchewan Seed Growers is now available. It contains the latest crop variety information. A whole host of publications come from the Saskatchewan Ministry of Agriculture at this time. The 2008 Crop Planning Guides are available and so is the 2008 Guide to Crop Protection. This becomes the bible for information on the control of weeds, plant diseases and insects. Another publication that comes out at this time is the Specialty Crop Report. The latest edition provides details on the acreage, production and prices for Saskatchewan specialty crops in 2007. It’s amazing to see how Saskatchewan dominates production. Last year, 76 per cent of Western Canada’s mustard came from Saskatchewan, with the balance grown in Alberta. More than 78 per cent of the peas were from Saskatchewan, with Alberta chipping in 18 per cent and Manitoba about 3 per cent. Eighty-eight per cent of the chickpeas were produced in Saskatchewan with the remainder coming from Alberta. Production was even more lop-sided for canaryseed, with 96 per cent coming from Saskatchewan and just a little bit from Manitoba. Lentils have become almost entirely a Saskatchewan crop. Any acreage and production in Alberta and Manitoba has become too small to measure. Altogether specialty crops accounted for about 3.4 million tonnes of production on well over 5 million acres of Saskatchewan farmland. I’m Kevin Hursh.

January 7, 2008

Crop Week optimism
Most years, producers come to Crop Production Week and the Western Canadian Crop Production Show in Saskatoon wondering what they can grow that might make money. There have been a lot of years when nothing looked very good. The question this year is which cropping options will make the best money. Almost all crop prices are in profitable territory and that doesn’t seem likely to change any time soon. Another question this year, “Should I forward price anything?” More new crop contracting opportunities than usual are likely to be available this week and many of those prices will be very attractive from a historical point of view. However, prices have been steadily rising and that makes forward contracting a tough call. Last year during Crop Week, the region was paralyzed mid-week by a huge blizzard. So far, the weather forecast for the week ahead looks good and that should bode well for attendance. With growing confidence that improved grain prices have some staying power, producers are likely to be in the mood to come to the city to check out some crop prices and some input costs, kick some tires and price out some iron. I’m Kevin Hursh.

January 4, 2008

Lots of market analysis at Crop Production Week
Crop Production Week starts this weekend with Ag Grad activities and next week all of the major crop groups in the province hold meetings in Saskatoon. For those of us who like grain market analysis, it’s a great chance to hear some of the best presenters. Larry Weber of Weber Commodities is giving market outlook presentations at both the flax and the canola meetings. The Saskatchewan Winter Cereals Development Commission is new to Crop Production Week and that meeting will have a market trends presentation by Greg Kostal of Kostal Ag Consulting. The Pulse Day on Tuesday has a bears and bulls panel featuring Murad Al-Katib of Saskcan Pulse Trading, Ashok Fogla of A.F. International Corp in New York and Brian Clancey of Stat Publishing. The oats meeting will have a market overview presented by Randy Strychar of Oatinsight.com. At the canaryseed meeting, Marlene Boersch of Mercantile Consulting Venture will present a market update. At the mustard day, Steve Foster of Viterra will return to present his views on the market. At the Canadian Wheat Board Day, Bruce Burnett, the CWB’s director of weather and market analysis will provide a market outlook for the year ahead. All the information on all the Crop Production Week meetings can be found at www.cropweek.com. I’m Kevin Hursh.

January 3, 2008

CWB barley plan shot down before release
Just before Christmas, the Canadian Wheat Board had planned a news conference to announce a cash pricing option for malting barley. The CWB cancelled that news conference saying it was still working on some of the details. The full plan will likely be released soon. In fact a presentation on the topic is planned for the Canadian Wheat Board Day during Crop Production Week in Saskatoon. While there has been no official release, various snippets have come out in the farm media about how cash prices for malting barley would be accomplished. And even before any official release, the malting barley industry has been saying the plan doesn’t go far enough. Agriculture Minister Gerry Ritz has weighed in on the topic through an opinion editorial that’s just been released. Ritz calls the CWB plan “half-measures” that don’t go far enough. He says barley producers will continue to be trapped in the CWB monopoly. It appears the soon to be released cash barley plan has little hope of bridging the gap between central desk supporters and open market advocates. I’m Kevin Hursh.

January 2, 2008

Grain economy is on fire
A while ago, someone e-mailed me a series of three photos under the subject title “How to cook a Deere.” The first photo shows a small fire that has started on the back of a newer model JD combine. In the second photo, the fire has advanced rapidly. In the third photo, taken a little further back, the whole combine is engulfed in flame and the shell of the machine is scorched black. With the New Year, it’s time to ponder what may be in store for the agriculture sector and the flaming Deere is an interesting metaphor. The grain industry is going through an unprecedented period of high prices. Canola is well over $10 a bushel. Yellow peas are around $9. Wheat is expected to total over $7 a bushel with durum at over $11. There’s a huge competition for seeded acres as spring approaches. Some analysts believe the boom could last two or three years. Others believe we’re into a new era and that grain will not return to the bargain basement price levels of the recent past. There’s also a possibility that grain prices will become completely unhinged in the year ahead – out of control, just like a combine fire. World stocks to use ratios are so tight that a significant production shortfall somewhere in the world could cause price escalation unlike anything we’ve ever witnessed. I’m Kevin Hursh.

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