Quick removal of KVD will cause some issues The federal government is on a fast track to get rid of kernel visual distinguishability or KVD at the beginning of the new crop year. As a result, the grain industry in Western Canada is introducing a declaration system for wheat. According to the Canadian Grain Commission, a producer will have to sign a declaration annually for each company and delivery point to which they deliver wheat. The declaration will confirm the wheat they will deliver has varieties that are eligible for a specific western Canadian wheat class. Producers will also have to verbally declare the class of wheat for each load they deliver. It’s difficult to see how that will be accomplished, since a lot of grain is moved to terminals by custom truckers. Will a producer have to phone in to verbally declare each load? According to the Canadian Grain Commission, the best way for producers to know they are growing registered varieties is to purchase certified seed and have old or common seed tested at a private lab. Good luck convincing producers to do that. For decades, producers have been growing and delivering varieties that meet the appropriate wheat classes. It’s hard to believe that very many are going to purchase certified seed or get their common seed purity tested at a lab just because KVD is being abruptly scrapped. I’m Kevin Hursh.
March 28, 2008
Comparisons to 1988 and 2002 Precipitation maps are looking worse and worse for Western Canada. Since the first of November, the PFRA drought watch maps show below normal precipitation in south western, south central, south eastern and east central Saskatchewan. The south west corner is the worst with less than 40 per cent of normal winter precipitation. All of Manitoba and most of Alberta are also running below normal. If you look at a map of accumulated precipitation over the past 60 days, the vast majority of western Canada has had less than an inch. The snowmelt has been slow so it doesn’t feel as dry as it actually is. The cooler than normal weather has reduced the level of anxiety, as well. Of course, you don’t lose a crop in March, or even April for that matter, but there’s a mounting moisture deficit. While we watch the grain market gyrations and worry that we didn’t hit the top of the market with our sales, the much bigger issue for a big chunk of the Prairies could be the lack of precipitation. March 31 is the deadline to make changes in Saskatchewan Crop Insurance coverage. I’m Kevin Hursh.
March 27, 2008
Summerfallow reduction will be tempered by dry conditions On Monday, the U.S. Department of Agriculture will release a seeding intentions report that may be a market mover. American corn acreage is expected to drop this spring while soybeans and spring wheat increase. However, there are many opinions on just where the acreages will shake out. On this side of the border, Statistics Canada will release the results of its seeding intentions survey on April 24. There’s lots of speculation about crop areas and analysts are expecting summerfallow acreage to be down. CGF Brokerage and Consulting of Saskatoon in its latest newsletter notes that summerfallow in Western Canada last year accounted for about eight million acres. That was down four per cent from 2006 and down 10 per cent from 2005. For this year, CGF is suggesting that summerfallow might be cut by two million acres – a massive 25 per cent drop. An extra two million acres of crop would increase the cropped area by five per cent. Certainly with most grain prices the best they’ve ever been, there’s an incentive for producers to cut their fallow acreage. However, in my opinion, this is going to be highly weather dependent. Unless there’s a major rain or snow in the dry southern regions in the weeks ahead, a lot of producers who normally have some summerfallow are going to stick with the practice. I’m Kevin Hursh.
March 26, 2008
Let's get mad about rail costs and service An independent study commissioned by the Canadian Wheat Board confirms what every observer already knows. Farmers are paying way too much to ship grain by rail and the service is lousy. With the total bill for rail transportation of Prairie grain at over $850 million a year and when a costing review shows producers are being overcharged by $175 million, you’d think there would be farmers marching to Ottawa with pitchforks demanding action. For several reasons this travesty doesn’t resonate with producers the way it should. As farmers, we don’t see the freight bill directly. A producer looking to sell a crop just asks about the net price. Plus, there’s a feeling of helplessness on the issue of grain freight rates. On other input costs, there’s some opportunity to shop around or use alternate products. Not so when it comes to transporting grain long distances. As producers gather to commiserate on the costs of farming, they’re much more likely to talk about the escalating cost of fertilizer, the price of the latest hybrid canola seed or their custom trucking bills. To the farm organizations making noise about rail costs and service, thank you. It’s a critical issue for all grain producers, even if it isn’t the top topic on coffee row. I’m Kevin Hursh.
March 25, 2008
What am I bid? Auction sale season is starting. From now until the end of April, there will be a steady stream of farm equipment as well as some farmland on the auction block. Saskatchewan sales number in the hundreds over the next six weeks. On some individual days, there are as many as a dozen sales happening in various locations and that’s just within the boundaries of the province. Sales continue after the first of May, but the prime season is before seeding. With Internet use so widespread, every major auction company has their listings on-line, so it’s easy to tally up all the sales and it’s easy to search for farm equipment across the province and beyond. Just a couple years ago when times were tough in the grain industry, observers bemoaned the number of farm auction sales pointing at all the farmers exiting the industry. Now that the outlook is bright, there appears to be even more auction sales and many of them are major farm operations pulling the pin. It’s commonly assumed that farm consolidation occurs mainly when times are tough. However, there are probably more farmers selling out now that buyers are more optimistic. I’m Kevin Hursh.
March 24, 2008
Spotlight on railway transportation On Tuesday at a grain terminal in Winnipeg, a number of farm organization are holding a news conference to express their concern over the excessive costs charged for transporting Western Canadian grain by rail. The groups involved say results will be released from a new study that raise serious new issues about railway revenues in relation to farmer costs and declining rail service. Recently, I received an e-mail on the topic of rail service from Russell Fersch, a young producer from near Elrose. Fersch says that with the railway revenue cap system we have now, there’s no incentive for the two major railways to provide better service. He’d like to see a system whereby the revenue cap is adjusted up or down depending upon the level of service provided. If a railway can’t meet a certain target for indicators such as ability to spot cars as promised, the revenue cap would be decreased the following year. If, however, a railway exceeded performance targets, the revenue cap would be raised. I agree with Russel Fersch that the current system doesn’t provide many incentives for the railways to improve their level of service. It’ll be interesting to see the analysis and the potential solutions that will be put forward tomorrow by the various farm groups. I’m Kevin Hursh.
March 20, 2008
Beware of popcorn journalism There are some wild stories showing up in the media about how the rising cost of grain is driving up food prices. This week, the Los Angeles Times had a story about how popcorn is going to take a bigger bite out of your wallet when you go to the movie theatre. The story says the price farmers are charging for popcorn has risen from $10 a hundredweight two years ago to $20 a hundredweight today. The story goes on to say that a $5 bucket of popcorn at the movies is likely to rise by about 15 cents to account for the extra cost of the popcorn. The small packages of microwave popcorn in my house are 42.5 grams and each package makes 6 cups of the fluffy finished product. Some of the 42.5 grams is butter and salt. There are about 28 grams in an ounce. Let’s be generous and assume that it takes four ounces of raw popcorn to make a big bucket of this movie treat. A $10 per hundred pound price increase is 2.5 cents. That’s a far cry from 15 cents. Some of the same shady logic and questionable arithmetic is being used to talk about big price increases for bread and other food. Popcorn provides a huge profit market for movie theatres. The same Los Angeles Times story says there’s only a few pennies worth of popcorn kernels in a bucket, but doesn’t question the assertion that the price increase will have to be 15 cents. Instead of teaching investigative journalism at journalism schools, maybe they should start with some elementary school math. I’m Kevin Hursh.
March 19, 2008
Many southern areas looking for moisture Across a big chunk of southern Saskatchewan, the ground is almost bare and there’s hardly a mud puddle to be seen. It’s not unusual for the southern grainbelt and particularly south western Saskatchewan to be dry, but that doesn’t make it any less worrisome. In much of the southwest, there has been no runoff and there won’t be any without a fresh batch of snow. That’s going to be a big problem for a lot of cattle producers. In many cases, water reservoirs were low or dry going into the winter. Of course, it’s only March and anything could happen. “It has to rain sometime,” is a comment often heard from the optimists. The more pessimistic shake their heads and worry that we’re heading into another bad drought such as the ones in 1988 and 2002. Fears of a dry year are already having an impact on management decisions. There’s some move away from canola, and producers are increasing their crop insurance coverage levels. Fertilizer use is also being trimmed. Sometimes when it’s dry in the spring, the year turns out just fine. At this point though, a lot of grain and cattle producers in the southern grainbelt would be thrilled to see a big rain or snow. The first seeding outfits will be rolling in just a few weeks unless the weather turns wet. I’m Kevin Hursh.
March 18, 2008
Aussies try to sort GM canola fact from fiction Those poor Australian farmers must not know what to think about GM canola. Parts of that country are opening up to genetically modified canola, more than a decade after Canada adopted the technology. However, many Australian states continue to impose bans. As the Aussies try to sort out how to proceed, there have been lots of Canadians asked to go to Australia to talk about the Canadian experience. Of course, the Canadian view depends on who you ask. Terry Boehm of the National Farmers Union and Arnold Taylor of the Saskatchewan Organic Directorate have been two of the featured speakers. I like both Terry and Arnold, but I don’t agree with how they vilify GM canola. There are drawbacks, but the vast majority of producers in Western Canada have decided to grow genetically modified canola because it has a number of benefits. Canadian production is shut out of the European market, but there has been no shortage of marketing opportunities in other parts of the world. Of course, Australian interests that support GM canola have sponsored Canadian speakers to talk about the positive experience with the technology. Imagine Australian farmers trying to sort the fact from the fiction, particularly when groups like Green Peace are spreading all sorts of malicious stories. There’s a lesson in this for Canadian producers. Whenever you listen to a speaker from another country remember that they probably have countrymen with entirely different views. I’m Kevin Hursh.
March 17, 2008
Place your bets A common denominator among grain market analysts these days is the worry about how the market is functioning. Increasingly, the futures markets are out of whack with what a producer can actually receive in the cash market. Margin calls are so high and the market is so volatile that basis levels, the difference between futures and cash prices, are often huge. There is also worry from analysts about all the outside investment in the grain markets. Fund money has helped propel markets higher, but what happens if the fund money decides agriculture is no longer so sexy? Grain prices have reached unprecedented levels, but there’s also unprecedented volatility. We’ve seen that markets which go up quickly can also fall quickly. In many cases, the daily limits have been greatly expanded making it possible for prices to increase and/or fall much more rapidly. It’s often the fund money either buying or selling that’s causing the volatility rather than any real changes in the supply and demand picture. To predict where prices may go from here, you might as well flip a coin. I’m Kevin Hursh.
March 14, 2008
A feed grain pricing proposal Here’s an idea for helping to stabilize livestock enterprises and grain farms at the same time. As a grain producer, I might be willing to enter into contracts of say three years in length to provide a specified amount of feed barley to hog and cattle feedlot operations each year. Instead of locking in a dollar value, why not link the value of the barley to a pre-determined number of livestock? For instance, each tonne of feed barley in the contract might equal one market hog. Payment for the feed barley would vary up and down with the value of market hogs based on the ratio and timelines spelled out in the contract. The same deal should be possible with cattle feedlots – just the ratio would be different. It might be something like eight tonnes of feed barley equals one market weight steer. Being paid in the equivalent of hogs or cattle would benefit grain producers when grain prices are low. The arrangement would benefit livestock producers when feed grain prices are high like they are now. The historical relationship between feed grain prices and livestock prices could be used to develop the ratios. Let me know if you think this sort of deal has any merit. I’m Kevin Hursh.
March 13, 2008
Saskatchewan fruit production has potential Saskatchewan Fruit Growers Association director Bruce Hill says “Product of Canada” labelling has created an unfortunate complacency among consumers. Hill recently attended the Canadian Horticulture Council’s annual general meeting in Ottawa. He says the product of Canada statement is being used as long as 51 per cent of the value of the container and contents comes from Canada. Consumers assume they are buying the contents of the package. Hill says far too much food is imported into Canada that may not meet Canadian standards. And he says it’s competing against Canadian grown produce that is required to meet standards. Another concern is financial support for research, which Hill says has been decimated in recent years. The University of Saskatchewan has a program for fruit development. U of S cherries, Haskap (also known as blue honeysuckle) and Prairie Sensation apples have come out of the university program. Unfortunately with the shortage of funding, there are only two employees. While the fruit industry in Saskatchewan is small, it’s growing and there’s a lot of potential. Bruce and Charlene Hill grow cherries at Imperial, Saskatchewan. I’m Kevin Hursh.
March 12, 2008
Land price and cash rent comparison Recently, I had the opportunity to travel through western Ontario and visit with scores of producers. In Ontario, they use the term “cash croppers” to describe grain producers and the major crops are corn, soybeans and winter wheat. They don’t have Saskatchewan’s extensive acreage, but the yields and therefore the gross returns per acre are higher. There’s urban and industrial pressure on farmland and land is needed for spreading manure from all the intensive livestock operations. As a result of all these factors, land prices are dramatically higher. In Saskatchewan, the average farmland price in 2006 was around $350 an acre. In Ontario, it was over $3,500, the highest in the country. The top price for the best Saskatchewan farmland currently seems to be in the $1,200 range. In western Ontario, well away from the major urban centres you can find good farmland selling for around $6,500. The potential for attractive returns has cash rents rising everywhere, but there are no statistics to peg down the exact numbers. In Saskatchewan, depending on the area, you hear of cash rents that range from $30 to $60 an acre for good land. In western Ontario, the numbers are $175 to as high as $300 an acre. I’m Kevin Hursh.
March 11, 2008
New organization for producer car shippers Producer car shipments continue to increase and now a new organization is being established to represent producer car shippers on transportation issues. Ron Walter of the Moose Jaw Times-Herald had a story in the Saturday edition of that paper about the new group called Producer Car Shippers of Canada. The president is Gary Gadd, a farmer from the Moose Jaw area. In the 2005-06 crop year, more than 11,000 producer cars of wheat, durum and barley were shipped accounting for about seven per cent of the western Canadian movement of those grains. Farmers can save a significant amount of money by loading their own rail cars, but there are problems with car availability and a host of other issues. The idea of the new association is to make policy concerns known and push for improvements. Annual membership in the organization costs $20. Anyone who has shipped a producer car in the past two years is eligible to join and have a voice in the new group. The first organizational meeting is scheduled for 1:00 on March 20 at the Day’s Inn in Swift Current. There is certainly a need for an organization fighting to maintain producer cars as a viable option. I’m Kevin Hursh.
March 10, 2008
Saudi policy change boosts barley price prospects One of the ramifications of the wild grain market is that governments are meddling more in import and export policy. The latest example comes from Saudi Arabia, the world’s top importer of feed barley. On March 5, the Saudi government increased its import subsidy for barley by 71 per cent. They want to increase barley usage and conserve wheat-flour supplies. The Canadian Wheat Board says Saudi consumers had been using wheat flour and other grains as substitutes for feed barley, but the government's subsidy increase should restore the demand for feed barley and increase the price in global markets. Back on February 28, the CWB dropped the Pool B feed barley Pool Return Outlook for the current crop year by $7 a tonne. Now, due to the move by Saudi Arabia, the CWB has taken the rare action of a mid-month PRO increase of $23 a tonne. After deducting average Saskatchewan freight and handling, the expected price is now $4.60 a bushel. A Guaranteed Delivery Contract is available on feed barley with guaranteed 100 per cent acceptance and delivery call by May 2. The sign-up deadline is May 2 or until sufficient tonnage is committed. The PRO is only an estimate of the total return and producers with feed barley to sell will have to weigh that against prices that are available on domestic sales. I’m Kevin Hursh.
March 7, 2008
Grain companies feel the heat from market volatility There are many ramifications from the record high grain prices and the extreme volatility in futures markets. My thanks to Daryl McLoughlin of South West Terminal near Gull Lake for passing along information about what’s happening in the American marketplace. According to published news reports, many U.S. companies are no longer offering futures based price contracts for delivery in the fall. Producers can lock in a basis, but not the futures price. This is happening with some of the major American grain companies, not just the smaller ones. For one thing, the companies fear that farmers will walk away from the contracts if prices continue to rise. As well, the margin call requirements have been putting a strain on the cash flows of companies. Grain companies are selling the futures to hedge the purchases and as the market rises, there are increased margin requirements on the commodity exchanges. In Western Canada, grain companies aren’t typically hedging wheat because it’s under the Canadian Wheat Board. That helps overall cash flow. Daryl McLoughlin believes that Canadian grain companies would be adopting some of the same practices as their American counterparts if they had to deal with as much risk on wheat and they do on crops like canola. I’m Kevin Hursh
March 6, 2008
Don't complain if you don't vote At least in Saskatchewan we have elections and not coronations. The dismal 41 per cent turn out in the Alberta provincial election is shameful, but so is voter participation when the balloting involves farm organizations. There are all sorts of producer run commissions using check-off dollars for research, communications and market development. By law, all these groups from Saskatchewan Pulse Growers to Saskatchewan Canola Development Commission to the Saskatchewan Mustard Development Commission have to hold an annual meeting and they have to follow a stringently controlled election process. Unfortunately, only a small percentage of producers usually bother returning the mail-in ballots. Producer participation in Canadian Wheat Board elections is a bit better because the CWB is contentious, but there are still a lot of producers who don’t bother. For many farm organizations, interest is so low that it’s difficult to find producers who will let their names stand for election. That’s true for many of the commodity commissions and it’s also true for rural municipal councils. Democracy isn’t very healthy when people don’t pay attention and invest the time to take a stand. If you don’t get involved and don’t vote, don’t complain about how things are run. I’m Kevin Hursh.
March 5, 2008
Supply management for beef and pork? I haven’t heard this view on the Prairies, but during a recent tour through Western Ontario I heard a number of producers express the opinion that the beef and hog industries should move towards a system of supply management. Times are tough for beef and pork and the losses are likely to continue for the foreseeable future. In Ontario, supply management has worked very well to provide stable and strong farm income levels for dairy and poultry producers. Older producers there can remember back in the 70s when beef and pork producers were also considering supply management systems. Since then Canadian hog and beef production has grown into a major export business. Some Ontario producers argue that as those industries contract it will be easier to match Canadian production with Canadian supply. In Western Canada, and especially in Saskatchewan, the dairy and poultry industries are a minor part of the agriculture industry. You seldom hear musings about emulating that system. Most of the country’s beef and pork exports come from the West. Switching to a system of supply management is probably a moot point even if there was a nationwide desire. That’s because developing more supply managed industries within Canadian agriculture would put the country offside on international trade rules. I’m Kevin Hursh.
March 4, 2008
Ritz is too colourful for his own good I admire a politician that speaks his or her mind. It’s refreshing. However, Agriculture Minister Gerry Ritz might get better results by being a bit more diplomatic. In a recent news conference, Ritz referred to Canadian Wheat Board supporters as “the tinfoil hat and decoder ring crowd.” While that’s colourful, it hardly helps to unite the industry. There’s already a huge rift over the CWB. Name calling doesn’t help. In recent times, Ritz has also said that he “condemns” grain producers for not investing in ethanol plants. It’s certainly fair game for Ritz to encourage producers to invest in ethanol if he feels it’s a good deal, but condemning producers for not investing is pretty strong language. Here’s a quote from Ritz from the Manitoba Co-operator: “We’ve got a struggling livestock sector out there that needs a lot more barley in the ground, not less, to try and bring the price down.” The Manitoba Co-operator headline reads, “Lower barley prices a priority for Ritz.” The Agriculture Minister has a legitimate concern that with all the controversy over barley marketing, barley acreage could drop. However, there’s better ways of saying it that don’t make it sound as if you want lower barley prices. Politicians who use colourful language tend to get quoted and noticed, but the comments can come back to haunt them. I’m Kevin Hursh.
March 3, 2008
Upward pressure on cash rents A lot of land rental arrangements are still being finalized for the upcoming growing season. On cash rent, what’s a fair price? If you look at what a landlord might receive out of a 25 per cent crop share agreement, cash rents have some room to move up. Take the assumed price of wheat at $9 a bushel and factor in a typical yield of 30 bushels per acre. The gross return is $270. A 25 per cent crop share would pay over $65 an acre. A 25 bushel per acre canola crop at let’s say $13 a bushel has a gross return of $325 an acre. A 25 per cent crop share is about $80 an acre. In many areas, expected yields are much higher than 30 bushel wheat and 25 bushel canola. Of course, there’s also downside risk in the event of drought or hail. Cash rents in Saskatchewan have typically been $25 to $45 an acre, well below what a crop share arrangement would now suggest. There are all sorts of crop share deals with different percentages. The landlord may or may not share some of the cropping expenses. In some areas, land rents are hot and in other areas, there isn’t much competition. However, with unprecedented strength in grain prices, there’s no doubt that on average any renegotiated cash rents are going to be rising. I’m Kevin Hursh.
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Kevin Hursh's daily agricultural report is heard Monday through Friday on Swift Current (CKSW), Shaunavon (CJSN), Moose Jaw (CHAB), Estevan (CJSL), Weyburn (CFSL), Rosetown/Kindersley (1330/1210), Lloydminster (CKSA) and Melfort (CJVR).
