Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

September 30, 2008

American financial mess has a big influence on grain prices
Most grain futures dropped like a rock yesterday in concert with the huge losses in the main stock exchanges. The U.S. financial crisis is having a big impact on grain prices. Grain market analysts long for the days when they could do supply and demand projections and make reasonable price predictions. Grain prices in recent times are more tied to the overall economic outlook than to their stocks to use ratios. A University of Saskatchewan graduate working in the commodity business in the U.S. sent me an e-mail saying that beyond what’s happening in the futures market, the credit crunch could become so serious that companies will not want to purchase commodities unless they can resell them quickly. While this will affect a crop like canola, it’s likely to affect specialty crops even more. The carrying cost is higher and the players in the specialty crop industry are smaller. As the availability of credit declines and as the cost climbs higher, companies will need more compensation to cover their carrying costs. All of this does not bode well for the grain price outlook in the near term. More than anything else, grain prices would benefit from a return to some stability in the American economy. I’m Kevin Hursh.

September 28, 2008

Send your best, first
As farmers, we often try to market our lowest quality grain first. This year, for producers filling existing contracts, that’s creating big problems. My thanks to Toby Torkelson of Rayglen Commodities for articulating this concern. As everyone knows, grain prices have declined dramatically in recent months. Producers who locked in prices earlier in the year typically have much better contract prices than what you could get now. Many buyers in countries around the world are looking for any excuse to get out of their contracts with Canadian processors. If the product is borderline for grade, the processor and/or exporter here at home could be at risk. Sending your worst quality first might work in a rising market. In a falling market, the whole industry will be better off if we send our best quality first, especially when filling high priced contracts. Imagine the reaction from a Canadian specialty crop buyer if you ship borderline product to fill a contract and then you send higher quality product later in the year. That’s not a good way to establish a long term business relationship. I’m Kevin Hursh.

September 25, 2008

Pool Return Outlooks drop
As expected, the Pool Return Outlook for wheat has seen a major decline. The expected price for this crop year is down by $27 to $31 a tonne as compared to the August PRO. No. 1 CWRS wheat with 13.5 per cent protein is now expected to have a total price of around $7.35 a bushel after average Saskatchewan freight and handling is deducted. By comparison, the PRO for wheat in the last crop year is $8.44 a bushel. Durum price expectations for the current crop year are holding up better than wheat. No. 5 durum is down dramatically, but the drop in the other grades ranges from $5 to $13 a tonne. No. 1 durum with 13.0 per cent protein has an expected Saskatchewan price of $8.96 a bushel. That’s a far cry from the $12.60 a bushel expected for the last crop year, but it’s a significant premium over spring wheat. The feed barley PRO is down $23 a tonne to an average of $3.30 a bushel in Saskatchewan. In some areas that should still be competitive with the domestic, off board price. The malting barley PRO is down $13 a tonne, which puts the expected price for two-row at $5.82 a bushel in Saskatchewan. Malting barley is the only CWB crop to have a higher price expectation in this crop year as compared to last year. I’m Kevin Hursh.

September 24, 2008

National debate on agriculture
The Canadian Federation of Agriculture has organized a national agriculture debate for Monday, September 29. Agriculture Minister Gerry Ritz will represent the Conservatives while Liberal agriculture critic Wayne Easter will represent his party. Representatives for the NDP, Green Party and Bloc Quebecois are yet to be announced. Moderating the debate will be Hugh Maynard, a well-known agricultural journalist and broadcaster from Quebec. The Cable Public Affairs Channel known as CPAC will be broadcasting the debate and the debate will also be live on the CPAC website at www.cpac.ca. The information I have suggests the two-hour debate will start at 9:00 a.m. Saskatchewan time. Again this is happening on Monday. A lot of farmers would rather visit the dentist than listen to politicians for a couple of hours, but both Gerry Ritz and Wayne Easter are engaging speakers and they certainly don’t agree on many issues. For those who want to be better informed on where the parties stand on issues such as trade, business risk management programs and food safety, this debate should offer a great opportunity. I’m Kevin Hursh.

Manitoba pushes organic production
Manitoba has come out with an organic transition incentive. Manitoba farmers and food processing companies can have part of their certification fees covered under the new program. The program provides reimbursement of two-thirds of the cost of certification fees, up to an $800 maximum for each of two years during the three year transition to organic status. It isn’t a big program. Manitoba has only pledged $338,000 over three years. This organic transition program pales in comparison to the cost-sharing available under Environmental Farm Plans. There’s also some government money available for certain sectors to do on-farm food safety programming. Those sorts of initiatives make a lot of sense. This Manitoba program is a vote of confidence in the organic industry, but it’s always a little worrisome when governments start making decisions that may affect the marketplace. Growers and processors who paid all their own costs to become certified organic may rightfully wonder about a government program to subsidize competitors. I’m Kevin Hursh.

September 23, 2008

Could'a should'a year

With harvest on the home stretch in most areas, grain producers are taking stock of their financial situation. Overall in Saskatchewan 2008 will be a year of average or a bit better than average production as well as crop quality. It won’t be noted for a big frost, or a big drought, or a bumper crop. At this point, it looks like it will go down in history as the year of missed pricing opportunities. On nearly every commodity, far better prices could have been locked in months before harvest started. This is true of canola, flax, field peas, oats, barley, canaryseed and most types of lentils. The various wheat pricing options provided by the Canadian Wheat Board were also much better than the current prices. The CWB’s new Pool Return Outlooks will be released on Thursday and you can expect the wheat PRO to take a tumble, since it will take its cue from American wheat futures. With hindsight it’s easy to see that we could have made a lot of money by pre-pricing more of our production. Where will prices go in the months ahead? What commodities should a producer market now and what commodities should we hold in the hopes of price improvement? Producers will be listening for advice from various market analysts, but most of those analysts did not predict this precipitous drop in commodity values. I’m Kevin Hursh.

September 22, 2008

Farm invention hits mainstream retail
Bet’r Bait is becoming a retail success. The product was launched by two farm families from the Montmartre area of Saskatchewan about six months ago. Norman and Loretta Englot came up with the idea and they partnered with neighbours Kevin and Lydia Shiplack. Bet’r Bait won the People’s Choice award for a new product at the Farm Progress Show back in June. It’s a simple idea - non-poisonous mouse attractant in an easy to use syringe. It takes the mess out of baiting mouse traps and the inventors say that mice prefer their bait over peanut butter or cheese. Bet’r Bait is now being carried by Peavey Mart and a deal has been inked with Federated Co-op which has over 200 retail outlets across Western Canada. Other large distribution chains are expected to pick up the product as well. The two families have gone from using a farm shop as their production facility to renting a 1,800 square foot shop in the town of Montmartre. The couples and their children filled and labelled the first 20,000 Bet’r Bait dispensers by hand. Now with two high-capacity fillers and a packaging machine, they can produce 700 to 800 packages an hour. There will always be mice to control, so the future should be bright for this farm invention. I’m Kevin Hursh.

September 19, 2008

Ritz should learn not to make wisecracks
I’m not in the habit of defending Gerry Ritz. I don’t agree with a number of his policy approaches and his rhetoric is often more divisive than it needs to be. That said, I don’t agree with the calls for his resignation over the wisecracks he made on the listeriosis outbreak. Yes, the comments were insensitive, but uttering a line about death from a thousand cold cuts is not grounds for his resignation. Nor is a disparaging remark about Wayne Easter. Ritz’s comments weren’t made in a public speech. This was in a private call with bureaucrats and scientists where anything said should have been confidential. While politicians should be held to a higher standard, how many insensitive comments do you hear on TV comedy shows or in your own private conversations? The leaking of Ritz’s comments provides a great issue for the other political parties in the midst of an election campaign. As expected, they’re showing moral outrage and demanding the Agriculture Minister step down from his post. Ritz should not be forced from his job, but hopefully he’ll learn something from this incident. I suspect the controversy will not affect the election in Ritz’s riding on Battlefords Lloydminster where in 2006 he took 53 per cent of the vote and outpolled his nearest rival by a margin of nearly 4 to 1. I’m Kevin Hursh.

September 18, 2008

McCain has been impressive
The Toronto meat processing plant that caused the country-wide listeriosis outbreak is open again. Before its products are sold to consumers, it has to go through extensive testing to make sure there are no further problems. I’ve been impressed by how Maple Leaf has handled this public relations disaster. Most notably, I’ve been impressed with Maple Leaf CEO and president Michael McCain. When Maple Leaf shut down Saskatchewan’s only major pork slaughter operation, Michael McCain did have the tenacity to attend a Saskatchewan Pork Symposium and face Saskatchewan hog producers personally. With the listeria crisis, McCain has been front and center as the main spokesperson. Maple Leaf has accepted responsibility for the disaster and hasn’t tried to pass the buck. It may be a long road to regain public confidence, but the company has laid the groundwork by apologizing and acknowledging that its best efforts on food safety were simply not good enough. There will probably be lawsuits against Maple Leaf and the issue will stay in the news for a long time. It’ll be interesting to see the medium and long term response of consumers. I’m Kevin Hursh.

September 17, 2008

Reducing the risk when seeding winter wheat late
The later than normal harvest is probably going to reduce winter wheat acreage in the province. The crop insurance deadline for seeding winter wheat was September 15. Ducks Unlimited says there are ways to reduce your risk if you still want to seed winter wheat. First of all, seed as soon as possible. They say the risk increases dramatically beyond the September 20 to 25 timeframe. Seed shallow – less than an inch. Seed into good standing stubble. Use appropriate levels of seed placed phosphate. Use high seeding rates of around 120 pounds per acre. And take care of weeds this fall and next spring. A lot of areas have good soil moisture and that should make late seeding less risky as the crop should emerge quickly. Still, late seeding increases the risk of winterkill and it may be more difficult to achieve the maximum yield. A late seeded crop may be slower to resume growth in the spring making it more susceptible to weed competition, wheat midge damage and fusarium head blight infection. Ducks Unlimited is a great source of information if you have questions. They have winter wheat agrologists in Regina, Yorkton and Humboldt. I’m Kevin Hursh.

September 16, 2008

Canola price decline continues
Canola prices have been on a rollercoaster ride this year. Yesterday, the November futures price for canola dipped below $500 a tonne, the lowest level since before January 1. Around the beginning of July, the price was nearly $700 a tonne and at the end of February, the November futures was well over $700 a tonne. From the high points, the drop has been more than $200 – more than $4.50 a bushel. Cash prices roughly follow futures prices, but the basis varies. The basis is the difference between the futures price and the cash price. With a narrowing basis, the drop in cash prices may not have been quite as severe as the drop in the futures. That will vary from one buyer to the next. Still, the drop in cash prices has also been dramatic. To date, the cash quotes I’ve seen have been above $10 a bushel, but it wouldn’t take much more of a decline to see values dip below the $10 mark. Ten dollars for canola used to seem like a great price, but it’s now a disappointment considering where canola prices have been. I’m Kevin Hursh.

September 15, 2008

Gasoline is like fertilizer
The big surge in gasoline prices has a lot of parallels with what’s been happening with fertilizer prices. Gas prices have jumped even though the price of crude oil has seen a major decline. The main feedstock for producing nitrogen fertilizer is natural gas. That price has been declining even as the price of nitrogen fertilizer has been escalating. Are gas companies and fertilizer companies making a lot of money? You bet they are. However, it would be very difficult to regulate gas prices or fertilizer prices in an international marketplace. Gasoline has spiked due to worries about the supply being tight. This is related to refinery capacity and has little to do with the price of oil. Fertilizer prices are climbing because demand looks to be outstripping the supply. This is related to production capacity and is divorced from natural gas prices. These commodities are no different than grain. What we’re paid for wheat or canola isn’t directly related to our input costs. It just depends on the marketplace and the supply and demand situation. Gasoline and fertilizer production are dominated by big companies and that does limit effective competition. But it would be difficult for any Canadian government to force companies to sell for less than the prices they can receive in other countries. I’m Kevin Hursh.

September 12, 2008

Many farm voices lobbying governments
There are so many voices speaking for agriculture in this country that it gives governments the freedom to do whatever they want on a number of issues. With a federal election underway, the Grain Growers of Canada has just sent its farm policy agenda to each of the three main political parties. The Grain Growers of Canada claims to represent 90,000 Canadian farmers who produce grains, oilseeds and pulses in nearly every province of Canada. They have a long list of member organizations that include the Alberta Barley Commission, the Canadian Canola Growers’ Association and the Western Canadian Wheat Growers. The Grain Growers of Canada is trying to establish itself as the national voice of grain producers, but many of its policies are at odds with the Canadian Federation of Agriculture, which considers itself the national umbrella farm group. Also very prominent on the national stage is the Canadian Cattlemen’s Association, which has very different views than the Grain Growers on issues such as the national ethanol mandate. Then there’s the whole divide among export oriented agriculture and the supply managed industries. Dairy and poultry have powerful national lobbies and a whole different agenda. Governments can pick and choice which voices they want to hear. I’m Kevin Hursh.

September 11, 2008

Stupid surveys
I had a call the other day from one of those survey companies. This one was about canola and for the heck of it I agreed to participate. They promised to pay a few bucks for my time and I was curious to see the design of the survey. How many acres of canola did I have this year? 409. Was it Roundup Ready, Invigor or Clearfield? Roundup Ready. How many acres of canola would I grow in 2009? No idea, I said. Might be zero. Might be 400. So should I put down 400? Yah, whatever. What canola system will it be? Roundup Ready. So what’s your reason for decreasing your Roundup Ready acreage? Well, the total number of acres you wrote down is a bit lower – 400 versus 409. This was lost on the surveyor, but he dutiful recorded my response. He wouldn’t say who was behind the survey, but there were questions that pointed out extra costs involved in two of the three canola systems. It may have been a “push” survey rather than a “pull” survey, meaning it was designed to push information onto respondents in the guise of survey questions. I’m always amazed by how badly some surveys are designed and by how many of the surveyors are clueless. At the end, he asked me for my address so I could get paid my few bucks. How do you spell Saskatoon? I told him and then I asked him where he was calling from that he had never heard of Saskatoon. Oh, I’m from Winnipeg he said, but I just didn’t know how to spell Saskatoon. I’ll bet he wouldn’t know a canola crop if he tripped into one. I’m Kevin Hursh.

September 10, 2008

Obama and McCain differ on corn based ethanol
Who wins the U.S. presidency could have a big effect on Canadian agriculture. According to a report by Charles Abbott of the Reuters news service, Democratic presidential nominee Barack Obama told farmers yesterday that he backs the federal requirement to use ethanol as a way to reduce reliance on oil imports. According to the report, Obama made the comment in a telephone call to members of the National Farmers Union. By contrast, the recent Republican National Convention called for an end to ethanol mandates in line with its nominee John McCain. McCain says he would end mandates, subsidies, tariffs and price supports that focus exclusively on corn-based ethanol. Both Obama and McCain say they support the development of fuel ethanol from cellulose. If Obama becomes the next president, it would appear that a big percentage of the American corn crop will continue to be used for ethanol production and that would help support Canadian grain prices. A McCain win might mean a drop in corn-based ethanol production, which would put downward pressure on grain prices. That might benefit Canadian cattle and hog producers. Of course, what politicians say during an election campaign isn’t always what happens after they’re elected. I’m Kevin Hursh.

September 9, 2008

Grain prices are becoming less attractive
Along with all the rest of the commodities, grain prices have dropped dramatically in recent weeks. Canola has been highly volatile, but the general direction has been down. Rather than lofty prices well into the teens, the cash price for canola is now under $11 a bushel – on some days well under. Flax prices are still listed in the $15 to $16 a bushel range, but that’s down from $20 a few months ago. Unless something changes, the next Pool Return Outlook for wheat from the Canadian Wheat Board will be lower because American futures prices have been slipping. As mentioned in this commentary last week, yellow field peas are in the $6.50 a bushel range, down more than $3 from the new crop prices that were once available. While lentils will be the best money maker for a lot of producers, those prices are also softening. CGF Brokerage and Consulting of Saskatoon is listing red lentils in the 32 to 35 cent a pound range, down significantly from the 42 cents once available. Mustard prices appear to be remaining pretty solid, but canaryseed has dipped. CGF is listing a price of 25 cents a pound. At one point, new crop could be locked in at 30 cents. Compared to a couple years ago, prices still look very good. Compared to what was available and compared to rising input costs, prices are not nearly so attractive anymore. I’m Kevin Hursh.

September 8, 2008

Harvest delay in perspective
For a lot of Saskatchewan producers, there has been little or no harvest progress in the past week. While some areas received only a few showers, many areas in the southern grainbelt received one or even two inches of rain. The harvest delay and the damage to crop quality are regrettable, but we should keep it in perspective. The Interlake region of Manitoba has been so wet that it’s been difficult to salvage any crop or any hay. More than four inches of rain have fallen in many parts of the Interlake in the past couple of weeks. This was on top of summer precipitation that was already much higher than normal. The whole year is looking to be a washout. A similar story exists in many parts of the Maritimes. They were swimming with rain even before being hit in the last couple days with the remnants of tropical storms and hurricanes. More rain at this point in the season will become costly here in Saskatchewan as well, but the past week has only been a speed bump compared to what producers in some other regions of the country have experienced. Here’s hoping for warm, dry weather for the weeks ahead. I’m Kevin Hursh.

September 4, 2008

Changes among specialty crop processors
There are some interesting developments among Saskatchewan specialty crop processors. It hasn’t been officially announced yet, but it’s widely known that Simpson Seeds of Moose Jaw is buying Kyle Seed Cleaning. Kyle Seed Cleaning has facilities in Kyle and Swift Current. The company has been owned by the Matador Farming Pool. It processes specialty crops for buyers, but it hasn’t been a buyer. Simpson Seeds is a major processor and buyer. Another development is that Parkland Pulse has purchased the Cargill concrete terminal in Cutknife. Parkland Pulse has commenced a $1 million expansion of the facility to incorporate a full pulse cleaning line. The facility is to be operational in early 2009 and it will be 100 per cent dedicated to field peas. Parkland Pulse says the Cutknife terminal will be the only high throughput facility in Western Canada designated solely to field pea exports. Parkland Pulse already has facilities at North Battleford and Swift Current. In addition to peas, it purchases and exports lentils, canaryseed, mustard and flaxseed to more than 35 countries. The main players in Saskatchewan’s pulse and specialty crop processing industry continue to grow, while many smaller operations are no longer in the business. I’m Kevin Hursh.

September 3, 2008

Pea prices plummet
The price of yellow peas just keeps dropping. Prices currently being quoted are in the $6.50 a bushel range. That’s a far cry from the $10 plus that was available just a couple months ago. Market analysts say buyers and end users are walking away from the market. There’s a general feeling that prices have been too high relative to many other commodities. On top of that, it would be helpful to have more than India as a major importer. The big question – will pea prices recover? Most analysts believe there will be a move higher at some point, but they also say the market may not have bottomed yet. Saskatchewan Agriculture says 73 per cent of the provincial pea crop has been harvested – more than any other spring seeded crop. Many producers were counting on their peas for early cash flow and they want to move some product to free up bin space. However, dropping prices are a tough pill to swallow. It’s a dramatically different fall than last year, when prices just kept rising. Producers who may have been penciling in gross returns of $300 an acre are now looking at $200 an acre and many producers will decide to store their peas hoping for better prices in the months ahead. I’m Kevin Hursh.

September 2, 2008

Public education needed in food safety
At last count, a dozen deaths had been attributed to listeria bacteria in processed meats from the Maple Leaf Foods plant in Toronto. Due to the listeria outbreak, public attention is more focused on food safety than ever before. There’s strong support for more government resources being dedicated to ensuring a safe food supply. There’s also a big need for public education. How many of us knew anything about listeria a couple months ago? This isn’t a new bug. Food processors have been battling it forever. It’s interesting that there’s strong support in certain parts of the country for allowing the sale of unpasteurized milk. Listeria is one of the bacteria that pasteurization kills. Unfortunately, too may people equate natural with good. In reality, natural kills. This country has long dragged its feet over allowing the irradiation of certain foods. Irradiation is proven to be safe and it can effectively kill microorganisms on food. However, because it sounds scary and it isn’t “natural” the general public is wary. The public is hung up on natural, organic and local being the keys to food safety when those elements are only a minor part of the much bigger issue. I’m Kevin Hursh.

Harvest progress stalled in most areas
It’s looking to be a lost week for harvest progress. In parts of the southern grainbelt, there was a substantial amount of rain over the weekend. In other areas, the weather has been damp and cool. The forecast for the week ahead calls for a high probability of showers with temperatures dipping perilously close to freezing. Unless the forecast changes, it appears that combining will be limited in most areas this week. Harvest progress is already running behind normal, but it’s going to slip further behind and the weather is going to take a toll on crop quality. It could be one of those falls when grain drying equipment is in big demand. It could also be a year when there’s a lot of shopping around among various buyers for the best grades. Hopefully one week of damp weather won’t stretch into two or three. There have been years when virtually the entire month of September has been lost for harvesting. It’s a helpless feeling to have to sit and listen for each new weather forecast. I’m Kevin Hursh.

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