Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

October 31, 2008

Ritz will pick up where he left off
Whether or not you agree with the agriculture policy directions of the Conservatives, having Gerry Ritz return as agriculture minister is going to allow the government to move forward much more rapidly. Many, including this pundit, expected that Stephen Harper would change agriculture ministers. Having Ritz return is going to save weeks, if not months of consultations and briefings that a new minister would have required. A lot of work remains on the Growing Forward initiative that replaced the Agriculture Policy Framework. Details are still being negotiated between the feds and the provinces. Having Ritz back in the saddle should expedite that process. A new agriculture minister might have meant a different approach on a number of files. Farm organizations would have been lining up to meet the new minister to push their agenda. That won’t be necessary. Over the past ten years there have been more agriculture ministers than most people can count. Ritz isn’t universally popular, but there are advantages to having continuity and stability in the portfolio. I’m Kevin Hursh.

October 29, 2008

Be careful with your specialty crop sales
These are worrisome times for specialty crop exporting companies. Overseas buyers are slow to pay. The credit crunch is part of the problem. The other factor is that a lot of product was bought at much higher prices and buyers are looking for any way to squirm out of contracts. We’ve seen specialty crop exporters run into financial trouble during times of considerably more market stability. No one wants to create unnecessary concern, but growers are advised to be cautious in these volatile times. Get paid as quickly as possible and get the cheques cashed right away. While buyers are supposed to be licensed and bonded, liability has exceeded the bond in some past situations. As well, not all crops are covered. Some of the producers caught up in the financial problems of Farm Pure Seeds mistakenly believed that forage crops are covered by the bonding requirements of the Canadian Grain Commission. Forage crops are not covered. Neither is canaryseed. For producers, it’s really tough to know for certain which buyers are financially solid and which are not, but keep your ear to the ground and try to spread out your risk. I’m Kevin Hursh.

October 28, 2008

Fertilizer prices should drop
Producers are getting mixed messages on fertilizer prices. With the hope that fertilizer prices may drop, more farmers are now sitting and waiting rather than pre-buying for next year. All the international quotes suggest dramatic price declines. You’d expect fertilizer prices to drop given what has happened with grain prices. Unfortunately for growers, there isn’t much evidence of lower fertilizer prices at the retail level. In fact, many farm input suppliers continue to say that fertilizer prices will not be dropping. No doubt the supply chain is filled with high-priced product and no one wants to sell at a loss. Watch for enhanced efforts to bring nitrogen fertilizer into the Prairie region from overseas, bypassing the conventional wholesale and retail systems. If enough lower priced fertilizer can be imported, suppliers here will have little option but to lower their prices. That could mean large losses for anyone holding high-priced product. However, you can’t blame farmers for trying to get the best deal possible. I’m Kevin Hursh.

October 27, 2008

Who will be Ag Minister?
There has been a great deal of speculation on whether Gerry Ritz will keep his portfolio, be demoted, or be out of cabinet altogether. Ritz is the best-known agriculture minister in a long time, but for all the wrong reasons. One train of thought is that the Prime Minister will ignore the insensitive listeria comments and Ritz will keep his job. While anything is possible, Ritz’s low profile and his avoidance of the media would seem to indicate the agriculture portfolio will be going to someone else. Opinions vary on whether Ritz has been keeping his head low on his own volition or whether this directive came from the PM’s office. In any case, it was strange strategy. Ritz is now associated with Conservative insensitivity and food safety concerns. He’s a liability, not so much with farmers, but with the general public. Stephen Harper has had two agriculture ministers from Western Canada. Before Ritz, Chuck Strahl had the job. My bet is that this time the job will go to an MP from Eastern Canada. And another Saskatchewan MP will receive a promotion. I’m Kevin Hursh.

Paving over farmland
You hear about this in other parts of the country, but until recently, we never thought we’d have this issue. With the growth in the Saskatchewan economy and the growth in population many major centres want to take over more land from surrounding rural municipalities and that’s causing disputes. Ken Engel, the executive director of SARM, the Saskatchewan Association of Rural Municipalities, writes about this issue in the latest edition of the association’s publication called Rural Councillor. Engel says in a number of cases RMs and cities have found themselves in direct conflict over development. The cities want to grow while the RMs want to protect their tax base. During August and September, SARM consulted with rural municipalities that are adjacent to Saskatchewan cities regarding the issue of boundary alterations. Based on those discussions, SARM has come up with a number of recommendations. Engel says the most common cause of annexation disputes is a lack of communication between the two parties. SARM is hoping the province will form a committee to look at establishing provincial policies that are fair to both parties. I’m Kevin Hursh.

October 24, 2008

Big drop in wheat and durum PROs
Amidst all the bad news in grain prices, there are a couple of factors which have been acting to keep prices from falling even further. The value of the Canadian dollar has seen a major decline. We’ve dropped to around 80 cents U.S. If the loonie was closer to par, the bad news on grain prices would be even worse. The other positive factor is ocean freight rates. The general decline in the world economy has meant fewer exports of all sorts of products. Ocean freight has gone from being very expensive to being dirt cheap. In its October Pool Return Outlook, the Canadian Wheat Board points out that the Canadian dollar is at its lowest levels in four years and ocean freight is now approaching six year lows. Even with these positive factors, the expected price for milling wheat has dropped by $24 a tonne as compared to last month and milling durum values are down by a whopping $37 a tonne. The PRO for No. 1 CWRS wheat with 13.5 per cent protein has declined to $6.70 a bushel after deducting average Saskatchewan freight and handling. The Saskatchewan PRO for No. 1 durum with 13.0 per cent protein is down to $7.96 a bushel. What happens from here is anyone’s guess. I’m Kevin Hursh.

October 23, 2008

The ethanol bogeyman
When grain prices were high and going higher, there were many analysts saying it was all because of grain being used to make ethanol. Ethanol was also blamed for higher food prices. There was lots of righteous indignation over using grain to produce fuel rather than food. Over the past few months, even though ethanol production continues to increase, grain prices have dropped precipitously. Have you noticed any major drop in food prices? Yes, the use of grain for ethanol production is certainly a factor that increases demand, but obviously it isn’t the main driver in determining price levels. Earlier this year, speculative money in the commodity markets played a big role in the price run-up. Speculative money fleeing from the commodities has been a big part of the price drop. Yes, higher grain prices do play a role in food price increases, but it isn’t nearly as big a role as some food manufacturers would like us to believe. Otherwise we’d be seeing much lower grocery bills now that grain prices have dropped. All in all, perhaps ethanol isn’t quite the bogeyman it was made out to be. I’m Kevin Hursh.

October 21, 2008

Wide range in farm profitability
It’s always been tough to generalize about farm profitability, but it’s getting even more difficult. Leo Kosokowsky is the creator of the AgMpower software program that helps producers analyze their cropping plans and determine cash flow, contribution margins and profitability. The program also provides benchmarking so that producers using the system can compare their numbers to those of other producers. One of the trends Kosokowsky has noticed is a much bigger range in profitability. There has always been a big difference in the fixed costs of producers. Now there’s also a huge difference in the prices being received for commodities and the prices producers are paying for inputs. This year, producers who locked in some grain prices early in the year will achieve much higher overall prices. Going into the next growing season, there’s likely to be a huge difference in the prices paid for fertilizer. A dollar or two per bushel makes a tremendous difference in the bottom line. So does a hundred or two hundred dollars on a tonne of fertilizer. When markets were more stable, these sorts of dramatic differences did not exist. They do now. I’m Kevin Hursh.

October 20, 2008

The raw milk debate
The debate over unpasteurized milk has been rekindled. Ontario dairy farmer Michael Schmidt has been found in contempt of court for disobeying a 2007 court order that prohibited him from distributing raw milk. Expect this issue to remain in the news because Schmidt is on a crusade for raw milk and there will be more court cases. Schmidt argues that people should be able to make their own choices about what foods to consume. On the surface that sounds reasonable, but if you accept that logic governments have no role to play in food safety. No meat processing plant should have to adhere to the multitude of safety standards because consumers should be able to make their own choices. Any amount of any pesticide should be allowed at any time because consumers can make their own choices. Unfortunately, consumers don’t understand food risks very well. A few believe unpasteurized milk is better because it’s more natural. Many of us grew up drinking homegrown unpasteurized milk. However, selling unpasteurized milk is considered an unacceptable health risk. If you accept that government regulations based on science have a place in assuring food safety, then there shouldn’t be exceptions to the rules for crusaders like Michael Schmidt. I’m Kevin Hursh.

October 19, 2008

Work proceding on Yorkton canola crushers
Some observers in the canola industry have expressed doubts that both of the big new canola crushing plants announced for Yorkton will actually be built. But, by all indications, both the JRI crusher and the Louis Dreyfus Mitsui plant are forging ahead. Site work is underway at JRI and there’s lots of activity at the nearby Dreyfus site. Three huge bins are being erected. Each has a diameter of 105 feet and will hold 12,000 tonnes – about half a million bushels. A Dreyfus official says the facility is slated for substantial completion by June 1. September 1 of next year is the target date for full production. Louis Dreyfus Mitsui has already been contracting Nexera canola for next fall at attractive terms. Having two big canola plants in the same location will mean drawing raw product from a wide area and that will add to the cost. However, Yorkton is on both CN and CP rail lines and has good highway links. As well, JRI and Dreyfus both have elevator networks to help supply product. Despite skeptics, it appears that Yorkton is well on its way to being the canola crushing capital of the world. I’m Kevin Hursh.

October 17, 2008

Bear market firmly entrenched
A lot of grain prices have dropped like a rock this fall. It’s startling to see some elevator bids for canola falling below the $8 a bushel mark. It’s also tough to move commodities, even if you have the price locked in. One significant Saskatchewan exporter says they will probably be two months late on their fall shipping program for field peas by the time it all moves. That has affected their delivery program for a number of other crops. International customers are slow to accept product. In a few cases, buyers have defaulted on contracts, even after the product has arrived. In many other cases, buyers are using every opportunity to try to renegotiate and get a lower price. The transportation system is full of product being pushed out to buyers and some of them are trying to use that to their advantage. The more the exporters try to move peas, the harder the buyers work at trying to renegotiate the contract. It isn’t a healthy environment for trying to make any additional sales. On many commodities, the market situation is worse than the prices being quoted because there really aren’t any purchases being made right now. There has been an amazingly quick transition from a bull market to a bear market. I’m Kevin Hursh.

October 15, 2008

Expect CWB changes
The Conservatives did not get the majority they were looking for on Tuesday night, but many observers expect they will still be able to successfully make legislative changes to the Canadian Wheat Board Act. The Conservatives increased their seat count and they absolutely dominated rural ridings across the Prairies. A newly re-elected Stephen Harper is sounding conciliatory, but his intentions regarding the CWB have long been clear and there was no ambiguity in Conservative statements on the issue during the election campaign. The Liberals and NDP oppose changes to the CWB saying farmers should make that decision. However, it’s hard to imagine the opposition parties, especially the Liberals willing to force another election on this issue. In the last Parliament, the Conservatives tried to use order-in-council - a cabinet order - to remove barley from single desk selling. That was not allowed by the courts and the Conservatives never managed to get the necessary legislation through the House. In the new Parliament, especially if they act quickly, they can probably push legislation through. Some farmers will think that’s marvelous and others will think it’s terrible. Whatever your view, be prepared for changes. I’m Kevin Hursh.

October 14, 2008

Conservatives could use some humility
During only a short term as a minority government, the Harper Conservatives mastered the art of arrogance. That usually comes from years in power and the strength of having majority governments. The intemperate cold cut comment by Gerry Ritz is an example. After the prerequisite apology, Ritz virtually disappeared from sight refusing to talk with the media. During the campaign, the Conservatives passed on a number of opportunities to explain and defend their agriculture policies. The height of arrogance has been the Conservative handling of the Canadian Wheat Board issue. They’ve used every trick in the book, plus a few new wrinkles in their ongoing battle with the CWB. Despite their arrogance, a majority of farmers still support the Conservatives. The Liberal carbon tax plan is about as popular as their gun registry and the Liberal leader comes across as a dweeb. Meanwhile, the NDP message is too far to the left on the political spectrum to have broad appeal to most farm businesses. Maybe that’s why the Conservatives are so arrogant on agricultural issues. They can afford to be. However, governments have a duty to listen and consult. Here’s hoping the Conservatives exhibit more humility in the new Parliament. I’m Kevin Hursh.

October 13, 2008

Radical changes needed at APAS
Glenn Blakley, the president of APAS has resigned. He’s the second president to resign in the past two years. Unlike Ken McBride before him, Blakley is speaking out about the ongoing problems in the organization – problems he says that threaten the existence of Agricultural Producers Association of Saskatchewan. Blakley says he can no longer in good conscience continue to support a Board of Directors that focuses on petty internal politics, power struggles and personal agendas rather than the work they were elected to do. He says the continuing interference of certain board members has resulted in a revolving door of staff members – 42 permanent staff members in the past eight years. Blakley believes that wholesale changes in the Board of Directors are needed for APAS to have any future. Without radical change, he says that spending money on an APAS membership would be an irresponsible investment for rural municipal councils to make. I’ve long been a supporter of the concept of a general farm organization for Saskatchewan. Glenn Blakley’s resignation will either be a catalyst for long-overdue changes or it will be the beginning of the end of APAS. I’m Kevin Hursh.

October 10, 2008

Barley price expectations drop
The Canadian Wheat Board has issued a mid-month Pool Return Outlook for feed barley and malting barley and as you’d expect the values have fallen. The expected price for feed barley in the current crop year is down $22 a tonne, while the malting barley price expectation is down $8 a tonne. The average Saskatchewan price for feed barley in Pool A, the first half of the crop year, has declined to $2.82 a bushel. Dropping international prices will probably mean lower exports of Canadian feed barley increasing the supply and dropping the price for domestic users – good news for cattle feedlots and hog operations. With malting barley, the CWB says the advanced sales position of the pool has kept the PRO partially insulated from the dramatic market decline. While the expected price has only dropped by $8 a tonne, the malting barley price is now far below what producers could have locked in under the CashPlus program. Through CashPlus back in the spring, companies contracted malting barley for prices in the $6.50 a bushel range in Saskatchewan. The Pool Return Outlook for two-row malting barley is now down to $5.65 a bushel. I’m Kevin Hursh.

October 8, 2008

No magic solutions in Crop Insurance review
The Saskatchewan Crop Insurance review by Meyers Norris Penny has come out with some practical recommendations. Farmer expectations of crop insurance are often unrealistic and producers often have misconceptions about how the program actually operates. One of the top requests from producers is that spot loss hail coverage be reinstated. MNP is recommending that spot loss hail be considered for re-introduction. However, they note that spot loss hail could not be as heavily subsidized as it was in the past due to the way that federal cost-sharing guidelines are now structured. MNP is also suggesting that any revised spot-loss hail methodology be developed in collaboration with the private sector hail loss providers and that there might be opportunity for public/private partnerships. Other MNP recommendations deal with ways to improve the yield loss coverage of producers, enhancing the variable price option and introducing targeted premium discounts and incentives. There are a host of other recommendations, but nothing earth shaking. Many of the recommendations will require further study. Don’t expect massive changes in the crop insurance program for 2009. The full report is posted at www.saskcropinsurance.com. I’m Kevin Hursh.

Conservatives show arrogance
APAS - the Agricultural Producers Association of Saskatchewan, together with KAP, which is Keystone Agricultural Producers of Manitoba and Alberta’s Wild Rose Agricultural Producers sent an election questionnaire to the Conservative, Green, Liberal, and NDP party leaders back in September. The four parties were asked to clearly outline their plans regarding five agriculture policy areas: the environment, farm input prices, transportation, grain payment security, and working with farm organizations. Identical questionnaires were sent to all parties requesting a response by September 19. That deadline was later extended to September 26. Three of the parties provided responses and those responses are being published by the farm organizations on an issue-by-issue basis. To date, one party has not participated. For some reason, the governing Conservative Party has not bothered to outline its farm policies for the three umbrella farm groups on the Prairies. APAS, KAP and Wild Rose don’t always agree with Conservative policies, but they try to be apolitical. Most farmers support the Conservatives, but it shows a lot of arrogance for the party not to take the time to participate in a process that was simply meant to provide information on farm policy positions. I’m Kevin Hursh.

October 6, 2008

Beware of tightening credit
Everyone is trying to make sense of the international financial mess, wondering what it will mean for various segments of the economy. In agriculture, we’ve seen many commodity prices tumble along with the stock market. Canola futures dipped below $400 a tonne yesterday. Back in the early summer, the November futures was over $700 a tonne. In addition to lower commodity prices, there could be many other effects. Ron Witherspoon is a Regina-based agricultural consultant who travels in some interesting circles. His company is Interactive Management Group. Witherspoon says American politicians have been looking to their own self-interest, in other words the ability to get elected again in a few weeks, rather than the interests of their economy. That has shaken external banking confidence in the United States. Meanwhile, the U.S. government has a massive accumulated debt and needs money from outside their country every day. Witherspoon says producers here in Canada should plan on having a higher cost of credit and having more of their own cash invested in next year's production as credit availability tightens. They should also beware of third-party risk in dealing with businesses in the United States. I’m Kevin Hursh.

October 5, 2008

Even cats run out of luck
The single desk selling authority of the Canadian Wheat Board has been like a cat with nine lives. On numerous occasions, it has looked like the sales monopoly would be lost, particularly on barley, but CWB supporters have always persevered. Once again, it appears the days are numbered for the CWB in its current form. The Conservatives seem destined to form a majority government. The Liberals, NDP and Green Party all support the board’s monopoly, but they’re busy fighting among themselves. The non-Conservative vote is likely to be fractured giving Stephen Harper the majority he’s looking for. If by some surprise, the Conservatives don’t win a majority, the CWB director elections this fall could still spell the beginning of the end for the board’s powers. The election of one or two more open market supporters when combined with the government appointed directors would mean changes could be implemented internally. If there’s a Conservative majority and if more open market supporters are elected as directors, changes will likely occur very rapidly. If I was a betting man, I’d put money on the CWB being a very different organization by the time the next crop year rolls around. I’m Kevin Hursh.

October 3, 2008

A change in fertilizer price psychology?
Share values for the major fertilizer companies plummeted yesterday. It seems that the market finally caught on to the fact that grain prices have fallen so dramatically that producers everywhere are going to be re-evaluating their fertilizer use. This realization seemed to happen all at once following the release of a report by an investment company. Why it takes an official report to state the obvious is difficult to understand. In a properly functioning market, less demand for fertilizer should lead to some decline in fertilizer prices, right? Up until now, we’ve all been conditioned to believe that fertilizer prices were going to continue their upward spiral come hell or high water. Maybe hell just froze over. A big part of any market is psychology. Producers have been pre-booking more fertilizer than ever before on the belief that prices had little possibility of moderating. Maybe the drop in fertilizer company share values will change that psychology and therefore change the demand side of the marketplace equation. There are scores of grain market analysts. Unfortunately, it’s a lot tougher to find credible analysts on the fertilizer market even though this has become hugely important for grain producers. I’m Kevin Hursh.

October 2, 2008

Planning for 2009
As harvest winds down, attention turns to next year’s cropping plans. The outlook is guarded at best. Going into this year, almost every crop looked like a winner. With the major decline in commodity values and the huge increase in fertilizer prices, producers will be scratching their heads over what to plan for 2009. Crops that are heavy users of nutrients will require some major cash to grow. And will they pencil out assuming average yields and the current price outlook? Lentils will be a top money maker for producers this year and the price has held up better than most other crops. How many lentils might go in the ground next year and what might that do to price levels? Field peas are another crop that will help avoid high fertilizer costs, but with yellow pea prices down to the $6 a bushel range that crop has lost a lot of its attraction. Perhaps there will be some improvement in grain prices after harvest pressure subsides, particularly if the American economic picture improves. It would also be great to see some moderation in fertilizer values. Considering the major drop in grain prices, it’s astounding that fertilizer can stay at record high levels. I’m Kevin Hursh.

October 1, 2008

Historical view of feeder cattle prices
Feeder cattle prices are the lowest they’ve been since 2004. I asked Craig Klemmer, a livestock development specialist with the Saskatchewan Ministry of Agriculture to provide a historical view of feeder prices and he provided data going back four years. At this time in 2004 due to fallout from the BSE crisis, 700 to 800 pound feeders were selling for an average of only 88 cents a pound. By 2005, that had improved to $1.20. At this point in 2006, the price was $1.23. The price for last year at this time was down dramatically to $1.10. This year the average for 700 to 800 pound feeders is even lower at $1.03 a pound. The same trend can be seen on lightweight feeders in the 400 to 500 pound range. The average price at this point in the season was $1.03 a pound back in 2004. By 2006, that had improved to $1.45. Last year, the price slumped to $1.25 and this year the current average for 400 to 500 pound feeders is around $1.12 a pound. These are not good times for cow-calf producers. I’m Kevin Hursh.

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