Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

December 31, 2008

Don't blame the Western Grains Research Foundation
The Western Grains Research Foundation is receiving $68 million from the two major railway companies. The Canadian Transportation Agency lowered the hopper car maintenance fee embedded in the grain transportation revenue cap, but the railways didn’t lower their freight rates enough to account for the change. As stipulated by government regulations, the overage plus a penalty, a total of about $68 million, is going to the Endowment Fund of the Western Grains Research Foundation. Interest earned on the Endowment Fund is used for crop research. This is money that belongs to farmers, but don’t blame the research foundation for what has happened. Grain cap overages should never be this large. When the amount is smaller, even if it’s a couple million dollars, it makes sense to dedicate the money to crop research. After all, it would be very difficult to return the money to producers in an equitable manner. The farmer-controlled Western Grains Research Foundation doesn’t make the rules. And it wasn’t the foundation that extracted these excess funds from farmers. Blame CN and CPR. It’s also important to note that the money will be held in trust until all the legal wrangling is done. I’m Kevin Hursh.

December 29, 2008

Producers care about payment security
Following yesterday’s commentary about producer payment security, I received some interesting feedback. A grain buyer from Ontario pointed out that in that province grain buyers have to provide their year end books in order to be licensed. While he says the system works, I’m not sure that a yearly audit would be enough to prevent problems in the specialty crop and pulse industries. A lot can happen in a year. I was also directed at a survey conducted by Saskatchewan Pulse Growers. The survey was conducted earlier this year and 800 pulse producers were asked for their opinions on a variety of topics. More than eighty per cent of the producers surveyed said it is very important to them to sell their pulse crops to buyers licensed by the Canadian Grain Commission. Nearly ninety per cent believe it is very important to have third party security such as insurance or bonding to pay producers if a company defaults. And eighty per cent believe this third party security should be mandatory. Some observers claim that payment security isn’t a big issue with most producers. The Sask Pulse Growers survey results paint a different picture. I’m Kevin Hursh.

December 28, 2008

Producer payment security issue likely to heat up
One of the issues likely to re-emerge in the New Year is producer payment security. The federal government wants to end the licensing and bonding requirements of the Canadian Grain Commission, but no one has developed a suitable replacement. With the current bonding system, it’s difficult to ensure that companies always have enough protection to cover all their payables. Bonds are also criticized for being costly. That cost is ultimately passed down to producers. Thankfully, there haven’t been any recent high-profile grain company failures despite the apparent stress in the specialty crop industry. Some overseas buyers have been slow to honour contracts, credit has become tight and the whole world economy is shaky. Against this backdrop, it wouldn’t be surprising to see a Canadian specialty crop company run into trouble. As producers, we aren’t keen on any system that adds to our costs and we aren’t all in agreement on the need for producer payment security. However, opinions could change quickly if we see some companies run into trouble. We’ve seen it before and that was during much calmer economic times. I’m Kevin Hursh.

December 23, 2008

New crop mustard contracts available
Some years, there are a number of new crop contracting options available during Crop Production Week at the beginning of January. In fact, companies have traditionally used Crop Production Week and the Western Canadian Crop Production Show as the time to roll out their contracting programs. Last year, there were a number of pulse and specialty crop contracts available, but in many of the tough years before that, crop contracts were scarce. For the 2009 event, most observers are predicting that there may not be any contracts offered for crops like peas, lentils and canaryseed. Given the current economic environment, that wouldn’t be a big surprise. It’s difficult to predict what prices will be next month, let alone next fall. One exception is mustard. There have already been new crop contracts for all three classes of the crop. For mustard, a majority of production is usually contracted. This week, I heard one company was offering new crop contracts with an Act of God clause at 34 cents a pound for oriental mustard and 37 cents for yellow. However, the price by the end of the week had slipped to 32 cents on some varieties of oriental, probably a sign that producers are signing up. I’m Kevin Hursh.

December 22, 2008

Another year passes with no deal at the WTO
The World Trade Organization negotiations surfaced as a news story on a number of occasions this year. The export-oriented agriculture sectors in Canada were hopeful that a new deal could be accomplished, a deal that would improve trade access. The supply managed industries of poultry, eggs and dairy have long feared a WTO deal that would reduce their tariff protection. While a WTO deal seemed to be making progress on a few occasions, the year is ending with widely divergent viewpoints among member nations. After years of negotiations, it seems that little has been accomplished. There hasn’t been the political will in enough countries to embrace freer trade. It’ll be interesting to see what the new U.S. President does on the world trade file. Based on some of the things he’s said about NAFTA, you’d expect more protectionism from Barack Obama. However, we’re living in extraordinary times. Will the world economic problems create more incentive to reach a deal or will nations retreat into even more protectionism in the face of a troubled economy? I’m Kevin Hursh.

December 21, 2008

A blogspot to monitor fertilizer prices
Larry Weber of Weber Commodities is providing a platform for producers to compare and monitor fertilizer prices. Producers can log onto www.fertilizerbuddy.blogspot.com to leave information on fertilizer price quotes they’ve heard as well as look at what other producers are reporting. The blogspot also has links to a number of current stories on fertilizer pricing. There’s no way to monitor the truth of what’s being posted, but most of the quotes for urea, 46-0-0, range from $450 to $500 a tonne. That represents a dramatic decline over the past few months. On 11-52 phosphate fertilizer, the quotes range from $800 to $875 a tonne. That’s down from highs of over $1,300 a tonne. Some observers are saying there’s even more downside potential on fertilizer. A few are saying we’ve seen the bottom. Some say logistical problems could make fertilizer supply a problem in the spring. Others say there won’t be any more problems than normal. One thing is for sure. The big drop in fertilizer prices is a welcome break, considering the nosedive that grain prices have taken. I’m Kevin Hursh.

December 18, 2008

Good year to have barley go for malting
There’s going to be a larger than normal premium for malting barley this year. In the latest Pool Return Outlook, the anticipated price for two-row malting barley has declined a bit, but it’s still $5.50 a bushel after deducting average Saskatchewan freight and handling. By comparison, the export price for feed barley in Pool B, the second half of the crop year, is estimated at just over $2 a bushel. The export price of feed barley is so low that the export program is very small. The domestic price for feed barley is significantly better than the export price. The price, basis Lethbridge, is around $3.50 a bushel. That makes the price in most of Saskatchewan at less than $3 a bushel, but it still beats the export price. Last crop year was quite different. There was a significant export program for feed barley and the feed price was only about 50 cents a bushel under the malting price. For the current crop year, malting barley values have improved, while feed prices have fallen so the spread has become wide. This year, having barley accepted for malting will make a big difference to the bottom line. I’m Kevin Hursh.

December 17, 2008

New Ag Secretary is ethanol supporter
U.S. President-elect Barack Obama has named his Secretary of Agriculture. It will be former Iowa Governor Tom Vilsack. Vilsack doesn’t have an agriculture background, but he was a small-town lawyer before getting into politics. He served as Iowa’s governor until 2007 at a time when that big corn-producing state was building most of its ethanol plants. Most American farm groups are praising the choice of Vilsack as Secretary of Agriculture. One notable exception is the Organic Consumers Association which is condemning Vilsack for his support of genetically modified crops, biotechnology, corn and soy based biofuels, and intensive livestock operations. Here’s a quote from the Organic Consumers Association: “Obama’s choice for Secretary of Agriculture points to the continuation of agribusiness as usual, the failed policies of chemical and energy intensive, genetically engineered industrial agriculture.” I had never heard of Tom Vilsack before his selection, but based on the condemnations from the Organic Consumers Association, he doesn’t sound like a left wing, tree-hugging radical. And that’s a good thing. I’m Kevin Hursh.

December 16, 2008

Alberta’s meat strategy important for Saskatchewan
Earlier this year when the Alberta government announced $300 million in direct support for its livestock producers, it also announced a budget of $56 million for ALMA, the Alberta Livestock and Meat Agency. The agency is charged with developing a strategy to reinvigorate the industry. Saskatchewan is home to about 30 per cent of the nation’s beef cows, not that much smaller than Alberta’s 40 per cent. However, Alberta is home to the lion’s share of the cattle feeding industry as well all three of the major beef packing companies. While the other provinces might think strategies should be national, Alberta is taking the lead. ALMA certainly has an impressive list of board members. Charlie Gracey has a long history in beef policy. Veterinarian Dr. Kee Jim is a highly-regarded expert in animal health. Jeff Kroll is Senior VP, National Supply Chain for McDonald’s Restaurants of Canada. And Kim McConnell was the founder of AdFarm. There aren’t any miracle solutions to all the problems facing the livestock sector. But ALMA has a good team and a strong budget. In many ways it’s heartening to see the strategy coming from the centre of the beef industry, rather than from Ottawa. I’m Kevin Hursh.

December 15, 2008

Good-bye to black gold
It’s the end of the line for Pelissier durum. This old black-bearded variety was actually de-registered in 2007, but that wasn’t very well publicized. Farmers are now being given a one-time special delivery program to get stocks cleared out of the system. However, they have to sign up for the program by December 19. Reading some history on Canadian durum varieties, I was amazed to find that Pelissier was introduced from North Africa way back in 1929. The first Canadian-developed durum variety didn’t come along until 1963. That was Stewart 63. I remember when the crop was good, Stewart 63 would grow five feet tall and then fall over and lodge. I don’t think you’ll find anybody still growing it. Nor are you likely to find any of the next Canadian variety called Hercules. Wascana and Wakooma were the next advances in durum. That was followed by Kyle which became an industry mainstay in the late 80s and through the 90s. This year, the number one durum variety with more than half of the total acres was Strongfield. AC Avonlea was in second place. Kyle held onto the number 3 spot, followed by AC Navigator. With all the durum varieties over the years, it’s amazing that a few producers have still been growing Pelissier from way back when. I’m Kevin Hursh.

December 14, 2008

Support livestock producers not auto makers
If we could just fix our farm safety net programs, there wouldn’t ever be a need for additional ad hoc assistance from government. This view has been expressed for the past 20 years and people still cling to the idea that the right farm safety net program will solve all the downturns in the industry. To this end, the Harper government promised to replace the CAIS program. They gave it a new name – AgriStability, but it’s really just the old CAIS program with a bit of lipstick. Any margin-based program is going to have limitations, particularly when times are tough for several years, like they’ve been in the livestock industry. Some observers say there should be programs that guarantee the cost of production. That isn’t going to happen. First of all, it would result in countervail action and second, it would create all sorts of moral hazard. Safety net programs are important and they should be constantly evaluated for improvement, but we should get over the notion that additional government support can always be avoided. In my opinion, additional support for the country’s beleaguered livestock producers would provide longer-lasting benefits than billions of dollars in questionable loans to the ailing auto industry, an industry where the unions won’t even consider ratcheting down their wages and benefits. I’m Kevin Hursh.

December 11, 2008

Variable cash rents becoming more popular on farmland
One of the biggest landlords in Saskatchewan is Agriculture Development Corporation. Based in Regina, the company raises money from investors to buy Saskatchewan farmland. At this point, Agriculture Development Corporation owns about 100,000 acres, mostly crop land, spread across the province. The company rents the land back to farmers, often the farmers from which the land is purchased. Brad Farquhar, vice president of Agriculture Development Corporation says crop share rental arrangements on farmland are becoming less common. They’re difficult to manage and monitor. Straight cash rents can be unfair to one side or the other depending upon the size of the crop and what happens with grain prices. Therefore, says Farquhar, variable cash rents are becoming more popular. Typically these involve a base rental rate per acre that is lower that the straight cash rent in the area, but variable cash rents can increase based on factors such as yields and grain prices. When grain prices after harvest are strong, the variable cash rent rate goes up. The details need to be well defined in the agreement. This approach doesn’t take input costs into account, but it can still provide more fairness to both the renter and the landlord than a regular cash rental agreement. I’m Kevin Hursh.

December 10, 2008

Agrium curtails fertilizer production
The fertilizer market is a tough one to figure out. Prices have been dropping. Urea is below $600 a tonne at most locations and phosphate has dropped to the $900 a tonne range. International prices are still much lower than the prices in Western Canada, so some observers believe prices have a lot more room to drop. However, it’s interesting to note that Agrium announced on Tuesday that it has shut-in production at its Fort Saskatchewan nitrogen facility and has further curtailed production at other major nitrogen and phosphate plants in North America. Agrium says the temporary curtailments are necessary due to a significant build-up in North American fertilizer inventories and declining available storage capacity. The company says there have been unprecedented slowdowns in fertilizer use this fall in both North America and globally and that is expected to place extreme pressure on an already strained distribution system next spring. “It is unclear,” says Agrium, “whether distributions systems, particularly in North America will be sufficient to meet spring demand.” So are fertilizer prices going to drop much more? And should we be worried about access to fertilizer next spring or are the logistical problems an exaggeration? Place your bets. I’m Kevin Hursh.

December 9, 2008

Grain price reality check
Grain prices are unlikely to bounce back any time soon. Greg Kostal of Kostal Ag Consulting in Winnipeg is telling producers that it’s going to take six to 12 months to change the market psychology. For the 2009-2010 crop year, Kostal is suggesting farmers budget for a spring wheat price in the $5 to $5.50 a bushel range, a dollar to a dollar and a half below the price expected in this crop year. Kostal says canola won’t stabilize until the price of crude oil bottoms out. He likes the canola price outlook for 2010 when increased Canadian crushing will be on stream, but he isn’t as optimistic for 2009. Like other analysts, Kostal says that in order for all of this year’s field pea production to clear the system, peas would have to be diverted from the edible market to feed use at much lower values. While there may be occasional blips into the $6.50 a bushel range for yellow edible peas, he isn’t expecting an overall rally in the near future. On large green lentils, Kostal is aggressively recommending sales before prices drop even further. The good news, at least for producers who didn’t stock up early, is that fertilizer prices continue to edge downwards. I’m Kevin Hursh.

Cattle Price Insurance Program being developed in Alberta
Earlier this year, the province of Alberta committed $350 million in new support to its livestock industry. Now, Alberta has announced that it will soon be offering a livestock insurance program to its beef producers to help protect operations against fluctuating market prices. The Cattle Price Insurance Program (CPIP) will be offered by the Agriculture Financial Services Corporation, the entity that delivers Alberta’s crop insurance programs. According to the news release, the new program was developed through a partnership between the Alberta government, the federal government and Alberta Beef Producers. Few details are available, but CPIP is supposed to provide protection against drops in Alberta beef prices over a defined time period. Premiums will vary according to policy length and coverage desired. Mid-2009 is the target for launching a price insurance product for fed cattle. A program for calves and yearlings is in the design stages. Producers in Saskatchewan will be watching developments in Alberta with interest. Alberta seems willing and able to throw money and programs at its livestock sector, while Saskatchewan has done little more than watch. I’m Kevin Hursh.

December 7, 2008

Single desk supporters win four of five
Supporters of the Canadian Wheat Board’s single desk selling authority have been elected in four out of the five director elections. Results were announced late yesterday afternoon. The only successful market choice candidate is Jeff Nielsen of Olds, Alberta. Nielsen is president of the Western Barley Growers and he’s an outspoken critic of the CWB. He won on the first ballot, picking up nearly 63 per cent of the votes. The other four districts were just about as equally lopsided for single desk supporters, although it sometimes took three or four rounds in the preferential ballot for the winner to emerge. Bill Woods of Eston is taking over in District 4, which had long been represented by Ken Ritter. The District 6 winner is Cam Goff from the Hanley – Bradwell area. He’ll take over from Ian McCreary. In District 8, incumbent Rod Flaman of Edenwold emerged victorious. Flaman was rejected in the federal election when he ran for the Liberals, but farmers still voted for him as their CWB director. In District 10, incumbent Bill Toews of Kane, Manitoba had no trouble holding onto his district. There are ten farmer-elected directors and five government appointees. With this election result, directors who support the single desk will still be in the majority. I’m Kevin Hursh.

December 4, 2008

We live in a great country despite our politicians
Yesterday in Saskatoon, Farm Credit Canada sponsored a forum featuring three world class speakers – CBC commentator Rex Murphy, Olympic champion curler Joan McCusker and Dave Chilton, the author of The Wealthy Barber. Chilton wrote his book 20 years ago and it’s still the country’s all-time bestseller. None of the speakers talked about fertilizer prices, the grain price outlook or country-of-origin labeling. However, their inspirational messages were well received. As expected, Dave Chilton talked about many of the basics of personal finance and the reasons behind the economic malaise that originated with the American mortgage crisis. He also had a broader message. As Canadians, we’re so incredibly lucky and affluent that we’re spoiled. Many of us grew up with rotary telephones on party lines and black and white televisions that had one or two channels. These days our kids have their own cell phones and most houses have multiple TVs, often high definition, with scores of channels. The biggest hardship is if you can’t find the remote. The author of The Wealthy Barber says we all need to develop a more positive disposition because we don’t have much to complain about compared to people in many other nations around the world. I’m Kevin Hursh.

December 3, 2008

A time to irrigate
For years, the Saskatchewan Irrigation Projects Association and various other organizations and individuals have been pressing for more investment in irrigation infrastructure. SIPA has now released a major study on how much more land could be irrigated and they’ve combined this with a cost – benefit analysis. For a number of reasons, as their study title states, this is a time to irrigate. Spending on irrigation infrastructure can be one of the measures to stimulate the economy. It’s also a time to irrigate if you subscribe to the theory of global warming. If droughts are going to become more common, we should be storing water when it’s available and making good use of this precious resource. Water shortages in the U.S. also make this a good time to act. Hundreds of thousands of acres are going to be removed from irrigation in California. Saskatchewan can fill some of the gap in vegetable production. SIPA is pressing for steady investment in infrastructure each year for the next couple decades. The province and the federal government both need to be on board to make it happen. After many years of only limited irrigation expansion, now is the time for a long-term plan and long-term investment. I’m Kevin Hursh.

December 2, 2008

Sharp left turn could be coming in farm policy
For now, supporters of the Western Canadian Wheat Growers Association are in control federally. Soon, federal power may be in the hands of the alumni of the National Farmers Union. Agriculture minister Gerry Ritz is philosophically aligned with Wheat Grower thinking on most issues. Two MPs in the Conservative caucus have been prominent Wheat Grower members – Randy Hoback of Prince Albert and Ted Menzies, who represents the constituency of Maclead, Alberta. Incredibly, the Conservatives appear to be on the way out of government, replaced by the Liberals and NDP with support from the Bloc. If this all comes about, there’s a strong possibility that the new agriculture minister will be Wayne Easter, a former president of the National Farmers Union. There is even speculation that Easter will bring in Nettie Wiebe as his deputy minister. Wiebe is another former NFU president. She ran for the NDP in the last election, suffering a narrow loss to the Conservative candidate in the Saskatoon – Rosetown - Biggar constituency. Most farmers aren’t as right wing as the Wheat Growers or as left wing as the NFU, but in one fell swoop our federal government could go from one extreme to another. And it didn’t even take an election. I’m Kevin Hursh.

December 1, 2008

Rare common sense in Ottawa
In the midst of the zaniness in Ottawa these days, it’s gratifying to see some common sense. International trade minister Stockwell Day and agriculture minister Gerry Ritz have announced the beginning of a formal WTO challenge to country-of-origin labeling. The first step under the WTO is formal consultations. The Americans are quite aware of Canadian concerns, so these formal consultations are unlikely to achieve much. After the 30-day process, the dispute will proceed to a WTO panel and more months will pass. The process will be painstakingly slow, but it’s the process Canada has to follow and it’s good to see that the government isn’t too preoccupied to act. The Canadian Cattlemen’s Association says COOL has caused lower prices for Canadian cattle and increased costs for transporting them longer distances. The estimated loss is $90 per animal whether or not the animal is actually exported to the U.S. The total loss to Canadian cattle producers is over a million dollars a day. Whatever happens with the government in Ottawa, the challenge to COOL should continue. It’s hard to imagine any party not wanting action on this issue. I’m Kevin Hursh.

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