Hursh Consulting & Communications: Kevin Hursh on Agriculture

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Hursh on Agriculture

August 30, 2009

High hay prices
In the latest Feed and Forage Listing Service from the Saskatchewan Ministry of Agriculture, there’s a wide range in hay prices. Some are expressed in cent per pound and some in dollars per bale and other in dollars per imperial ton. Using dollars per ton, the range in prices is from a low of about $75 to a high of around $130. The beauty of the listing service is that you can look for baled forage, pasture or standing forage in your area. The cheapest hay may not be the cheapest after you pay the trucking cost. Of course, the other problem with hay is quality comparison. There’s no readily accepted, universal grading system. With low forage production in much of Alberta and western Saskatchewan, anyone who has to go to the market to obtain hay is going to pay through the nose. For some cattle producers, this will be the tipping point in their decision to continue. Returns are bad for cow-calf producers, but if you have to buy a significant portion of your forage this year, your returns will be ugly. The Feed and Forage listing is on the Sask Ag website. I’m Kevin Hursh.

August 28, 2009

Bad news in latest PRO
The Pool Return Outlooks for wheat, durum and malting barley have all taken nasty tumbles. The August PRO from the Canadian Wheat Board is down 50 to 75 cents a bushel on wheat, down over 80 cents a bushel on the top classes of durum, and down about 45 cents a bushel on malting barley. There was a significant drop in the July PROs, but the August decline is much larger. Number one spring wheat with 12.5 per cent protein now has an expected price of just $4.83 a bushel after average Saskatchewan freight and handling is deducted. Spring wheat with 13.5 per cent protein is pegged at $5.11 a bushel. The CWB notes that the wheat market has been pressured by the harvest in the northern hemisphere and generally favourable growing conditions. Number one durum with 13.0 per cent protein has a PRO of $5.30 a bushel after deductions. The CWB says the quality of the North American harvest will play a large role in determining price movement during the next year. On malting barley, excellent quality and above average yields in Europe has pressured international prices. Two-row malting barley now has an expected Saskatchewan price of just $3.44 a bushel. Ouch. I’m Kevin Hursh.

August 27, 2009

Canola crush margins will be squeezed
Greg Colman, an equity analyst with Wellington West Capital Markets Inc. has produced a report which shows how the Canadian supply of canola is dropping at the same time that Canadian crushing capacity is increasing. Due to lower planted acreage and a lower yield this year, the expected supply of canola is pegged at 10.3 million tonnes, down from 12.6 last year. Meanwhile, the Wellington report is forecasting that the current domestic crush capacity of 4.3 million tonnes per year will grow to 7.1 million tonnes by the middle of 2010. The new Louis Dreyfus and James Richardson plants in Yorkton will be coming on stream. Cargill has expanded and Viterra has added capacity. This will amount to a 65 per cent increase in crush capacity in just one year. Wellington is predicting a contraction in crush margins. In other words, canola crushers won’t be making as much money. This should serve to increase canola prices for producers. Another interesting point in the report is that the U.S. has been rejecting some shipments of Canadian canola meal claiming salmonella contamination. This could increase the amount of canola meal that needs to be sold domestically and could have implications in the feed market. I’m Kevin Hursh.

Labels: q

August 26, 2009

Counterintuitive marketing
Trying to outguess grain markets or any markets for that matter can lead to frustration. As farmers we sometimes make marketing decisions that are counterintuitive. How do buyers convince farmers to sell a particular commodity? Common sense would say that buyers raise prices to encourage sales. However, when prices are rising the tendency is to sit on the sidelines and wait for prices to move even higher. Many buyers report that sales typically boom in a dropping market. By that time greed has given way to fear and producers want to sell before prices drop even lower. Right now, there seems to be harvest pressure on the prices of both peas and lentils. Those are the crops with the most harvest progress and product is moving to market. Logically, the harvest pressure should be a signal to sit on the sidelines and not sell right now. In reality, it can have the opposite effect as even more producers try to capture prices before they go lower. No one can ever predict price trends with certainty so marketing decisions often lead to regret later on. Some observers believe there is going to be a bottleneck in the movement of many crops this fall. They liken it to trying to push a basketball through a garden hose. If that’s the case, prices are going to soften. The big question is whether or not they’ll bounce back later in the season. I’m Kevin Hursh.

August 25, 2009

Up to $750 for cattle producers
There’s a new funding program for cattle producers who are purchasing certain kinds of equipment. To be eligible for the funding, a producer must participate in a two-hour Verified Beef Production workshop and they must have earned at least $2500 in cattle sales in the last tax year. Funding of 50 per cent of the cost of the equipment up to $750 per producer is available. Eligible equipment includes individual animal weigh scale components, software for record keeping, chutes and/or head gates with neck extenders or restraint add-ons. Also eligible – small scales for weighing medication and containers for used med bottles. There’s a list of approved manufacturers. The funding applies to equipment purchased new after April 1 of this year. So basically you can get half the cost up to $750 for eligible equipment purchases by attending a safety workshop and submitting an invoice to the Saskatchewan Verified Beef Production office. The workshops are available at no cost and cover simple, common sense management practices. A number of producers have completed the entire audit process to become verified under the program, but that isn’t required to receive this funding. For more information, check out www.qualitystartshere.sk.ca. I’m Kevin Hursh

August 24, 2009

Saskatchewan's crop mix
When you examine the mix of crops in Saskatchewan area by area, there are a number of surprises. The 2008 stats for individual crop districts are the latest available. However, you can assume 2009 has the same trends. What area of the province do you think is the biggest for fall rye? By a wide margin, that’s the Leader area. What about field peas? While field peas used to be a crop of the northern grain belt, the biggest acreage is now in the crop district that stretches from Swift Current and north, followed by the crop district that runs from Assiniboia and along the American border. The Assiniboia crop district also has the biggest acreage of lentils followed by the Moose Jaw to Regina crop district and then the crop district around Kindersley. Are there any crop districts which grow more mustard than canola? In 2008, there were two. The Maple Creek area grew slightly more mustard than canola, but the crop district where mustard really dwarfed canola was around Shaunavon. Canaryseed production is concentrated in two areas – Kindersley and the crop district that includes Moose Jaw and Regina. Which crop district has the most summerfallow? I would have assumed one of the southern most crop districts. The biggest acreage in ‘08 was actually in the Kindersley area. That area will show even more summerfallow in the ‘09 stats because of the early season drought. I’m Kevin Hursh.

August 21, 2009

Calf price considerations
As we move towards this fall’s run of calves going to market, there are a number of factors at play. Slaughter steer and heifer prices are a lot lower than a year ago. According to the Cattle Market Update reports from the Saskatchewan Ministry of Agriculture, the live weight price on a fed steer is only about 80 cents a pound right now. A year ago, the price was 96 cents. However, barley prices are lower than a year ago and that has helped support feeder cattle prices. Feeder steers in the 600 to 700 pound weight range have been averaging about $1.02 a pound at Saskatchewan auction markets. That’s lower than the $1.08 a pound at this time last year, but the difference would be much greater without cheaper barley. While barley is cheaper, forage supplies are much more expensive than a year ago so that is going to factor into decision making. Another factor is the big rain received in most areas. That should help some cattle producers prolong their pasture season and may take some pressure off to send calves to market early. Another factor that’s really important for cattle markets is the value of the Canadian dollar. To no one’s surprise, the just released estimates from Statistics Canada show the Canadian beef cow herd continues to decline. I’m Kevin Hursh.

August 20, 2009

Wanted: Politicians with guts
It would be interesting to know what percentage of the population still subscribes to the global warming theory. Following yesterday’s commentary, I was expecting lots of emails telling me how terrible it is that I’m a sceptic. Well, I only received emails of support and these were from people who have obviously researched and thought about the issue. One email pointed out that the glaciers and arctic ice sheets have been melting for the past 200 years, but we’ve only recently started paying attention. This person also points out that science is not a democracy. The number of scientists who believe versus disbelieve is irrelevant. Throughout history, it has often taken just one scientist to disprove a widely held viewpoint. Another email points out that most of the Antarctic has actually been getting cooler. “Global warming due to greenhouse gas emissions was bad science from the start and continues to be more discredited every day,” says another email. It goes on to say that our politicians need to be intelligent enough to change their minds when the science changes. That’s an interesting point. There doesn’t seem to be many politicians with the guts to challenge the global warming theory. They must all be afraid of the environmentalist backlash. I’m Kevin Hursh.

August 19, 2009

Pick your climate theory
While the greenhouse gas / global warming theory remains the most widely held view in the scientific community, there’s a growing body of credible scientists on the other side of the debate. Some scientists claim the world has actually been cooling for the past number of year rather than warming. One theory for this is reduced sunspot activity. Last year was one of the lowest years for sunspots in decades. This year has been on track to be even lower. Less radiation from the sun means a cooling planet. Another theory which has received recent attention in some scientific publications claims that the earth has a regular wobble in its oscillation that changes our angle to the sun. It’s difficult to separate fact from fiction. We don’t seem to know if it’s getting warmer or cooler and even if there’s more than normal variability happening, the correlation with human activity and carbon dioxide levels is tenuous. Yet major policy decisions are being based on carbon emissions. World leaders will gather in Copenhagen in December to negotiate the Kyoto Protocol all over again. What the politicians decide will affect farmers through forced carbon reductions and carbon credit trading. Whether the political decisions will have any short or long-term impact on growing season weather is an open question. I’m Kevin Hursh.

August 17, 2009

Pain from the heavy rain
The heavy rain over the weekend is going to create some harvesting pain. Amounts of three, four and five inches have been reported in some areas. That’s a pile of water. Where crops are still quite green, the rainfall won’t be as big an issue. The cool, wet weather has further delayed crop development and there may be some crop lodging, but crop quality loss shouldn’t be serious and the ground has time to dry before harvest. However, areas of southern Saskatchewan around Assiniboia and Coronach were in a heavy rainfall zone and many pulse crops in that area were nearing maturity. Rain on ripe lentils can cause seed coat wrinkling and bleaching, especially if there are a number of wetting and drying cycles. The other issue is harvest-ability. It’s hard to scrape the ground to harvest peas and lentils when the ground is muddy. With that much rain, swather and combine headers are going to be pushing mud for quite some time. Lentils have the potential to be the top-returning crop for thousands of Saskatchewan producers this year. Producers are anxious to get them off quickly and with top quality. It isn’t a good time for big rainfall events. I’m Kevin Hursh.

August 16, 2009

Band-aid for the pork industry
The pork industry is welcoming the support program announced over the weekend by the federal government. While the support has a number of positive elements, it won’t provide any quick fix. An International Pork Marketing Fund of $17 million is useful, but developing and accessing new markets doesn’t happen quickly or easily. You’re still competing in a world with surplus pork. The government says it will share some loan risk so hog operations can restructure their businesses and survive until times are better. The loans will come from existing lending institutions which will be required to ensure the borrower has a viable business plan. Given three years of heavy losses, it makes you wonder how many producers will be eligible. The biggest dollar value of the announcement, $75 million, is being attached to a transition program to pay producers to get out of the business. Producers will submit a bid for what they’ll accept to get rid of their hogs for at least three years. It’s a reasonable way to allocate the money, but it could involve a slow and complicated administration. Overall, what the government is offering shouldn’t get the Americans talking about countervail, but it’s a pretty small band-aid over a wound that’s pouring buckets of red ink. I’m Kevin Hursh.

August 13, 2009

Drink to your health with purple vodka
Antioxidant vodka, purple in colour, is on its way to the marketplace. The recent newsletter from the Agriculture Council of Saskatchewan explains that the vodka is the result of a purple strain of wheat. Back in 1994, the breeder of the wheat gave the seed to a small company called InfraReady, which at the time was owned by Saskatchewan Wheat Pool. A few years later, the company was purchased by Mark Picard. InfraReady, based in Saskatoon, discovered that the purple colour in the wheat comes from anthocyanins, which are powerful antioxidants similar to those found in blueberries. The company eventually came up with vodka as the best way to maximize retention of the antioxidants. InfraReady says their product will be ultra-premium organic vodka with real health benefits. There’s still research to do to maximize the antioxidant content and then they will work with an unnamed distillery on mass production. The goal is to have InfraReady’s antioxidant, purple vodka on the shelves of western Canadian liquor stores within two years. I’m Kevin Hursh.

Pea and lentil harvest prices
The combining of yellow peas is underway in parts of southwest Saskatchewan. In some years, the onset of harvest causes prices to drop. That doesn’t seem to be the case so far this year with peas. In fact, there are reports of yellow pea bids increasing to as high as $6.50 and even $7 a bushel. There isn’t likely much delivery pressure yet with harvest just starting so maybe bids will slacken in the weeks ahead. Pea growers will remember back a number of years ago when harvest deliveries pushed prices well under $4 a bushel. The market doesn’t have that sort of feel to it this year. India is our top customer for peas and their demand will tell the tale. An increase in prices as a crop is being harvested is a sign of good market potential. There’s also some combining starting on red lentils. On all types of lentils, new crop prices are lower than old crop and the impending harvest seems to be causing some market pressure. However, a red lentil price of 30 to 32 cents a pound is still excellent for those producers who want to sell some product off the combine. I’m Kevin Hursh.

August 11, 2009

Eyes in the sky
The European Space Agency has chosen Indian Head, Saskatchewan as one of the three sites over which it is collecting space-borne radar images throughout the 2009 growing season. The other locations are in The Netherlands and Spain. Canada’s RADARSAT-2 satellite is being used and it can generate earth observation images of remarkably high definition even at night and through clouds. A number of Canadian scientists will support the ground research activities, including Dr. Guy Lafond, a production system agronomist at Agriculture and Agri-Food Canada’s Indian Head Research Farm. The research team is doing detailed monitoring of crop development on selected fields within a 25 kilometre radius of the farm. The satellite images are for many purposes, but part of the project is to investigate the merits of using the data for classifying crop type and estimating crop yield. Many producers admit to fibbing a bit when Statistics Canada asks about seeded acreage and yields. You have to wonder how long it will be until the eyes in the sky can come up with better information than what producer surveys are providing. I’m Kevin Hursh.

August 10, 2009

Hog losses escalate
After years of money-losing hog prices, prices have gone even lower. Livestock economist Brad Marceniuk of the Saskatchewan Ministry of Agriculture reports that North American daily average hog prices have declined by more than 15 per cent over the last two weeks. He cites continued high U.S. pork production and weaker pork exports due to H1N1 concerns as the main reasons. At the current Saskatchewan Index 100 price of around $100 per 100 kilograms, losses are huge. Producers in Western Canada are losing an estimated $45 to $55 on each slaughter weight hog they sell. Marceniuk says that based on the current lean hog futures prices and the Canadian exchange rate futures, Saskatchewan Index 100 hogs could decline further in the fourth quarter of this year, dropping to around $80 or $90 per ckg. For the first quarter of 2010, the price projection is for only a slight improvement. It’s amazing that there are any hog producers left. If the losses continue, you have to think that only the large, vertically integrated companies are going to survive. I’m Kevin Hursh.

August 9, 2009

New assistance for business planning
The provincial government has launched its new Farm Business Development Initiative. More information will be coming out after harvest, but here’s the gist of the program. Up to $4,000 will be available to engage private sector business services and/or access farm-related education and training programs. A producer has to pay a minimum of 25 per cent of the consulting or training cost. To be eligible, a producer must have annual gross income of at least $35,000 or be farming for less than six years and have the potential to generate $35,000 in gross farm income over the next 36 months. A producer must complete a Taking Stock needs identification document and create a Farm Development Plan in order to access the benefits. Farm Business Management Specialists can help with Taking Stock and there will also be Taking Stock workshops. The starting point for the program is to call your Regional Service Office or the Agriculture Knowledge Centre. The assistance of $4,000 is for business strategy, marketing, production economics, human resources, finance, environment, succession planning, business structure, and risk management. All are worthy endeavours, but you have to wonder how many producers will jump through all the hoops to get the funding. I’m Kevin Hursh.

August 6, 2009

Early Payment Option is expensive
The discounts you have to pay to use the Canadian Wheat Board’s Early Payment Option look prohibitively high at this early point in the growing season. The discounts change every day, but as of Thursday afternoon the discount to lock in a 90 per cent EPO for top grade CWRS wheat was 94 cents a bushel. Using an EPO is a way to lock in a floor price and it’s also a way to get a lot more money near the time of delivery. You also stay in the pool account and you’re eligible for additional payments if prices increase. However, the discount is lost money. Even at the 80 per cent EPO on spring wheat, the discount is 51 cents a bushel. The situation is even worse on durum. The 80 per cent EPO is 69 cents a bushel, 90 per cent is $1.17 a bushel and a 100 per cent EPO on top grade durum carries a discount of a whopping $1.69 per bushel. While the 80 per cent EPO always looks attractive due to the lower discount, initial payments typically rise and on grain delivered later in the crop year, the 80 per cent EPO may be worth little or nothing. Hopefully, all the EPO discount rates will drop at the crop year proceeds. I’m Kevin Hursh.

August 5, 2009

The market ramifications of frost
Areas of Western Canada flirted with frost again early Wednesday morning. Environment Canada lists two degrees as the low for North Battleford and Spiritwood with Meadow Lake at three degrees. With crops running behind normal development, there seems to be a high probability that frost will cause significant crop damage at some point in the weeks ahead. The market ramifications will depend upon the severity and the geography, but the Prairies are likely to end up with more feed wheat than in a normal year. That might moderate feed barley prices. If frost is serious, there could be late crops cut for green feed. That might help augment the hay supply. Widespread frost can cause a shortage of some top quality grains. In the past, frost has increased the top grade price premiums for crops like lentils and flax. That could happen again. Of course, while there are market benefits from widespread frost, this only happens because a lot of producers take a big hit in their expected returns. In the month ahead, producers across the Prairies will be watching weather forecasts and the thermometer. I’m Kevin Hursh.

August 4, 2009

Have you checked out initial payment levels?
As usual, initial payments for wheat, durum and barley are starting the new crop year at ugly levels. The government guaranteed initial payments on CWB grains have been set at less than 70 per cent of the total expected price. However, that’s 70 per cent of the total price at port position. After deductions, they look particularly dismal. On No. 1 CWRS wheat with 12.5 per cent protein, the initial payment after average Saskatchewan freight and handling is about $3.20 a bushel. No. 1 durum with 12.5 per cent protein has an initial payment of about $3.40 a bushel. Only a limited amount of feed barley is likely to be sold into the export market. That’s just as well when the initial payment is only about 70 cents a bushel after deductions. On two-row malting barley, the initial payment is right around $2 a bushel. Little wonder that many producers choose the CWB’s Early Payment Option and pay a discount so they can receive 80, 90 or 100 per cent of the Pool Return Outlook near the time of delivery. I’m Kevin Hursh.

August 3, 2009

Touring the drought area
Over the long weekend, I toured through some of the area of west central Saskatchewan affected by drought early in the growing season. My tour included areas around Eston, Brock, Kindersley, Glidden and Eatonia. There’s a much bigger area affected and there’s a great deal of variability. In the hardest hit areas, you see lots of fields that were sprayed off in early to mid-July and the short, spindling vegetation is now brown. There are other fields that weren’t sprayed off that probably won’t see a combine. Many other fields are at variable levels of maturity, but they will produce a crop. For instance, there are durum fields with areas turning colour and areas that have just headed out. In general, these fields look a lot more promising than they did a few weeks ago. Lentil crops seem to have fared better than the cereals. Many of the lentils look quite good, although there are some red lentil crops that are painfully short and will be difficult to cut. It’s a year when crops seeded on chem fallow really stand out. You see durum crops on chem fallow that may yield 40 bushels an acre right beside durum fields seeded on stubble that will have little or no yield. Overall, the situation is not as dire as it looked a month ago, and unlike the drought of 2002, most producers in the dry zone will have combining to do this fall. I’m Kevin Hursh.

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