Grain price reality check It gives me no pleasure to talk about the drop in grain prices that we’ve seen in the past few months. However, I’m surprised by the amount of denial there is. I run into lots of producers who believe this is a short term blip – just harvest pressure. They don’t accept that the bull market of the past couple years is over, or at the very least taking a break. Outside of agriculture, many people don’t realize how far a lot of prices have dropped. No one can predict the future with certainty, but the grain market is facing new realities. The stocks to use ratio is significantly higher on all the major grains. Production is again outpacing consumption. The price drop has been general across all grains, oilseeds and specialty crops. When prices are going up, everything tends to get swept along to one degree or another. The same thing happens when the trend is down. It’s hard for any commodity to buck the trend. Markets may not go much lower, but there’s a growing consensus that a substantial upturn is unlikely any time soon. The consensus could be wrong. Maybe prices will defy the odds and zoom back up, but I don’t think so. I think there’s a need to adjust price expectations and make decisions accordingly. I’m Kevin Hursh.
September 29, 2009
Farm income picture dims Name an agricultural commodity that has a better price than a year ago. I can’t think of one. There are some commodities such as lentils that have maintained an attractive price, but at 24 to 27 cents a pound, even lentils have come down a long way in the past six weeks and they’re well below the prices seen a year ago at this time. Yellow pea prices are about $2 a bushel lower than a year ago. Feed barley is down about a dollar a bushel and canola is about 80 cents a bushel lower. The Pool Return Outlooks for wheat, durum and malting barley are dramatically lower. Sometimes there are one or two stars among the grains, oilseeds and specialty crops that really stand out, but not this year. When grain prices sag, livestock prices have often been attractive. However, calf prices this fall are very similar to the prices a year ago. That’s because slaughter cattle prices are down dramatically. The hog industry has now suffered with terrible prices for several years, but a year ago, the market hog price was around $1.33 per kg. Now it’s scarcely a dollar. There are many Saskatchewan farmers with very good crop yields this year, but overall the Saskatchewan crop is not as large as last year. When you add it all up, the farm income outlook has dropped a long ways from a year ago. I’m Kevin Hursh.
September 28, 2009
Most Canadian flax in Europe quarantined The Flax Council of Canada is posting regular website updates on the GMO issue. Europe has discovered genetically modified material in Canadian flax shipments. The Europeans claim it’s the GMO variety known as Triffid which came out of the Crop Development Centre in Saskatoon. Canadian officials say Triffid can’t be confirmed until a specific test has been developed and proven. The Plant Biotechnology Institute in Saskatoon is working on a Triffid specific test. Europe has a zero tolerance policy which is crazy since no system can guarantee zero contamination. Today’s tests can detect the presence of GM material in one out of 10,000 seeds. However, there shouldn’t have been any Triffid around for the Europeans to detect. The variety was pulled and all the seed supposedly destroyed years ago. This is a regulatory issue, not a safety issue. Triffid is still authorized for feed and food purposes in North America. Unfortunately, most Canadian flax in Europe is currently quarantined and Europe represents about 70 per cent of Canadian flax exports. To find out more, go to www.flaxcouncil.ca. I’m Kevin Hursh.
September 27, 2009
Yields often better than expected On Friday, Statistics Canada will release a new production estimate for Canadian grains, oilseeds and specialty crops. Analysts have been widely predicting that production for most crops is going to be significantly higher than earlier estimates. Based on what I’m hearing from farmers in various regions, the crop does seem to be turning out better than anticipated. There are reports of some amazing yields – canola at over 50 bushels an acre, durum and field peas at over 60 bushels an acre. While people tend to report their top yields, rather than their average yields, the crop seems to be getting bigger as harvest proceeds. Market analysts often say that big crops tend to get bigger as more information is available. Even in the areas hit hard by drought, producers are often finding more bushels than they anticipated. When the Stats Can numbers come out, there will be debate over whether all the bullish yield information has been captured. There’s always a significant lag between when the data is collected and when the report is released. In any event, rising production estimates are never good for prices and that’s likely what we’ll see on Friday. I’m Kevin Hursh.
September 24, 2009
Durum PRO drops to $4.53 a bushel Wheat, durum and malting barley prices are now back close to the levels we had three years ago. In its latest Pool Return Outlook, the Canadian Wheat Board has dropped the expected price for most of the top grades of spring wheat by a few dollars per tonne. No. 1 CWRS wheat with 12.5 per cent protein now has a PRO of $4.70 a bushel after deducting average Saskatchewan freight and handling. The expected price for last crop year is $6.34 a bushel and the year before that the price was $8.40. The durum PRO has taken another nasty tumble. It’s down $25 a tonne. The projected Saskatchewan price for top grade durum with 12.5 per cent protein is now only $4.53 a bushel. The projection for last crop year is $8.36 and the 07-08 crop year was an amazing $12.42 a bushel. Malting barley is down $12 a tonne as compared to the August PRO. Two-row malting barley now has an expected Saskatchewan price of just $3.18 a bushel. The PRO for last crop year is $5.37, while the year before was $5.13. The PROs for this crop year now looks a lot like the prices we had back in the 2006-07 crop year. I’m Kevin Hursh.
September 23, 2009
It needs to rain sometime Precipitation maps show that Alberta and Saskatchewan have had far below normal rainfall for the past month. Most of Alberta has had less than 40 per cent of normal precip. In Saskatchewan, the southwest, northwest and part of the northeastern grainbelt is also at less than 40 per cent of norm for the past thirty days. The rest of the province from Prince Albert all the way down to Estevan is in the 40 to 60 per cent or 60 to 85 per cent range. Only the extreme southeastern corner of the province has had normal to above normal precip and those higher precip levels continue into Manitoba. When the temperature stats are calculated for September, they’re going to show an abnormally hot month, perhaps a record hot month. The hot, dry weather and the absence of frost have been great for harvest progress and crop quality. As harvest starts to wrap up in more areas, fall rains are going to be welcome. Winter wheat seeding is going to be down due to the late harvest and the lack of soil moisture. For spring seeded crops and for hay and pasture, most areas could use a lot of soil moisture recharge before freeze up. I’m Kevin Hursh.
September 22, 2009
Another tough year for cow-calf producers In a few weeks, the fall calf run will be underway. All signs point to another disappointing year for cow-calf producers. As compared to last year, feed grain prices are down significantly. It will cost less for feedlots to put on pounds of gain. Unfortunately, the value of fed (slaughter) cattle is also down significantly. The net result is calf prices very similar to last fall. Most 500 to 600 pound steer calves are currently selling for a little more than a dollar a pound. Those prices just don’t pay all the costs. The situation this year is aggravated by a poor hay crop in much of the prairies. With supplies short, good quality hay is selling for about $100 per imperial ton. Cow-calf producers will tell you that they can’t afford to buy hay at those prices. Most are thankful to have their own forage supply, so they won’t have feed purchases as a direct expense. Of course, if you’re going to honestly calculate the cost of production, forage costs should be penciled in at commercial values. After all, if you weren’t feeding that hay, you could sell it. There’s a definite lack of good news in the business. It’s now clear that Saskatchewan’s only major beef packer, XL Foods at Moose Jaw, won’t be reopening this fall as hoped. Yes, markets are always cyclical and eventually the sector should again be profitable, but one wonders how many producers will be left by the time that happens. I’m Kevin Hursh.
September 21, 2009
Money left on the table Most producers would love the opportunity to turn back the clock and redo some of their new crop marketing decisions. Red lentil contract prices were over 35 cents a pound for quite some time in the late spring. Prices now are in the mid-20s. Before Christmas, yellow mustard contracts were available at around 40 cents a pound. The current price is about 30 if you can find a bid. Back in June, the Fixed Price Contract for No. 1 spring wheat with 13.5 per cent protein hit a peak of $300 a tonne basis port position. At the time, that was only about $15 a tonne better than the Pool Return Outlook, so it didn’t look overly attractive. Since that time, wheat prices have steadily declined. That fixed price is now nearly $1.50 a bushel above the August Pool Return Outlook. A new PRO comes out on Thursday and it’s likely to be even lower. On malting barley, some Cash Plus contracts were signed at prices around $5 a bushel, which is about $1.50 above the expected pool price. New crop canola could have been locked in at prices of around $10.50, as compared to the current price of $8.50. Hindsight is always 20/20, but there’s been a lot of money left on the table. I’m Kevin Hursh.
September 20, 2009
BSE risk status The premiere edition of the new magazine Saskatchewan Beef Business has an interesting article on the Canadian BSE risk status versus the status of the Americans. Both countries are considered to be in the “controlled” risk category. However, the Americans don’t try very hard to find new BSE cases, whereas Canada keeps coming up with a new case every now and then. As the article points out, Canada has had 15 identified cases since 2003, while the U.S. has had just three reported cases – two of which have been attributed to imported Canadian cattle. The Americans may soon have an opportunity to change their BSE status from controlled risk to negligible risk. Officially, that isn’t supposed to make any difference regarding trade restrictions. In practice, it may give the Americans an advantage over Canada when accessing certain markets. New cases of BSE in Canada no longer garner much news coverage, but countries around the world do keep score. You have to wonder if our testing diligence is going to come back and bite us at some point. I’m Kevin Hursh.
September 17, 2009
Grain price rally predicted You can find market analysts who think grain prices will continue to decline and you can find analysts who think prices are going to improve. One of the optimists is Robert Winslow of Wellington West Capital Markets Inc. He released a report this week predicting that Ag Equities are poised for a strong rally as grain prices rally from the lows they have established. The report notes that since the beginning of the year, copper prices have increased 92 per cent, oil prices have increased 50 per cent, and gold prices have increased 14 per cent. Meanwhile, grain prices have dropped an average of 19 per cent. One of the few commodities doing worse that grain is natural gas which has dropped 44 per cent year to date. Winslow notes that global grain supplies have been rising, but now seem to have leveled off when expressed in days of supply. The Wellington West report also notes that most grain prices are now near to the cost of production levels for American farmers and this too should be supportive of a price bottom. There are other analysts who say we haven’t seen the bottom yet. It’s rare to see such division on the overall direction for prices. The next few months could be very interesting. I’m Kevin Hursh.
September 16, 2009
Flax fiasco Weeks after it happened, there are still far more questions than answers concerning the European rejection of a shipment of Canadian flax. The Europeans allegedly found traces of a genetically modified variety within a shipment. With Europe as the dominant buyer of Canadian flax, the market for Canadian producers has all but collapsed. If you can find anyone to buy flax right now, it’s usually at a steeply discounted price. Here are some of the unanswered questions: • Is the European finding credible? There seems to be a lack of proof at this point. • Why would they even be testing for GM flax when seed of the only GM variety was collected back from growers more than ten years ago? • The GM flax variety was fully approved in North American so why should Europe get bent out of shape over a trace amount in one shipment? • Is this flax issue just a way for the anti-GMO forces to garner attention? There’s a lot of work going on behind the scenes to resolve European concerns. For growers facing tremendous market uncertainty, answers can’t come soon enough. I’m Kevin Hursh.
September 15, 2009
Exports still vital for beef sector The Beef Information Centre has published a brief fact sheet on the industry. As of January of this year, 40 per cent of the country’s beef cow herd was located in Alberta, with 30 per cent in Saskatchewan. The next biggest province for beef cows was Manitoba at 12 per cent. Ontario had seven per cent. B.C. and Quebec were tied with 5 per cent of the national herd and only one per cent of the country’s beef cows were in the Atlantic Provinces. Looking at where the fed cattle come from, the dominance of Alberta’s feedlot sector becomes obvious. Over 65 per cent of the fed cattle come out of Alberta, with Ontario at over 21 per cent. Saskatchewan, Manitoba and B.C. combined account for just under nine per cent of the total fed cattle. In 2008, Canada exported 1.8 billion pounds of beef and cattle, while we imported 383 million pounds. On a net basis, subtracting out the imports, Canada exported 37 per cent of its beef and cattle production in 2008. Beef consumption by Canadians was down to 47.2 pounds per person last year, a drop of 4.4 per cent from the previous year. When you look at the numbers, the importance of the export market becomes clear. I’m Kevin Hursh.
September 14, 2009
Cattle price insurance Alberta has introduced a Cattle Price Insurance Program for feedlots. It’s being administered by Alberta’s Agriculture Financial Services Corporation (AFSC). While we often see Alberta provide special subsidies to agriculture, the premiums in this program are to be completely producer funded. Feedlot operators will be able to buy basis-only insurance or full price insurance. Basis-only covers the price difference between Canada and the U.S. Full price insurance covers the futures, currency fluctuations and the basis. The program can be used to set a guaranteed price for fed cattle intended for sale 12 to 36 weeks from the policy purchase date. With the program, producers know the minimum return they will receive. They pick a coverage level and a policy length and pay a premium up front. Advocates say it will be much easier than using the futures market. Premiums and coverage levels will be tied to what’s happening in futures markets, so they will change daily. Thus the information and program delivery will be provided on-line. Alberta’s Cattle Price Insurance Program is just being launched, but if Saskatchewan wants to maintain a cattle feeding industry, we better watch how well this program functions and be prepared to launch our own version. I’m Kevin Hursh.
September 13, 2009
Who do you believe? Market analysts are divided on the grain price outlook for the months ahead. Some analysts point to India and China saying their increased demand is going to be good for prices. Both countries seem to be pulling out of the recession quite nicely. According to the USDA, Chinese corn and soybean production will be down this year and China has the money to ramp up imports. India has enacted anti-hoarding measures that have caused a drop in yellow pea prices, but that should be a short-term situation and then they could be back in the market. However, some market analysts are taking a much more bearish view. David Drozd of Ag-Chieve in Manitoba has been predicting that markets will come under extreme pressure over the next few months. He says the technical factors and the fundamentals are both painting a bad picture. Drozd worries that prices will break below defined areas of support and fall lower. He says prices right now may be attractive compared to what prices might look like two or three months from now. So when the analysts can’t agree on where prices are going, what are producers supposed to do? Well, if you can make some sales at a profit, that’s never a bad strategy. I’m Kevin Hursh.
September 11, 2009
Grain markets lack strength Is the downturn in grain prices just the regular harvest pressure or have the market fundamentals changed? I had an interesting email from a producer who believes that farmers need to hold back on sales by using cash advance tools and having more on-farm storage. He says this would allow farmers to take back some control since there wouldn’t be so many forced to make sales off the combine. While those are good ideas, there are years when the best prices are at harvest time and the market gets worse rather than recovering. While the world economy seems to be improving, world grain production has increased dramatically on many crops. And there are some unusual forces at work. Reports indicate that a Canadian shipment of flax to Europe has been rejected due to the presence of a GMO variety. A GMO flax variety was developed, but it was never commercialized. How it could contaminate a shipment has not been explained, but the situation seems to have contributed to a big drop in flax prices. On lentils, market analyst Larry Weber is making the argument that Canadian production is going to be larger than anyone thought and he’s urging producers to grab the highly profitable prices while they’re still available. No one can predict price directions with certainty, but the decline in prices may not be reversed any time soon. I’m Kevin Hursh.
September 10, 2009
The demise of an industry The market outlook in the pork industry continues to be troubling. Prices are weak, producers are losing money on every hog going to market, and there’s no end in sight. Brad Marceniuk, a livestock economist with the Saskatchewan Ministry of Agriculture puts together a regular Hog Market Update. In the most recent report, he notes that reduced pork demand in the United States, due mainly to lower American exports has weighed heavily on the market. China and Russia are buying a lot less and this reduction in demand seems to have started before the H1N1 outbreak. Lean hog futures prices continue to be well below prices earlier in the year. Based on the futures market, hog prices are going to stay at rock bottom levels for the remainder of this year and for the first quarter of 2010. In Canada, we’re now on our second cull program. The Americans have not been cutting their herd. Total Canadian hog inventory peaked in 2005. Since that time, it has dropped by 20 per cent. The decline is much more dramatic in Saskatchewan. Since 2005, Saskatchewan’s total hog inventory has declined by nearly 42 per cent. It’s amazing that any producers are left in the business after years of losses and no light at the end of the tunnel. I’m Kevin Hursh.
September 9, 2009
Competitive disadvantage for Canadian cattle One big problem in Canada’s beef industry doesn’t get a lot of attention. Canada’s rules for dealing with SRM, Specified Risk Materials, are much stricter than in the United States. SRM are the tissues in a beef carcass most likely to harbour BSE prions. Since July of 2007, the use of meat and bone meal containing SRM has been banned from livestock feeding and fertilizer in Canada. The industry supports these strict rules, but they come at a cost. For slaughterhouses, the regulations result in additional costs for removal and disposal of SRM that amount to roughly $5 per head for cattle under 30 months of age and $30 to $40 per head for cull cattle. The United States does not intend to adopt a similar regulation, so the competitiveness of Canadian slaughter companies is seriously affected, particularly on the slaughter of cull cattle. Cattle can just move across the border to where the regulations don’t apply. XL Beef in Moose Jaw has been shut down for the summer and the high cost of SRM management has been cited as one of the reasons. The government of Canada needs to find a way to compensate the industry for the cost of our more stringent rules. I’m Kevin Hursh.
September 8, 2009
Harvest rush It’s interesting to see the different approaches to speeding harvest progress. Sometimes there’s a hesitation to use aeration bins early in the harvest season. By waiting just a few more days, the crop could be dry and won’t need aeration. Using aeration to get an earlier start can be a wise decision. Early in the season, the days are typically longer and drier and the grain will dry quickly in an aeration bin. There’s a strong possibility the grain can be dried and moved to other bins, freeing up the aeration bins for later crops. Many producers say it’s better to put top grade wheat into aeration in early September than No. 3 wheat into aeration at the end of September. Another way to preserve quality and speed progress is to harvest the ripe areas of fields, leaving green patches until later. You see many producers taking this approach even though it requires more overall effort. Harvesting portions of fields is better than not harvesting at all. Sometimes a producer will simply run out of any crop that’s mature. In these cases, you often see producers who go help a neighbour for a while. Later in the year, the neighbour may be able to return the favour. You never know how long good harvest weather will last. I’m Kevin Hursh.
September 4, 2009
Winter versus spring wheat In some regions of the province, winter wheat is going to have a big yield advantage over spring wheat. In other regions, there is a disadvantage with winter wheat this year. The latest crop report from the Saskatchewan Ministry of Agriculture includes yield estimates by region for all the various crops. In the southeast portion of the province, winter wheat yields are estimated at 37 bushels an acre compared to spring wheat at 32. In the southwest, winter wheat is at 33 compared to spring wheat at 28. East central has winter wheat at 39 and spring wheat at 33. In the northeast, winter wheat shows a huge advantage. It’s estimated at 50 bushels an acre as compared to spring wheat at 36. The situation is different in the northwest portion of the Saskatchewan grain belt. Spring wheat there is estimated at 37 bushels an acre, which is one bushel better than winter wheat. Winter wheat is really poor in west central Saskatchewan, where the average yield is listed as only 21 bushels an acre. West central was hard hit by drought, but the spring wheat estimate at 29 bushels an acre is considerably better than winter wheat. The numbers seem to show that the normal winter wheat yield advantage can be enhanced or eliminated depending on what happens with early season moisture availability. I’m Kevin Hursh.
September 3, 2009
Grain prices are sliding It can be hard to follow grain markets closely when a person is busy with harvest. However, looking at recent analysis and price trends, there isn’t much good news these days. Lentil returns remain attractive, but prices have gradually been eroding. Yellow peas that hit $7 a bushel a few weeks ago are now below $6, with many published bids of around $5 a bushel. Feed barley prices have been steadily dropping and those values are starting to look ugly. Canaryseed production should be down this year, but those prices have softened by a cent or two a pound in recent weeks. Published mustard prices are hard to find. Canola futures prices have ratcheted down in recent days dropping to around $400 a tonne. This follows a big decline in soybean futures. Frost concerns have decreased and there’s a feeling that canola yields are going to be better than expected. On wheat, durum and malting barley, last week’s big drop in the Pool Return Outlook is still reverberating through the industry. In addition to disappointing prices, there are indications that movement is going to be slow on many commodities. The supply pipeline is full. I’m Kevin Hursh.
September 2, 2009
Frost concerns diminish How’s your air conditioner working? The late August heat wave is continuing into September. While we’re approaching the normal time for the first fall frost in some locations, there’s no hint of frost in the forecast. We’re building towards a full moon in a few days and there’s a lot of folklore associating the full moon and frost, but that doesn’t look likely this time around. The heat is pushing crop maturity and we’re making up for some lost time. After spring frosts that lasted into June and flirting with frost at some locations in July, fall weather has been kind to us. There are still crops in the province susceptible to frost and the weather pattern could certainly change. However, the calamity of a widespread, earlier-than-normal fall frost seems to have been averted. We shouldn’t end up with gluts of frosted feed wheat and sample grade canola. Concerns over a potential early frost are being replaced with concerns over grain prices. While some prices are still attractive, the market in general has moved down as harvest has geared up. I’m Kevin Hursh.
September 1, 2009
Preserving the wheat midge tolerance trait For farmers who are cynical and we tend to be a cynical bunch sometimes, this will sound like a money grab. Three new wheat midge tolerant wheat varieties will be commercially available starting next spring. Farmers interested in planting a midge tolerant variety will be required to sign a stewardship agreement that limits farm-saved seed to one generation past certified seed. While that may sound like a system to extract more money from farmers through certified seed sales, there’s actually a very important reason for limiting the use of farm-saved seed. The varieties are being sold as a blend which contains 90 per cent of the midge tolerant variety and 10 per cent of a regular midge susceptible variety. This is called a refuge. The system is based on a single gene. The interspersed refuge works to prevent the build-up of wheat midge that are tolerant to the trait. This is expected to extend the life of the system from as little as 10 years to 90 years or longer. If farmers keep using their own seed, the level of the susceptible variety will keep dropping and soon there will be little or no refuge to prevent the midge from becoming tolerant. Farmer money through the Western Grains Research Foundation helped to develop these new varieties so that farmers in wheat midge areas wouldn’t have to spray for the pest. To explain the science involved, a new website was recently launched at www.midgetolerantwheat.ca. I’m Kevin Hursh.
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Kevin Hursh's daily agricultural report is heard Monday through Friday on Swift Current (CKSW), Shaunavon (CJSN), Moose Jaw (CHAB), Estevan (CJSL), Weyburn (CFSL), Rosetown/Kindersley (1330/1210), Lloydminster (CKSA) and Melfort (CJVR).
