Cereal prices are the lowest in years With the latest drop in the Pool Return Outlook for durum, the price is now projected to be the lowest in five years. The durum PRO dropped by as much as $15 a tonne, leaving the expected Saskatchewan farm gate price at around $4.00 a bushel for No. 1 durum with 12.5 per cent protein. Last crop year, durum was over $8.50 a bushel and the year before that it was nearly $12.50. You have to go all the way back to 2005-06, to find a lower price than the one expected this crop year. Delivery opportunities are also restricted on durum, so it has turned into a real dog. Spring wheat isn’t a lot better. It dropped by up to $5 a tonne in the most recent PRO. The expected Saskatchewan price for No. 1 CWRS with 12.5 per cent protein is about $4.50 a bushel. Last year was $6.50 and the year before that was nearly $8.50 a bushel. Malting barley was unchanged in the latest PRO, but at $3.14 a bushel, it’s depressed too. Later in February, the CWB will come out with its first PRO for the new crop year. The way the cereal market has been going, it’s hard to imagine those new crop PROs being attractive. I’m Kevin Hursh.
January 28, 2010
New crop acreage and price predictions The Market Analysis Group of Agriculture and Agri-Food Canada has come out with acreage and price predictions for the upcoming crop year. On wheat, they’re calling for Canadian acreage to be up marginally, with prices only slightly higher. Durum acres are forecast to be down by 20 per cent, but the expected price increase is only eight per cent. Barley – seeded acres down slightly, with off-board feed barley prices up slightly. The seeded acreage for oats is expected to rise by 25 per cent, while oat prices are forecast to fall by about $10 a tonne. The seeded acreage for canola is up only slightly in the Ag Canada forecast, with an increase expected in the average price. Not surprisingly, flax acres are expected to drop sharply. However, Ag Canada is forecasting a flax price improvement of nearly 30 per cent based on the assumption that EU market access issues will be resolved. On field peas, acres are forecast to be up slightly, with prices down slightly. On lentils, Ag Canada is calling for higher acres, but not nearly as high as what some analysts are predicting. Lentil prices are expected to be significantly lower. On mustard, Ag Canada is calling for acres to increase. This view isn’t shared by some other analysts. Pricewise, Ag Canada says mustard prices will decrease, but remain high by historical standards. On canaryseed, they’re calling for seeded acres to be up with the average price lower. I’m Kevin Hursh.
January 27, 2010
The U.S. or China In yesterday’s commentary, I quoted a financial expert who believes that China is going to take the place of the U.S. as the dominant economic power. Of course, that has inherent ramifications for agriculture. After reading the commentary, a thoughtful colleague sent a note saying he thinks this prediction is premature – the main reason being that China, along with countries like Russia and Japan all face a demographic crisis. There are not enough young people to replace the ageing population. Canada and the U.S. do not have a high birth rate either, but we can rely on immigration to bolster the population. That is not palatable in a highly populated country like China. According to my colleague, the Chinese economy is indeed expanding, but it’s soon going to hit an inverted demographic pyramid whereby the younger generation will have difficulty supporting the older generation that’s no longer working. He points out that the Chinese economy is expanding due to exports and not domestic growth. While the U.S. has a staggering debt load, countries such as New Zealand have successfully transitioned out of a debt problem. As well, a loss in confidence in the U.S. economy should lead to a devaluation of the American greenback, which will in turn make their exports more competitive. China or the U.S. – who do you think will be the economic superpower in 5 years or 10 years time? I’m Kevin Hursh.
January 26, 2010
China and agriculture At the recent pork seminar held in Banff, a couple of leading financial experts talked about China and what that country’s growing economy is likely to mean to the world economy and to agriculture. Chenjun Pan, Senior Manager with Rabobank based in Beijing says China produces and consumes half of the world’s pork. Pan says demand for technology, knowledge and food safety systems will create opportunities for international players to break into the market. As well, she says import potential continues to grow for high end products and specific breeds. While demand for pork is excellent, she says China is unlikely to rely on pork imports. However, China is expected to import large amounts of soybeans and soybean meal, and will become a small net importer of corn in the coming years. The other financial expert speaking at the Banff Pork Seminar was Douglas Porter, Deputy Chief Economist and Managing Director with BMO Capital Markets in Toronto. He says in many ways we are witnessing the passing of the economic baton from the U.S. to the rest of the world, especially China. One example is the auto industry. Porter says as recently as 2005 the U.S significantly outsold China, but last year China sold more automobiles than the U.S. The global economy was hard hit in this recession, but the economies in China and India kept on going. They are now critical to the world economy and will influence a lot of what happens in agriculture. I’m Kevin Hursh
January 25, 2010
Optimism in the beef industry Nilsson Brothers and XL Foods are vilified by many people in the beef industry. Their Moose Jaw plant is closed due to them trying to win labour concessions. Many beef producers bemoan the lack of competition in the Canadian packing industry, with only two main players left – XL and Cargill. Producers also complain about all the other segments of the beef industry that are dominated by Nilsson Brothers. However, it’s difficult to listen to a presentation by Brian Nilsson and not like the guy. He doesn’t do many media interviews, but he was a presenter at last week’s Saskatchewan Beef Industry Conference. Nilsson doesn’t beat around the bush and he makes compelling arguments. He notes that with the rise in value of the Canadian dollar, we’re no longer a low-cost producer. Plus, grain farming has become more attractive in recent years, pulling producers away from beef and into crops. The result is a dropping beef cow herd. Nilsson believes it will drop for another year or two before bottoming out. He predicts that the domestic market will become far more important and we’ll export far less beef and far fewer animals to the U.S. in the years ahead. The good news is that he believes we’re at the start of a price recovery. He’s still worried about prices this spring and the fall may not be great either. But he expects it to get better and better after that. Like him or hate him, long-suffering cattle producers are hoping he’s right about the good times to come. I’m Kevin Hursh.
January 23, 2010
Saskatchewan Cattle Price Insurance Saskatchewan is working on a cattle price insurance program. Provincial cattle analyst Grant Zalinko explained the proposal at last week’s Saskatchewan Beef Industry Conference in Saskatoon. Alberta initiated a price insurance program for fed cattle last September and the U.S. has a price insurance scheme. It should be noted that this is not a program that covers cost of production. The insured price is determined by using forward prices from American futures markets. This is adjusted for the exchange rate and for the basis, which is the difference that exists between American futures prices and Canadian cash prices. For example, a producer might be able to lock in a fall price of $1.04 per pound for 600 pound steers for a premium of 4 cents a pound. For the purposes of the program, it doesn’t matter what price the producer actually gets. If the weekly average market price ends up being lower than the locked-in price, a participating producer would receive a payout. If the average price is higher than the locked-in price, there would be no payment. The cost to the producer is only the set premium. Under the proposal, calves and yearlings would be insurable. There isn’t a big volume of fed cattle produced in Saskatchewan, so for those it’s proposed that Saskatchewan participate in the Alberta program. Saskatchewan producers are asking for government cost sharing of premiums, similar to what happens with Crop Insurance. A significant amount of technical work remains, but the program looks promising. I’m Kevin Hursh.
January 21, 2010
Sask. now has 30 per cent of nation's beef cows The cattle industry is going through tough times. The beef breeding herd has been dropping for a number of years. However, Saskatchewan is weathering the storm better than other provinces. Yesterday at the Saskatchewan Beef Industry Conference in Saskatoon, Brian Nilsson of XL Foods predicted that the biggest downsizing of the breeding herd will be in Alberta and Ontario. In Alberta, there are many areas where land prices are too high to make sense for raising cattle. In Ontario, costs of production are high. Nilsson remains optimistic about the beef industry in Saskatchewan and he believes the cattle feeding industry will expand here. The statistics tell the story. Brad Wildeman, president of the Canadian Cattlemen’s Association presented numbers showing that 39.8 per cent of the beef cows are in Alberta, but Saskatchewan is narrowing the gap and now has 29.9 per cent of the total. Manitoba is a distant third with 12.3 per cent of the cows. Ontario has just 7.3 per cent. Saskatchewan’s numbers are dropping, but not as dramatically as in the rest of the country. I’m Kevin Hursh.
January 20, 2010
What's a large farm? Here in Saskatchewan, we may think we have some large farms, but we’re not large by the standards in some other countries. Following yesterday’s commentary about farm input suppliers catering to large producers, I received an email from Al Hingston. Al is from Saskatchewan and he had a long career as a beef cattle specialist here. Now he lives in Ukraine. His company is Odyssey Livestock Consulting and he’s done some consulting work in Kazakhstan. Hingston is aware of one farm in Kazakhstan that’s a million hectares in size. That’s nearly 2.5 million acres. Hingston says there are a few 500,000 hectare farms and quite a few that are 100,000 to 500,000 hectares in size. At a farm where he gave a presentation about beef cattle they farm 220,000 hectares. They bought 45 new John Deere combines last year in a cash deal. Here in Saskatchewan, if a farm is 10,000 or 20,000 acres, we think it’s pretty big. Our biggest farms wouldn’t attract much attention in Kazakhstan. I’m Kevin Hursh.
January 19, 2010
Catering to the big acres Increasingly, the companies that sell farm inputs are targeting large producers. Given a choice between having one 15,000-acre customer or five 3,000-acre customers, it’s easy to see which is the most desirable. In many cases, farm input suppliers put their best staff members in charge of their biggest customers. They don’t want to lose a major account for fertilizer or crop protection products and they know that all their competitors would like to attract that customer. It’s probably fair to say that companies will compete harder on price and service in order to attract and retain the big guys. The marketplace also has more and more products geared specifically to large producers. One company in West Central Saskatchewan is promoting bulk farm storage for glyphosate herbicide. Glyphosate will be stored much the same as diesel fuel. The tanks are 11,000 and 19,000 litres in size. That replaces a heck of a pile of plastic jugs and even a lot of shuttles. The system makes glyphosate less expensive and more convenient, but it’s aimed at producers who farm a lot of acres. I’m Kevin Hursh.
January 18, 2010
Certified seed and the Triffid issue Farmers should not be required to use certified seed in the efforts to rid the flax supply of the unwanted GM variety known as Triffid. That’s the view of Terry Boehm, the new president of the National Farmers Union. Boehm is from Allan, Saskatchewan and he’s a flax grower. He says the proposed requirement is just an excuse to move away from farm-saved seed that’s a lot less expensive for growers. Many, if not most producers will agree with Boehm. It’s certainly true that both certified seed and farm-saved seed will need to be tested to make sure it’s free of the Triffid variety this spring. In this situation, certified seed may not be any purer than what farmers have in their bins. However, it should be possible to methodically test all certified seed, while the same isn’t true for farm-saved seed. Sure, you can require each flax grower to have their seed tested, but how do you ensure representative testing of the seed going in the ground. With certified seed, you can match seed purchases with seeded acres. It may seem like industry wants to take advantage of a difficult situation to make money on certified seed, but as quality and Identity Preservation become more important, expect more requirements to buy your seed rather than using your own. I’m Kevin Hursh.
January 17, 2010
Cropping budgets The Saskatchewan Ministry of Agriculture has come out with its Crop Planning Guides for 2010. Lentils are a shining star in the guides producing a sizable return over and above all the rotational expenses of growing the crop. However, the Ministry is using a price estimate of 30 cents a pound for large green lentils and 28 cents a pound for reds. Those prices are five to 10 cents above the expectations of most analysts. Even if you plug in the lower prices, lentils look pretty good compared to other options. Plus, many producers will be plugging in higher yield expectations than what the guides use. Among the cereal crops, canaryseed outshines wheat, durum and barley. However, if too many acres switch into canaryseed, the assumed new crop price of 20 cents a pound will not be realistic. In the oilseeds, the assumed flax price is $8.76 a bushel, while canola is $9.30. Those are in the general range of what analysts are predicting, but the mustard prices at 25 to 34 cents a pound are five to eight cents higher than what analysts are predicting. Every producer should be doing their own revenue and expense cropping budgets, but it’s always interesting to look at the planning guides. They’re posted on the Ministry’s website. I’m Kevin Hursh.
January 14, 2010
Farming for future generations As farmers, we don’t talk about it as much as we should, but passing the farm along to the next generation is an important goal for a lot of producers. John Phipps, the American agricultural journalist and farmer who spoke at the Crop Production Week Special Session Wednesday evening talked quite a bit about family. At the age of 35 in the midst of a successful professional career, John’s son decided he wanted to farm. Their philosophy is to farm within their specific county in Illinois. They don’t chase land in other counties, but if land comes for sale or rent next to them, they’ll pay a premium to secure it. After the presentation by John Phipps as everyone was standing around and talking, I visited with a farmer from east central Saskatchewan who beamed with pride over the fact that his kids are all in the province and several are involved in the farm. Agriculture is often a difficult business. It’s easy to get depressed and negative. Those who soldier on through good times and bad are often motivated by what they hope to pass along to the next generation and the generation after that. I’m Kevin Hursh.
January 13, 2010
The colour Red I heard a quote recently that Green is the new Red. In other words, a big part of the Green movement is fueled by people with a philosophy that used to be called Red –a philosophy that’s anti-business and anti-development. Nowhere is this truer than agriculture. When you delve into European concerns over genetically modified crops, in many cases it isn’t about the environment. It’s ignorance combined with a philosophy that modern, business-oriented agriculture is bad. It’s also environmentalism by convenience. As a Swiss mustard crop buyer noted at Crop Production Week yesterday, a lot of Europeans travel. None of them seem to worry about consuming GM crops while they’re on holiday in another country. Most climate change fanatics are also on the left wing of the political spectrum. While many people have looked at the data and concluded that climate change is manmade, many others simply want to believe that wealthy economies are inherently bad. They’re Green, but in an earlier time, they would have been labeled as Red. I’m Kevin Hursh.
January 12, 2010
Red lentil contracts at 22 cents per pound The Market Outlook panels for pulse crops drew a big crowd yesterday at Crop Production Week. On yellow peas, the consensus of the panelists is a new crop price of around $6 a bushel. Greg Kostal thinks peas will take a run at $7 a bushel at some point. Daniel Holman of North West Terminal is penciling $6.50 a bushel into his farm budget. On lentils, market analysts missed the market by a mile last year. While most predicted dropping prices, lentils have remained amazingly strong. This year, the analysts on the market panel are predicting a big increase in lentil acreage, but they’re more bullish on prices than you might expect. Brian Clancey of Stat Publishing is calling for 3.2 million acres of Canadian lentils, while Heidi Dutton of Western Grain Trade is just under 3.2. That’s more than a 30 per cent increase. Clancey says prices for red and large green lentils will likely end up at less than 20 cents a pound. However, he gives reds a 40 per cent chance of being 20 to 25 cents and he gives greens a 30 per cent chance of being 20 to 25 cents. Martin Chidwick of Bissma Pacific is quite bullish on lentils, especially red lentils. He believes the market is there to consume what Canada grows. There are currently some new crop contracts for red lentils at around 22 cents a pound. I’m Kevin Hursh.
January 11, 2010
New crop price guessing What numbers should a producer pencil in for crop prices in the new crop year? Many of the presentations at Crop Production Week will take a stab at answering that question. Greg Kostal of Kostal Ag Consulting in Winnipeg gave a presentation at yesterday’s Canaryseed Commission meeting comparing canaryseed to competing cereals. Kostal actually ran through all the important grains, oilseeds and specialty crops giving his projection for next crop year’s price levels. Spring wheat - $5.25 / bushel. Durum - $5 / bushel. Malting barley - $3.75 / bushel. Oats - $2.75 / bushel. Kostal is predicting both canola and flax to be in the range of $9 a bushel. He has peas at $6 a bushel, lentils at 22 cents a pound, canaryseed at 20 cents and yellow mustard at 26 cents a pound. Most of Kostal’s predictions are similar to current price levels with the exception of lentils. With a prediction of 22 cents, Kostal is expecting a dramatic price decline from the current lofty levels. A hundred things could happen to change the outlook, but the numbers are a good starting point for cropping budgets. I’m Kevin Hursh.
Never take China for granted The opening weekend of Crop Production Week in Saskatoon has the annual reunion of the Saskatchewan Agricultural Graduates’ Association. This was the 75th reunion event. Of course, the grads, both young and not-so-young, swap lots of stories and observations. Of all the comments I heard over the weekend, one stands out. A 60-year graduate of the College observed, “You’d think China would need to buy either our potash or our canola.” Without potash, it is assumed Chinese crop production will drop. However, China has managed to avoid buying Saskatchewan potash and that has contributed to a major drop in potash prices. And rather than being hungry for increased crop imports, they’ve placed a trade barrier on Canadian canola. Using the excuse of a fungal disease called blackleg, they’ve effectively stopped taking any of our top oilseed crop. In the last crop year, China was our biggest canola customer. Fortunately, canola prices have not plummeted like potash prices, but the lack of Chinese buying certainly isn’t helpful. The Chinese can be ruthless trading partners and it’s obviously a mistake to take that market for granted. I’m Kevin Hursh.
January 7, 2010
Hursh's picks for Crop Production Week in Saskatoon The 2010 version of Crop Production Week is upon us. Here are my picks for some of next week’s most interesting sessions. With what has happened with GMO contamination and the new testing protocols, the Monday morning Flax Situation Update at the SaskFlax meeting will be interesting. I’m someone who likes market analysis and there will be lots of that throughout the week. Larry Weber is giving presentations at the flax and canola meetings. At the canaryseed meeting, Greg Kostal will give the market outlook for canaryseed versus competing cereals. Randy Strychar of OatInsight.com is speaking at the oat commission meeting and Steve Foster of Viterra will address the mustard commission meeting. On Friday at the Canadian Wheat Board meeting, Bruce Burnett will provide a weather and market outlook. The market analysis highlight will be the Pulse Market Outlook panels on Tuesday afternoon, particularly the panel on lentils. There’s tremendous interest in growing lentils because they’re hugely profitable right now. The worry is that we could produce too many and drive the price to unprofitable levels. Beyond market analysis, the Saskatchewan Seed Growers Association has a very interesting panel discussion entitled “Declining Cereal Production: Will GM Varieties Save the Industry?” Of course, all the meeting agendas are available at www.cropweek.com. I’m Kevin Hursh.
January 6, 2010
Analyst says nitrogen prices are likely to rise A newsletter on fertilizer supply, demand and prices has been launched. The author is David Asbridge, the American analysts who spoke about fertilizer last year at the Special Session of Crop Production Week in Saskatoon. In the January 5 edition of his newsletter Asbridge is advising that nitrogen prices are likely to move higher by spring. On phosphates, after a surge in December, the market is expected to move only marginally higher between now and spring. The eight page newsletter has lots of charts and graphs and analysis. There’s a 30-day free trial so you can have a look at no cost. Asbridge is calling his company NPK Fertilizer Advisory Service and the newsletter is the NPK Insider. For farmers who want to buy a subscription, Asbridge is offering a 50 per cent price discount if you agree to share farming information in one or two short surveys over the course of the year. To check it out, go to www.npkfas.com. This year’s presenter at the Crop Production Week Special Session is another American. John Phipps is a farmer and agricultural journalist who will talk about the politics and policies affecting grain prices. I’m Kevin Hursh.
January 5, 2010
Meeting set for Big Sky creditors Everyone owed money by Big Sky Farms will have a take-it-or-leave-it deal to consider at a meeting February 8 in Saskatoon. Ernst and Young has posted all the documentation on a special website. Six secured creditors are listed along with about 800 unsecured creditors. Under the proposal, unsecured creditors owed less than $4,000 will receive 99 per cent of their money. Those with claims of $4,000 to $40,000 will receive an average of about 31 per cent. Unsecured creditors of over $40,000 will recover an average of only about 10 per cent. It should be noted that Big Sky is now paying a bonus on feed grain purchases in order to secure supplies. The hogs still need to eat. Some of the grain farmers who are owed money will be able to recoup a portion of their losses by making new deliveries. Still, the $20 million owed to unsecured creditors cuts a wide swath. In addition to grain producers, those owed money include every other conceivable business that would provide goods and services to a network of hog operations. Secured creditors, owed $81 million, will end up with Big Sky shares. In situations like this, there is typically no viable option for creditors but to take the deal offered. I’m Kevin Hursh.
January 4, 2010
Combining corn in January Believe it or not, there are still combines running in Saskatchewan. Wild Horse Farms Corporation, which operates out of Lucky Lake had 4,000 acres of corn seeded on irrigated land. That corn is now being harvested. Mark Langefeld of Wild Horse Farms says they’ve been growing grain corn for the past several years, but this is their biggest acreage by far. In fact, it’s believed to be the largest corn acreage by a single operator anywhere in Western Canada. New corn varieties mature with lower and lower heat units, but this year was a challenge. While the Lake Diefenbaker area typically gets 2400 heat units, this year was only 1900. Langefeld says the yields should be 120 to 130 bushels an acre, but because of the cool summer, they’re getting 80 to 100 instead. Rather than taking the corn off tough or damp, they’ve waited for it to be freeze dried. The market for corn is good. It’s used for a number of livestock and poultry rations and by some ethanol plants. Langefeld says they’re getting the Chicago price plus a positive basis. Even though it’s an expensive crop to grow, the returns are good and the later combining spreads out equipment use. So, if you’re travelling around Elbow or Outlook in the next while, don’t be startled to see combines at work. I’m Kevin Hursh.
January 3, 2010
A decade of ethanol Matt Hartwig from the Renewable Fuels Association in the U.S. has put together some statistics to show the growth in the American ethanol industry over the past decade. Back in 1999, the U.S. produced 1.4 billion gallons of ethanol. For 2009, production is estimated at 10.6 billion gallons. As recently as January of 2000, there were only 54 ethanol plans in America. Now there are more than 200 plants in 26 states, with more under construction. The Energy Policy Act of 2005 created a Renewable Fuel Standard that requires refiners to use an increasing percentage of renewable fuels in their fuel mix. The 2007 Energy Independence and Security Act required the use of nine billion gallons of renewable fuel in 2008, growing to more than 15 billion gallons in 2012 and 36 billion gallons by 2022. While a cellulosic ethanol industry is emerging with production based on feedstock such as corn stalks, sugar wastes, wood chips and wheat straw, this source of ethanol has been slow to develop. In the short to medium term, the vast majority of American ethanol will continue to come from corn. Without that growing demand for corn, I shudder to think what grain prices would look like right now. I’m Kevin Hursh.
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