What's new in the Canadian market.
by John Morriss, Editorial Director
Manitoba Co-operator and Alberta Farmer Express
Western Canadian farmers have often complained that agriculture is a forgotten industry for the rest of the Canadian public, but that has hardly been the case for the past few months.
Food news of all kinds continues to grab prominent space in Canadian media, and the business community has certainly noticed agriculture. The Potash Corporation of Saskatchewan, now one of the top five companies by market capitalization on the Toronto Stock Exchange, has produced a 169% return over the past year. National business publications frequently report on how investors are also smiling about returns from fertilizer manufacturer Agrium and grain handler Viterra, created last year through the merger of Saskatchewan Wheat Pool and Agricore United.
Though the industrial heartland of Ontario is suffering the effects of the economic downturn in the U.S., Canada avoided the subprime loan debacle and the housing market has restrained stable or strong, especially in the West, which continues to benefit from a resource boom in petroleum, minerals and agriculture. Saskatchewan, our largest grain-growing province, traditionally with "have not" status in the national economic picture, now has the hottest economy in the country, due in part to the boom in grain and oilseed prices.
The numbers tell part of the story. The Canadian Wheat Board is expected to return $10.40 per bushel before handling fees for top grade wheat in the 2007-08 crop year, which ends July 31. That compares to $5.89 the previous year.
Top-grade malting barley should reach $6.31 versus $4.40 last year. The political debate over the board's single desk status for barley continues, but it remains in place for the new crop year. The board has calmed some of the critics of its annual pooling system by offering a cash price option, which ironically did not pay off for those who used it early in the crop year, so the prices mentioned earlier will be actual returns for the majority of farmers who stayed in the pool.
Canola returns mirror those for soybeans--in mid-July futures are running over $700 per tonne versus $380 a year ago, and prices for other crops such as flax, oats and pulses have shown similar strength.
The other part of the story is that input costs have soared, especially for fertilizer, and farmers will only benefit from high prices if they hold--and if they can harvest a good crop. The potential rewards from grain farming have never been so high, but neither have the risks.
As of mid-July the mood was one of cautious optimism. Conditions vary over such a large area as Western Canada, but overall the crop was off to an early but slow start with concerns about dryness. Recent rains have been better and some sustained heat will help things catch up. In short, cautious optimism and crossed fingers in Western Canada.
CANADA'S BEEF HERD CONTINUES TO SHRINK
by Gren Winslow, Editor
The July 1 cattle inventory report released by Statistics Canada on August 17 will confirm another deep cut in the Canadian beef herd.
Early guesses by market watchers had the beef cow herd slipping between 5% and 6% surpassing the 5% drop in 2007. CanFax, the marketing wing of the Canadian Cattlemen's Association reports cow slaughter for the first six months of the 2008 up 4.4%, fueled by cull prices not seen since 2002, the year before Bovine Spongiform Encephalopathy (BSE) was detected. At the current pace domestic cow slaughter could hit a record 785,000 by year-end.
But that's only part of the story. Cow exports have been climbing steadily since USDA published its final rule on over-30-month old cattle last November. Through early July Canadians exported 78,000 cows to the U.S., and most of those went for slaughter. Add in domestic slaughter and cow marketings to date top 440,000, 27% ahead of last year's pace.
Many of these cows won't be missed, and won't be replaced. Although Canadian steer and heifer slaughter is down 3% this year, producers are shipping 77% as many heifers as steers to slaughter. That's up from the 72% heifer-to-steer ratio set last year and well ahead of the 15-year average of 66%. At the same time feeder cattle exports to the U.S. were up a whopping 69% at 365,736 head.
The flood of feeder exports will probably slow after July 15, the last day Canadian cattle could be listed as U.S. livestock under the new American country of origin labeling (COOL) legislation set to come into force at the end of September.
COOL is just one of the many uncertainties that have sent Canadian producers rushing for the exits on the beef merry-go-round in the past couple years. Five years of living under a growing number of restrictions to deal with BSE, a soaring Canadian dollar that remains stubbornly near par with the U.S. dollar, and sky rocketing feed costs have battered producer confidence. Add to that a sudden upturn in market prices for cull cows and fed cattle and you have a recipe for falling inventories.
REVENUES, LAND VALUES CLIMB
By D'Arce McMillan
Farm Management Editor
The Western Producer
High grain prices have generated strong optimism among Western Canadian crop producers this year, causing them to invest in increased seeded acres, inputs, equipment and land.
Saskatchewan market revenue in the first three months of the year rose to $2.37 billion, 44% above last year's level. Manitoba market returns rose 16.6% to $1.08 billion despite a sharp decline in livestock revenues, and Alberta rose 13% to $2.23 billion.
Prairie farmers sowed more spring wheat, durum, canola, flax, dry peas, lentils and mustard this spring. While overall seeded area increased, barley and oats acres decreased because other cropping options looked better.
With crop farm income at its best level in years, farmers are updating their stable of tractors, combines and implements. Equipment dealers report brisk sales and long wait times.
Canadian farmland values increased modestly in recent years but in the second half of 2007 jumped by 7.7%, with most of the gains occurring in the West. British Columbia led the pack with a 14.5% increase in the six months, Alberta increased by 10.3%, Saskatchewan rose by 7.8% and Manitoba climbed 7.3%.
The West's hot economy, fueled by the energy and resource boom, has raised competition for labour and like most industries, agriculture is scrambling to find experienced workers.
Crop processing is increasing. Western Canada's biofuel industry is comparatively small, but growing to meet a federal mandate for 5% renewable content in gasoline by 2010 and 2% in diesel fuel and heating oil by 2012.
In the past year, Husky Energy opened a 130 million litre ethanol plant at Minnedosa, MB, the twin to its plant at Lloydminster, SK. Terra Grain Fuels is starting up its 150 million litre plant in Belle Plaine, SK. The plants run on wheat. Several other biofuel projects are at the planning and engineering stage.
James Richardson International Ltd. and Louis Dreyfus are each building canola crushing plants in Yorkton, SK, that are capable of processing about 850,000 tonnes of the oilseed. Cargill is doubling the capacity of its Clavet, SK, plant to 1.5 million tonnes,
On the policy front, the future is unclear for the role of the Canadian Wheat Board, which has a monopoly on all sales of food grade wheat and malting barley and on exports of feed barley. The federal minority Conservative government wants to end the monopoly on barley sales, but opposition from other parties in parliament and court challenges have derailed the plan to implement changes for the 2008-09 crop year.
by Ralph Pearce, Editor
Top Crop Manager
Contrary to conditions in past years, the spring of 2008 will go down as an uncommonly cool and wet season across much of Eastern Canada. Accustomed as they are to suitable planting conditions for corn in early April, many growers were faced with later planting of both corn and soybean crops. Some were fortunate enough to find a late April planting window with much of the rest of the corn going in around the 10th of May. According to estimates from Statistics Canada, the expectations for corn planting for Ontario was 1.8 million acres with provincial estimates set at 1.75 million, a drop of roughly 250,000 acres from 2007 levels.
In soybean fields, aside from being about five days behind on crop development, conditions across much of Ontario and Quebec are reported to be fair to good, as of mid-July. There have been some water-logging issues, thanks to higher than average rainfall, pushing the potential for root rot diseases and some issues with nitrogen fixation. But then there have been no reports of aphid or bean leaf beetles, which were problems in 2007. With a warmer July and August, it is believed the crop will rebound sufficiently to be of average yield. In terms of acreage, Ontario's numbers from Statistics Canada are down marginally, from 2.275 million acres in 2007 to 2.15 million for 2008.
John DePutter, President of DePutter Publishing in London, ON, predicts continued volatility and wide price ranges for crops. Although some markets have probably hit the upper ends of their new, higher trading ranges, others may still have farther to go before completing their upward transitions. Current wide cropping margins will eventually be squeezed away by rising input costs, he adds.
According to DePutter, there are still a lot of "ifs" in the short-term future. The first thing necessary is better weather during the rest of the summer. The bulk of the U.S. corn crop, much less Ontario's crops, have yet to pollinate, meaning a 12 billion bushel corn crop in the U.S. is still suspect, which would impact on the potential for making the high for December futures of just under $8.00 per bushel. "That high price was record-shattering, and it was roughly double the highs that used to contain most of the bull markets," explains DePutter. "If this crop exceeds 12 billion bushels, there is a possibility that this market could gradually erode for a while."
Then all the other "ifs" come into play: if cattle and hog and ethanol and oil prices remain where they are, then a crop of 11.8 to 12 billion bushels is enough to sustain the system for this year, and perhaps 2009, as well. If cattle or hog prices move up or if the price of ethanol somehow increases, all that could change. "You may not see the cutbacks in usage that are necessary to make a crop of that size work," adds DePutter. "In which case, the price of corn could potentially move to higher levels than $8.00, even with a good or reasonable crop this year."
Editor's note: To get a feel on what's new happening in the important Canadian agricultural market, we invited prominent ag communicators to provide the following updates.