Friday May 06 2016

Agriline

Agriweek


Agriweek Canadian agribusiness authority since 1967

PART OF FAIR RAIL FOR FARMERS LAW IS EXTENDED

Lobbying by western grain, commodity and farm groups seems to have paid off: on April 22 the federal government announced that it will extend parts of the Fair Rail for Grain Farmers Act by one year from its scheduled expiry next July 31. The act is not being re-opened for amendments and the extension will be by a resolution in both houses of parliament. Transport minister Garneau said the automatic repeal was postponed while the government assesses the rail transportation system, in light of the Emerson review of the Canada Transportation Act. Three provisions of the act were specifically designated for extension: the railway interswitching distance, the level-of-service arbitration process for assessing monetary damages to a shipper for the failure of a railway to meet level-of-service obligations, and imposing minimum amounts of grain to be moved by the railways to export positions. The interswitching provision (which lengthens to 160 km from 30 km the distance over which a railway is required to haul cars of another railway to and from shipping points on its lines in the three prairie provinces) is the more important. Supporters of the expanded radius, which seem to be everyone but the railways, complained that the requirement should have been made permanent. It is extremely unlikely that a year is enough time for the government to deal with the Emerson report. The government has given itself until July 31 2017 to assess the Emerson recommendations, work out coherent policies, draft legislation and herd it through parliament. (04/30/2016)

WHEAT QUALITY AND THE CANADIAN WHEAT BOARD

The only thing more tiresome than claims that the demise of the single desk wheat marketing system has reduced western Canadian wheat quality is the delight that newspaper reporters take in spreading and embellishing them. So it was with recent comments attributed to a Canada Bread Co executive, who said the company had to spend an extra $1 million on gluten last year to add to flour that was too low for its needs. The implication was that problems began when the Wheat Board was disbanded. The Board never had the slightest control over wheat quality, even though it expropriated the entire western Canadian harvest. It had to sell whatever was produced, in the same way that all grain traders everywhere do. There is absolutely no connection between wheat marketing methods and wheat quality. The gluten strength issue of recent years is well known and fully explained. It has been addressed by the Canadian Grain Commission through changes in the wheat classification system. Gluten strength was temporarily lowered in 2013 and 2014 by growing season weather and a preference among farmers for new higher-yielding but lower-gluten varieties. Changes in classifications will divide wheat varieties now in the CWRS class into two classes, with a new Canada Northern Hard Red class for varieties that tend to have lower gluten readings and other quality characteristics. The new CNHR class will virtually duplicate the quality parameters of US Dark Northern Spring, including gluten. There have never been serious complaints about substandard gluten content in US spring wheat. The main business of Canada Bread is supplying supermarkets with the cheapest possible bread and baked goods in big-looking low-density loaves, so it probably has a particular interest in gluten. It is the responsibility of flour millers, not grain companies, to supply bakers with the type of flour they need. Canada Bread is big enough to insist on it. (04/30/2016)

AGRICLEAR CATTLE MARKETING SERVICE STRUGGLES

AgriClear, the internet livestock marketing service subsidiary of the TMX Group which runs the Toronto Stock Exchange, on an internet website, offers facilities for listing cattle for sale and bids by buyers, the means to negotiate prices with back-and-forth offers and counter-offers for a flat $6 per head (there is no charge for listings). It guarantees payment to producers and delivery to buyers by collecting sales proceeds and remitting them to the seller, backed by a $10-million assurance find. Or at least it would if there were any transactions. AgriClear is a resounding flop. Launched in 2015, it has as sophisticated a system for posting lots for sale and buyer bids as multi-billion-dollar consumer sites such as eBay. But recently just 34 lots were listed for sale, either breeding or replacement animals. There were no listings from buyers or of slaughter cattle. TMX has spent a bundle to set up and promote the service in Canada and the western states from offices in Calgary and the US, personally approaching hundreds of potential users. The failure of this admittedly logical-sounding idea is partly due to the same issues that defeat 99% of attempts to start new futures markets and to set up internet website markets for grain: liquidity. Not buyers and not sellers will use services where the other is not represented. It also suggests a very limited interest in new ways of doing things in the cash cattle trade. Or else, no one wants to fix something that is not broken. Clearing and payment security is obviously not nearly as big a deal as the TMX thought. (04/30/2016)

FARM LAND PRICES RISE STRONGLY DESPITE WEAKER CROP MARKETS

Statistics Canada issued its annual acreage intentions report issued April 21, with mostly small but notable changes for 2016 compared to 2015, except for literally an explosion in pulse crop area in the west. The survey showed how strong the incentive is to seed all the land possible. Summerfallowing will be reduced to a new all-time low of just over 2 million acres, less than half the 2014 figure. Total seeded area in western Canada could be a record at 64.83 million acres, up from 64.02 last year and 62.21 in 2014. The report's main feature was a massive increase in pulse crops in western Canada, to a new record of 9.52 million acres this year, 23% above last year's 7.71 million and 15% of all cropped area in western Canada. Ten years ago it was under 8%. Lentil area was reported at 5.14 million acres, a record. The gain is 30% over 2014 and 28% above 2013. Area intended for peas was put at 4.28 million acres, a 16% increase. Canola acreage in western Canada was projected to drop 4% to 19.34 million acres, the lowest since 2011, attributed to high input costs, uncertain markets and persistent disease and insect issues experienced in recent years. National all-wheat area will be 1% smaller than last year at 23.85 million acres and 1.5% less than in 2014. Spring wheat area will be down a million acres, but a 5% gain is projected for durum. A 6% decline in corn area is indicated, but a 3% increase in soybeans. Corn acreage in Ontario is expected to drop 7% to a multi-year low, undoubtedly affected by provincial restrictions on neonicotinoid insecticides. Area in Manitoba is projected at 360,000 acres, up 44%. Soybean acreage will be a record million acres nationally, with increases in all provinces where it is a significant crop. The 6% gain in Ontario may be explained by the fact that neonic seed treatments are less essential in soybeans than corn. Soybean acreage in Manitoba is set to increase to a new high of 1.53 million acres, but in Saskatchewan is expected to drop from 270,000 acres to 245,000. Flax acreage will be down sharply to 1.12 million acres from 1.64 million last year. (04/21/2016)

FARM LAND PRICES RISE STRONGLY DESPITE WEAKER CROP MARKETS

Farm Credit Canada last week issued its annual report on farm land price trends for the 2015 calendar year. The FCC has produced these reports since 1985, originally every six months but now annually. The report said that the national average gain in 2015 was 10.1%, down from 14.3% in 2014 and the record 22.1% in 2013. It was a higher rate than for any year before 2007 except for 1996. The average value of land in Alberta rose by 11.6% in 2015, 8.8% in 2014 and 12.9% in 2013; in Saskatchewan by 9.4%, 18.7% and 28.5%; in Manitoba 9.6%, 12.4% and 15.9%. In Ontario it was 6.6%, 12.4% and 15.9% and Quebec 9.6%, 15.7%, and 24.7%. The largest one-year increases in recent times were 17.4% in Alberta in 2007; 28.5% in Saskatchewan in 2013; 25.6% in Manitoba in 2012 and 2013; 30.1% in Ontario in 2012; 27.4% in Quebec in 2012; and 19.3% in BC in 2006. Nationally the biggest jump was 22.1% in 2013. Land values in Saskatchewan have risen every year since 2002, in Alberta every year since 1992, in Manitoba since 1991, in Ontario since 1987, Quebec since 1985 and BC since 2009. There is no other asset class with this appreciation record, not even top-end residential real estate in the most desirable parts of Vancouver and Toronto. On average, a dollar invested in farm land in the prairie region ten years ago more than doubled by 2012 and reached $3.08 last year. (04/15/2016)

FAO EXPECTS CEREAL USE TO EXCEED PRODUCTION

The UN Food & Agriculture Organization last week issued its first forecast for 2016-17 world supply-demand. It put total cereal production at 2.521 billion tonnes including rice, 0.2% under the current season's record. Wheat production was seen at 712.7 million tonnes, 2.8% below 2015-16 because of declines in Russia, Ukraine, Morocco and the EU. Global wheat use at 723 million tonnes will basically not grow but will exceed production, reducing carryover to 194 million tonnes from 205. World coarse grain production is projected at 1.313 billion tonnes, up 0.8% from 1.302 with consumption of 1.321 billion, up 1.5%. World corn output is placed at 1.014 billion, up 1.1%, with carryover of 205 million tonnes vs 216. World cereal trade is forecast to drop 1.4% to 365 million tonnes from 370 but wheat trade will increase to 153 million from 152. (04/15/2016)

COST-RECOVERY GRAIN COMMISSION FEES FAR OUTRUN COSTS

Legislation passed in 2013 applied the former government's cost-recovery policy to the Canadian Grain Commission. Under the policy users of many government services, including services required to be used by law and for which there is no alternative source, are to be charged fees that substantially cover the cost of providing these services. Commission fees have covered some of the cost of its services almost since its inception. Before 2013 the federal government absorbed about half of the Commission's costs. Since then it has been about 9% or about $5 million a year. The Commission was given a free hand in re-arranging its fee structure to reflect its costs, and was encouraged to forward-plan financially so that increases would occur gradually without the risk of sudden, large changes. At the start of 2013-14 there were massive one-time increases in Commission fees. Also a schedule was developed for annual increases to be applied each April 1 (the government's fiscal year) for the next 10 years. The annual increases are about 1.6% and are unrelated to costs: fees rise according to plan whether expenses increase, decrease or stay the same. Since there would be no government money to cover shortfalls between revenue and expenses, the Commission gave itself plenty of cushion. A novel revolving fund was established as a reserve against unplanned cost increases. For bookkeeping purposes all revenue goes into the fund and all expenses are paid from it. The balance in the fund has grown in each of the three years that these arrangements have been in place, from $53.2 million to $64.8 million. Over the three years, revenue surplus to revolving fund expenditures (the terminology used by the Commission) totalled $46 million. As a percentage of revenue it is a stunning 31%, which could also be interpreted as the extent to which fees are inflated. In any other context this would be known as net profit and it would be very handsome. Someone, maybe in the new government, should look into this. Recovering costs is one thing, but recovering costs plus 31% is quite another. (04/10/2016)

US FARMERS INTEND TO PLANT FLAT-OUT DESPITE WEAK PRICES

The US agriculture department on March 31 issued its annual intended acreage and March 1 grain stocks reports. Except for corn, changes in prospective plantings were modest and mostly close to what private pre-report surveys predicted. Farmers told USDA that they plan to put in 93.6 million acres into corn for 2016, up a huge 6.3% from 88.0 million last year and above the highest trade expectation. Soybean area was projected at 82.3 million acres, almost unchanged from last year's 82.7. All wheat area was projected at 49.6 million, down 9% from 54.6 million last year. Winter wheat area seeded last fall was previously reported at 36.6 million acres, down 7% from the previous year's and 14% less than 42.4 million in the fall of 2013. Non-durum spring wheat area was projected at 11.4 million acres vs 13.3 million in 2014-15, while durum area is expected to be near last year's 2.00 million. Oats, barley and canola area will be slightly lower. March 1 corn inventory at 7.81 billion bushels was the highest for the date since 1987 and the second-highest on record. Soybean stocks at 1.53 billion were up 15% from a year ago and the highest since 2007. All wheat stocks were 20% higher at 1.37 billion, the largest since 2011. Corn consumption during the previous quarter is implied at 3.43 billion bushels, the lowest for the quarter in three years mainly because of weak exports. Quarterly soybean use was 1.18 billion, down 1% from a year earlier. Wheat use was 375 million bushels, a seven-year low and only 13% of 2015-16 US wheat supply. (03/31/2016)

GRAINS COUNCIL SEES CONTINUING GRAIN SURPLUSES

The International Grains Council issued its first preliminary estimates of world crops for the 2016-17 year with only very small changes in both supply and demand from the prior year. World wheat production was out at 713 million tonnes, down 3% from 734 million in 2015-16 but consumption is also expected to drop to 716 million tonnes from 720 million, for a decline in carryover of only 3 million to to 211. The wheat stocks-to-use ratio would be 29.5%. Coarse grain production is expected to increase to 1.284 billion tonnes from 1.272 and consumption to 1.281 from 1.268 but carryover at the end of 2016-17 will increase to 255 million tonnes from 252. World corn production was projected at 993 million tonnes, up from 972 last year but below the record of 1.02 billion in 2014-15. Total cereal production will be only 2% under the 2015-16 record but duen to slow demand growth carryover of 466 million tonnes will be the highest since '1986-87. Global soybean production is expected to be 320 million tonnes, similar to 323 last year, with use rising to 327 from 321 million and carryover dropping to 33 million from 39 at the end of 2015-16. (03/31/2016)

WESTERN CANADIAN GRAIN PRICES HIGHER THAN U.S.

Western Canadian farmers are getting significantly higher prices for the main crops at local elevators than American farmers in North Dakota and Montana, an AGRIWEEK analysis shows. A thorough review of cash bids posted by US elevators within about 75 miles of the Canadian border found their average prices up to 10% lower than those compiled by the Alberta Wheat Commission's PDQ price reporting service for the southern prairies. A total of 12 locations in North Dakota and four in Montana were compared. American bids were lower for all crops and all locations. The average of elevator posted bids for hard red spring wheat (13% protein) on March 22, converted to Canadian funds at 76.62 cents, was $210.25 in northern North Dakota and 213.10 in Montana. The PDQ average was $229.24 in southern Manitoba, $221.26 in southern Saskatchewan and $234.62 in southern Alberta. Only a few US elevators had bids for durum, but they averaged $277.80 compared to PDQ's $276.08 in southern Saskatchewan and $284.38 in southern Alberta. US feed barley prices are depressed by the corn surplus, even in an area where corn is not a dominant crop. North Dakota elevators offered an average of $134.44 a tonne. PDQ does not survey barley prices, but cash prices quoted by provincial government reporting services were in the range of $145 to $158. Most US elevators are buying canola, apparently for the canola crush plant at Hallock. Bids were in a narrow range of about $427 to $432 a tonne. The Canadian local average was $459.76 in southern Manitoba, $453.35 in southeast Saskatchewan and $461.10 in southern Alberta. The only competitive canola buyer south of the border was CHS at Hallock in eastern Minnesota, whose bids were comparable to Bunge in Altona. US elevators do not seem much interested in peas or flax, but the few taking these crops also had consistently lower bids than Canadian buyers. The comparisons are based on an exchange rate of 76.62 cents ($1.305 Canadian per US dollar), which was the forex market rate at the time. The retail rate at which US dollars could be exchanged at a bank on March 22 was 78.12 cents ($1.280 per dollar), which would reduce US bids accordingly. (03/24/2016)

RAILWAY PERFORMANCE MUCH IMPROVED BYMILD WEATHER

Railway performance in the western grain haul has been much better this winter than in previous years, obviously due to consistently above-normal; temperatures and few heavy storms. During the 30th week of the crop year ended February 29 the two big railways supplied 5,641 cars or 83% of 6,815 ordered in the week for which they were required by shippers, according to the weekly Ag Transport Coalition report. The CNR provided 96% of cars on time but the CPR's on-time delivery continued abysmal at just 68%. For the crop year to date 86% of hopper cars have been spotted during the requested week, 9% one week late and 1% two weeks late. Average loaded 'dwell' time at country points for the latest week (the time between loading of cars and pick-up by the railway) was 17 hours for the CNR and 47 hours at CPR shipping points. However port terminals in Vancouver were out of cars to unload between 22 and 25% of the time. (03/24/2016)

THE US IS ON ITS WAY OUT OF THE WORLD WHEAT RACE

The US is no longer a competitive producer of wheat, especially hard spring wheat, for the export market as it is evolving. Western Canada still is. If there has not been a clear and systematic downtrend in American wheat area up to this time, it is surely just ahead and very little can be done to prevent it. The American wheat of most importance to the Canadian wheat economy is hard red spring grown in the northern states adjacent to the Canadian prairies. Over 10 years production has ranged from 449 to 570 million bushels or 12.2 to 15.5 million tonnes, about 60% of the western Canadian non-durum wheat crop. American domestic use is 50 to 60% of production, so that the exportable supply is about 7.5 million tonnes. Since western Canadian and US hard red spring wheat is essentially the same product it competes in the same markets. Based on 2015 yields and projected farm-gate prices, the average acre of corn this crop year generated $606 in gross revenue, soybeans $422 and all wheat $218. While production costs were also highest for corn and lowest for wheat, gross profit after expenses still favors corn and soybeans by a widening margin. High land rents in the aftermath of very strong crop markets in the 2010-14 period and dramatic increases in land values make it ever more important for US farmers to grow the highest-grossing crops. Over the 20 years since genetically modified corn and soybean technology came to dominate, production costs of these crops have increased much less than yields (though more than for wheat), which is why upwards of 90% of corn and soybean acreage is now in GMO varieties. The window for GMO wheat was open only for a short time in the late 1990s but has since closed permanently because of the general frenetic anti-GMO backlash. There is no prospect that GMO varieties of wheat will be commercialized in this generation. The benefits of higher yield and lower pesticide costs will not be available to wheat growers far into the future. (03/18/2016)

A PESSIMISTIC OUTLOOK FROM FAPRI

New forecasts from the respected Food & Agricultural Policy Research Institute (FAPRI) at the University of Missouri said last week that US farm prices and income will not recover for several more years. It projected an average farm-gate corn price of less than $4 a bushel through 2025, soybeans at $8.70 and soft red winter wheat at $4.97. As low as they are, most figures are above comparable USDA projections. Both FAPRI and USDA predict consecutive years of crop returns below production costs. This has not happened since the early 1980s. FAPRI projected US net farm income below $60 billion annually through 2019, less than half of the 2013 record of $123 billion. It also predicted a decline in average farm land values of about $62 per acre per year over the next three years or $250 per acre by 2019. Subsidy payments will not close the gap. Benefits from the Agricultural Risk Coverage (ARC) program, which is similar to AgriStabilty in Canada, will decline steadily from $6.4 billion to below $1.9 billion by 2018-19. Price Loss Coverage (PLC) payments will increase to $2 billion per year from current nominal amounts as commodity prices stay weak. However the report stressed that the main factors at work are different from the last period of extreme crop surpluses and depressed prices in the 1980s. The main difference is in interest rates, which were in double digits during then but now are near all-time lows. Farm debt is lower relative to revenue and assets. Interest rates are expected to increase, but slowly over an extended period of time. (03/18/2016)

OIL PRICE COMEBACK MAY BE NEAR: IEA

Crude oil prices may have bottomed, according to the International Energy Agency. Global oil supply dropped by 180,000 barrels a day during February and demand is expected to be 1.2 million per day higher for all of 2016. Oil prices faded early last week but bounced higher when a meeting called for March 20 to discuss a production freeze was rescheduled to April 17. Crude oil prices rose $2.82 in the week ended March 18 to close at $41.24. However Iran said it will triple production to 3 million barrels a day as soon as it can, so that other producers would have to reduce their shipments accordingly. Iran would not be in the equation but for the irresponsible drive led by the Obama administration to remove economic sanctions. Of course higher oil means a higher dollar, which means lower Canadian farm prices. (03/18/2016)

SUPER-EARLY SPRING IS POSSIBILE FOR THE WEST

Last week there was no snow cover to speak of in the part of western Canada known as the Palliser Triangle. Daytime highs were 15C in southern Alberta and 10C in southern Saskatchewan. Unless there is an extended rainy spell not mentioned in any long-range forecast, the earliest seeding season in memory seems just ahead. The first field work will be underway in the south before the end of the month and the first seed could be in the ground by the second week in April. Such a start would follow a series of years when excess moisture persistently delayed seeding. In 2013 work did not properly begin until mid-May; the next year it was not completed until late June. When it comes to timing in a dry early year, farmers must choose between early seeding to make use of what topsoil moisture is still available and the risk of post-germination frost. Soil moisture varied greatly last week. Despite above-average rain and snow last fall, the area of western Saskatchewan and virtually all of Alberta which had drought last summer is still dry. Winter snowfall was unusually low and spells of warm weather melted what fell. Not only did winter precipitation not contribute the usual amount to topsoil moisture, but lack of snow allowed the ground to literally freeze-dry. Extended forecasts reinforce doubt that moisture will be ideal. Crop and acreage plans have mostly been made. Statistics Canada will issue the annual planting intentions report on April 21. It will show record-high total cropped area as summerfallowing almost disappears, and only small changes in the distribution of land among crops. Most cropping decisions are made on four considerations: adaptability of crops in a region, the farm's crop rotations, market prices and input costs. (03/11/2016)

CATTLE, HOG NUMBERS ALMOST UNCHANGHED

Statistics Canada released its annual January 1 livestock inventory report on March 2, indicating only somewhat tentative plans for beef herd expansion and almost none in hogs in 2015. Cattle numbers nationally were 11.96 million, up just 0.3% from a year earlier, which is within the survey's margin of error. The Canadian cattle herd remained the smallest since 1992. Cattle numbers increased by 2.3% in Manitoba but only 0.4% in Alberta during 2015 and declined by 0.7% in Saskatchewan. The downturn in numbers dates from the aftermath of the mad cow disease crisis of 2002-03, when both replacement and slaughter cattle producers suffered severe losses despite large-scale federal and provincial financial assistance. Canadian cattle numbers peaked at 14.66 million at the start of 2004 after exports of live cattle and beef were blocked or disrupted. Cattle numbers declined for the next several years, and have been close to 2006 levels ever since. Hog numbers in the report were basically flat, although the breeding herd expanded slightly more (0.6%) than total numbers (0.3%). Hog numbers are static for easily- explained reasons. Markets have been very volatile over the last few years, reaching historic highs in early 2014 as a spike in piglet mortality from the PED virus outbreak reduced marketings. This led to significantly higher sow farrowings. But the PED disease was soon brought under control. Litter sizes and marketings of slaughter hogs rose sharply and prices have been weak since the middle part of 2015. (03/11/2016)

LEADING BUYERS OF CANADIAN CROPS

Up to January 31 of the crop year China has taken 1.28 million tonnes of canola seed, 40% of the total, compared to 1.45 million a year ago. Shipments to the next four buyers (Japan, Mexico, UAE, Pakistan) are up 18% at 1.73 million. Since the issue arose, basis spreads between cash and futures have widened clearly due to this sudden uncertainty. Futures have also fallen relative to soybeans and oilseed products. In other crops, August-January exports appear in line to leave very ample but not burdensome carryover. Indonesia, Japan and Venezuela were the top non-durum wheat buyers taking 1.5 million tonnes. Durum shipments to Italy, the leading buyer, dropped to 451,000 tonnes from 619,000 year-ago as the world durum shortage eased, but shipments to Tunisia, Morocco and Algeria were 78% higher at 475,000 tonnes. The US remains the only significant market for oats but shipments are 339,000 vs 361,000. Barley exports are mainly to China at 272,000 tonnes vs 284,000 a year ago but shipments to Japan are just 6,000 tonnes. China is also a big buyer of Canadian soybeans at 740,000 tonnes, up from 374,000 a year go. Iran is a new market at 140,000 tonnes. Lentil exports are up sharply because shipments to India more than doubled to 252,000 tonnes from 103,000 a year ago; other buyers are mainly taking their usual amounts. Lentil sales and prices in 2016-17 are extremely vulnerable to a recovery in yield and production in India. (03/09/2016)

TRANSPORT ACT REVIEW HAS LITTLE FOR GRAIN

The much-awaited report of the Canadian Transportation Act Review panel has been released, but with no new or creative insights or proposals regarding grain transportation. The vast bulk of the 600-page report pertains to other forms of transportation under federal authority, including air passenger and freight and also marine transport. its major recommendation regarding grain was the unexpected proposal to phase out the revenue cap (Maximum Revenue Entitlement) that limits the amounts the railways can charge annually for hauling western grain to ports. The cap has been in effect since the start of the 2000-01 crop year. It is intended to regulate grain rates but with a certain flexibility for the railways on how to comply. It is determined by a formula based on railway operating costs and allowances for depreciation and return on capital. The report recommends that the MRE be removed in stages over seven years, but does not explain how that interval was determined. It contends that with the MRE eventually removed competition between the big railways will keep grain freight rates reasonable. The railways emphatically argued for its removal but no submission from any mainline farm or commodity group took that position. It does not adopt any of the high-priority proposals made in submissions by farm and commodity organizations regarding non-performance of railways in timely grain car supply and removal. A system of reciprocal penalties had been requested in which the railways would be exposed to the same financial penalties for failure to deliver and pick up cars as shippers are liable for demurrage if they do not load cars on time. The report also approves of the sunset of the expanded 160-km interswitching provision introduced under the Fair Rail for Farmers Act, which is set to expire on July 31. There is a strong campaign among farm groups and the Western Grain Elevator Assn to retain this provision and make it permanent. The report also includes numerous minor proposals. It suggests changes favorable to the big railway companies in capital cost allowances. Tax credits are suggested for short-line railways for costs of track rehabilitation. Short lines should also be allowed to apply directly for financial support under government infrastructure programs. A more comprehensive supply chain monitoring program operated by the Canadian Transportation Commission is proposed, which would be given powers to obtain very detailed railway traffic information. Also the CTC's authority to resolve disputes between railways and shippers should be enhanced.
The full report is available online at http://www.tc.gc.ca/eng/ctareview2014/canada-transportation-act-review.html. (03/04/2016)

WORLD CEREAL SURPLUS CONTINUES TO GROW

The International Grains Council in its latest monthly report of world supply-demand added another 10 million tonnes to the cereal production estimate for 2015-16 from the prior month to 2.002 billion tonnes. Cereal carryover was also raised by 10 million to 465 million, up 16 million from January and the highest in 29 years. World cereal use was projected at 1.986 billion tonnes, a mere 2 million above the previous report and 16 million less than 2.002 last year. The IGC raised its world wheat production estimate by a million tonnes to 732 million from last month and 728 last year. The wheat carryover estimate was unchanged from last month at 213 million but was up 6.5% from 200 million last year. Global wheat consumption for 2015-16 was kept at 719 million, a gain of only 3 million tonnes over 2014-15. World cereal grain use will be 99% of production in 2015-16 and wheat use 98%, after 100% and 99.5% in 2014-15. Between its initial 2015-16 estimates last June and last month, the IGC cereal production figure increased by 36 million tonnes and consumption by 5 million, and wheat production by 22 million tonnes and consumption by 6 million. World grain carryover expected to be 422 million tonnes in June is now seen at 465 million. The difference in these estimates is within 5 million tonnes of Canadian production of wheat, barley and corn last year. (03/03/2016)

FARM INCOME PROJECTIONS FROM AG CANADA

Agriculture Canada recently released its annual agricultural outlook with income and expense estimates for 2015 and 2016. If the department is anywhere near right, cash receipts set a new record in 2015 and in 2016 will be the second-highest ever seen. Nationally it estimates cash receipts for 2015 at $58.90 billion, gain of 1.9% over 2014 ($57.82 billion), dropping just 1.1% in 2016 to $58.30 billion. According to these projections farm cash income is being held up by Canadian dollar devaluation. The average exchange rate was 90.5 US cents in 2014 and 78.2 for 2015. In 2014 dollars, cash income in 2015 was $50.89 billion, a drop of 12%. If the Canadian dollar averages 74 US cents during 2016 and the Agriculture Canada projections are correct, farm cash income in constant 2014 dollars (not accounting for inflation) will have dropped to $47.67 billion or 19% from that year. In current-dollar terms, Agriculture Canada estimates for cash returns from crop sales are basically identical for 2015 and 2016 at $30.6 billion, roughly half a billion higher than in 2014. Livestock receipts in 2016 are projected to decline by 3.4% from 2015 and 1.8% from 2014. Estimates for crop receipts are actually slightly higher for 2016 in Saskatchewan. (See table, next page). Livestock receipts are expected to be very similar for both years except in Alberta, where a 9% decline is expected between 2015 and 2016 and Quebec, where there may be a 1.7% increase. Government program payments, which were $2.10 billion in 2014, are expected to be slightly lower in 2015 but to increase 18% in 2016 to $2.44 billion. Projections for farm operating expenses show only a moderate impact from exchange rate movements. Expenses were put at $43.57 billion in 2014, $43.86 billion in 2015 and $44.68 billion in 2016. Net cash income (the difference between cash receipts and cash expenses) was reported at $14.24 billion in 2014, projected to increase to a record $15.04 billion in 2015 but to drop to $13.62 billion in 2016. Due to continuing farm consolidation, the decline in farm numbers and rising average farm size, average per-farm cash revenue is calculated to have increased to $420,779 in 2015 from $402,494 in 2014, dropping only to $418,235 in 2016. Average per-farm expenses were also higher last year at $356,439, from $343,870 in 2914, expected to increase to $363,856 this year. Average net operating income per farm is estimated at $71,511 in 2014, $77,287 in 2015 and $69,989 in 2016. (02/25/2016)

TRANS PACIFIC PARTNERTSHIP LOOKS DEAD IN THE WATER

The future of the Trans Pacific Partnership trade agreement did not get any less bleak last week. US ratification remained a long shot whose odds appear to be lengthening as new waves of protectionism sweep across the American political space. The agreement has not yet been submitted to Congress, but when it is, both houses will have 90 legislative days in which to consider it. The Congressional leadership and the Obama administration are co-operating to the extent that the agreement will not be referred to the Congress until there is a realistic chance of passage, which clearly is not the case at present. Senate majority leader McConnell said he will not allow the TPP to be debated until after the November elections. It is the speakers in the House and Senate who control the legislative agenda. House speaker Ryan went as far as to say the other day that Congress will never pass the TPP. Influential members of Congressional committees said the same. Without American participation there will be no TPP because its terms require at least six countries accounting for 85% of combined GDP to ratify it in their legislatures. They have two years from February 4 to do it. The 85% threshold cannot be met without the US, which accounts for $15.65 trillion of the combined $27.56 trillion GDP of the TPP zone, or 67% of the required 85%. American presidential politics are in such chaos that it is impossible to relate events to reality, but there is every probability that the nominees of both parties will be individuals who are already in the race. All leading contenders have emphatically stated that they will not proceed with the TPP at all or not in its present form. It is true that promises made during election campaigns mean little and that many are abandoned. But on the other hand there has not been the present intensity of protectionist opinion in the US in two generations. Even if the Congress were to ratify it next year or in 2018, the future president could decline to sign it. (02/21/2016)

TRUDEAU, FREELAND KEEP THE TPP SECRET

The Canadian government steadfastly refuses to reveal even a hint of its intentions regarding the TPP agreement. It is known only that it is being discussed by trade officials with a wide range of interested parties who have radically different views, and that it will be debated in parliament. Trade minister Freeland signed it in New Zealand on February 4 but stressed that signing does not mean acceptance. If the agreement is not approved by the US Congress it will have been merely a waste of bureaucratic time, but if the agreement goes into force without Canada the consequences for agriculture and other trade will be disastrous. As it is, Canadian exporters are already disadvantaged in Japan because the Japan-Australia Economic Partnership Agreement took effect January 15 giving highly preferential access for Australian agricultural goods. All trade agreements are of the most vital importance to Canadian agriculture. The lack of a clear, unequivocal commitment to free trade by the Trudeau government is very disconcerting. There is no telling what conclusions the government will reach once its consultations (which include interests hotly opposed to free trade including unions and certain environmental and anti-globalization organizations) are completed. Given the history of free trade benefits and the immense importance of trade to the Canadian economy there really should be nothing to discuss or reconsider and no reason to delay. (02/15/2016)

AT CROP-YEAR MID-POINT, CANADIAN EXPORTS SURGE

Midway through the 2015-16 crop year, grain handling system throughput and exports of the main western grains and oilseeds are running as never before. As of week 26 of the crop year, off-farm deliveries of the traditional seven major grains plus lentils reached 27.62 million tonnes, up 8% from the year-earlier total and a record for the date. Exceptionally mild winter weather allowed the railways to provide what is by recent standards quite adequate service. Farmers have been aggressive sellers because of attractive prices and a widespread feeling that they could slip. Futures market inter-month spreads and cash basis levels generally sent the signals that now is the time to sell, or at least as good a time as any. Rail service was good enough that the country elevator system did not plug up as in other recent years. Last week country stocks were about 90% of capacity, on the high side but not quite at congestion. Deliveries of virtually all crops were at least slightly higher than a year earlier, with notable increases of 12% in canola and 140% in lentils. Exports of the main crops are also a record for the date at 18.89 million tonnes. The total is about half a million tonnes ahead of a year ago, but that was the standing record. Combined Canadian wheat exports (milling and durum) at 10.68 million tonnes are higher than US shipments for the second time at this point in a marketing year. US export inspections since August 1 are about 8.65 million tonnes (the American wheat year starts June 1). Most of the leading importers of Canadian wheat have taken more this year than last, notably Japan, Indonesia, Venezuela and Peru. Canadian durum shipments to Italy are down 35% from a year ago when there was a global durum shortage, but to the big North African buyers are similar. Canola exports for the first half of the crop year total shipments are 4.79 million tonnes vs 4.22 a year ago. To December 31 (the latest date or which Canadian Grain Commission figures are available) exports to the three largest buyers (China, Japan, Mexico) are down 3% total 4.18 million tonnes against 4.22. However exports to formerly-minor purchasers or those who bought none a year ago are up sharply. Sales to these countries reached 663,000 tonnes as of December 31 compared to 196,000 at the same 2014 date. Pakistan, France, Germany, Bangladesh and Portugal bought none in the year-ago period but 200,000 tonnes in 2015-16. (02/15/2016)

US GRAIN EXPORTS HAMPERED BY HIGH DOLLAR, FUTURES

American wheat, corn and soybean export sales so far in the 2015-16 marketing season are lagging badly. US wheat sales (including yet to be shipped) are 16.78 million tonnes, down 18% from 20.34 million a year ago; corn sales are 24.23 million, down 25% from 32.15 million; and soybeans at 40.61 million are down 11% from 45.41. Some wheat sales are already being made for shipment in the 2017-18 crop year which starts June 1. Even disregarding that, wheat sales are 64% of the full-year USDA projection (which was lowered last week: see below), corn sales are at 58% and soybeans at 88%. All are below what they historically should be to meet the official projections and prevent further carryover build-up. The US is holding the bag on crop exports because its pricing system cannot find an export-competitive price to fully compensate for the soaring dollar exchange rate. Cash prices are related to futures through the basis discount, but when grain exporters try to widen the basis sufficiently to be competitive in exports (especially soybeans with South America) farmers refuse to deliver. Futures markets do not seem to be considering export competitiveness and much of the time appear to ignore basic realities of the market. The Canadian dollar exchange rate, while it gained about 1% so far this month, allows exporters to be quite competitive where they need to be. A few complaints have been heard in the US grain trade that the cheapened Canadian dollar allows Canadian exports to undercut US prices even in the safest American markets. However nothing is being done to artificially depress the Canadian exchange rate, such as is being done by China, for example. (02/10/2016)

DECEMBER 31 GRAIN STOCKS DOWN, BUT AMPLE

Statistics Canada reported December 31 stocks of the seven major grains plus lentils at 38.5 million tonnes, 13% less than the year-earlier 44.2 million. AS a percentage of production, stocks were 61% at the end of 2015 compared to 70% a year earlier (not counting carry-in). Farm disappearance (sales and on-farm use) between the harvest and December 31 increased by 33% in 2015 over 2014. For most crops year-end stocks were reasonably comparable except for non-durum wheat (down 24% from the 2014 date and 30% below the 2013 level) and lentils (down 47% and 60%). Combined canola stocks were similar to levels of a year and two years earlier at 12.11 million tonnes, however commercial inventory was significantly larger. Farm stocks of canola were down 8% from a year earlier and 9% lower than at the end of 2013 at 10.45 million tonnes. Farm and commercial wheat stocks, not including durum, of 13.53 million were the lowest for the date in at least six years, though durum wheat at 4.22 million was slightly higher. The biggest change in stocks was for lentils. Out of a total supply including carry-in of a record 2.75 million tonnes, year-end stocks were just 869,000. While the peak of the export season is passed, lentil supply will be very tight, carryover could be the lowest in recent years and the incentive to seed more acres in 2016 will be very strong. Otherwise December 31 stocks were adequate to service domestic and export needs at current rates to the 2016 harvest. Eastern corn stocks were 11.36 million tonnes on December 31, up 17% from a year earlier after an 18% gain in 2015 production. Soybean stocks were 1% higher at a record 3.35 million tonnes. Farm stocks were lower but commercial soybean stocks rose 8% to 1.35 million. (02/02/2016)

WESTERN FARMERS WILL SEED MORE LAND THAN EVER

Planning for the 2016 cropping season is well begun. Because of the low dollar, crop prices are high enough that it is reasonable to expect a positive margin between returns and cash costs from almost all crops, even allowing for higher input costs that are also a side effect of a cheap dollar. The incentive to plant all available area is very strong this year and total seeded area in western Canada will be the highest ever, as summerfallowing is finally virtually eliminated. The limit of cropped area in the prairie provinces is about 67 million acres and that is approximately what will be seeded this spring unless weather prevents it. Total crop area in 2015 was a record 65.5 million acres, after 61.9 million in 2014. Canola rotations are stretched to the limit and beyond, but a new acreage record is in sight for 2016 nevertheless. The recommended rotation is still four years (canola on the same land once in four years). If it were observed the maximum area available for canola in the west would be about 16.5 million acres. Last year it was 20.1 million and in 2014 20.8 million, which was the record. For 2016 it could exceed 21 million acres, which would imply an average rotation of just over three years, not much changed from the last two seasons. Wheat and barley area will decline but not by too much. Acreage of oats should drop to a long-time low because of unattractive prices relative to others, even though the per-acre cost of growing oats is the lowest of any major crop. In Ontario the same factors will influence corn and soybean area as in the US midwest, where economics favor corn over soybeans. Corn area rose in 2015 and soybean area declined, and it can be expected the same trend will be repeated. (01/29/2016).

THE YEAR FOR PULSES, IF EVER THERE WAS ONE

It goes without saying that pulse crop area and production in western Canada will smash all records this year. The price performance of peas and lentils in 2015-16 was legendary. A record supply of lentils coincided with record prices. Despite the production record of 2.75 million tonnes in 2015, carryover will be almost zero. Lentil acres have averaged 3.25 million over the last three seasons, with a record of 3.57 last year. For 2016 it should reach 4 million, even having in mind the region where lentils do well is quite limited. Acreage will spread to non-traditional areas for lentils as well as other pulse crops. Peas were very profitable in 2015-16 because of high prices and low input costs. After years of steady increase, acreage seeded to peas dropped 8% in 2015 to 3.68 million, but should easily reach 4 million in 2016. Such a surge in lentil and pea production could oversupply the market in 2016-17, unless India and other major importers again have poor crops. However pea prices could be supported because they are the cheapest source of animal feed protein and there is plenty of scope to increase their use if prices are competitive. (01/30/2016)

DEVALUED CANADIAN DOLLAR RAISES INPUT COSTS

The flipside of strong crop returns is production cost. The dollar exchange rate that is boosting crop prices also increases input prices. US and world nitrogen prices are lower than a year ago but Canadian prices are similar or in some cases higher because of dollar devaluation. The same is true of most herbicide and pest control products, though there appear to be aggressive promotional and discount programs that offer significant savings. Fuel prices are down sharply, by half since a year ago, with prices of 50 to 55 cents a litre being quoted. These prices are still roughly double what US growers just below the border are paying, but represent a significant offset to fertilizer and chemical costs. Some retailers report slow pre-season buying after an average fall fertilizer season. Some farmers appear to expect that prices could be lower towards spring, either due to exchange rate recovery or unsold inventory. However input inventory for the 2016 spring season was priced at the wholesale level some time ago and any price reductions depend on retailer discounting if sales are slack. This seems very unlikely given the pressure to maximize crop area. (01/30/2016)




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