Sunday August 19 2018

Agriline

Agriweek


Agriweek Canadian agribusiness authority since 1967

EARLY-AUGUST HEAT WAVE HARMS CROPS

It has been a problematic growing season in western Canada from the start. A dry fall and a winter of below average snowfall was followed by a very dry spring, which was followed by an unusually hot summer. Rain has been extremely scattered and sporadic, especially in the south half of the western grain belt. Subsoil moisture which had been plentiful during the summer of 2017 was depleted and was not recharged in the fall. Crop conditions have been extremely uneven since seeding. Until the last days of July rainfall was just enough to sustain the hope of average yields, or better in the central and northern prairies. A few districts in northeast Saskatchewan and the Peace River area actually had above-normal rain for a time. Conditions became steadily drier after seeding and southern Alberta and Saskatchewan had just 25% to 35% of normal rain during July. Southern Manitoba and the interlake received 65% or less of normal precipitation in June and as little as 20% during July. Then the heat wave set in. August 1 was the start of a 10-day spell of persistent near-record temperatures and literally no rain. Daytime highs were 40C for consecutive days, often with high winds and very low humidity. Overnight lows generally did not get below the mid-20s. By August 10 topsoil moisture in Saskatchewan averaged 60% short or very short and worsened thereafter. Hay and pasture land was 68% short or very short of moisture. Southern Manitoba and the south half of Alberta except the eastern fringe had even poorer moisture situations. Lack of precipitation and much above average temperatures degraded yield potential and crop quality in all areas. In northern and central Saskatchewan and Alberta moisture was more ample but crops were later. The heat wave caught early crops such as peas, lentils, winter wheat and barley in ripening stages with harvesting already starting, hastening maturity but not causing severe loss. In later fields, which were in reproductive stages of development when yields are determined, were damaged. The heat caused premature ripening of crops, which always reduces yield and quality parameters such as test weight. Protein content in wheat is often increased by late-season heat and drought, but oil content in canola is generally reduced. The amount of loss will not be evident until harvest, but could be extremely serious. The occasional very late canola field was still in bloom and the blossoms literally burned off. About half of cereals were flowering in early August and the heat probably shut down pollination in many places before it began. Hot, dry weather with no rain should have made for ideal harvest conditions, except that on many days it was literally too hot to harvest. Farmers parked their combines in the afternoons because of extreme fire risk and the high temperature of grain going into storage. Overnight lows were not low enough to cool grain by aeration. Straight-cutting will have increased as many fields quickly became too dry to swath without shatter loss. (08/20/2018)

ANOTHER RECORD YEAR FOR CANADIAN EXPORTS

Canadian exports of western and eastern grains, oilseeds and pulse crops set a new record during the 2017-18 crop year ended July 31, at 41.9 million tonnes, up slightly from the previous high of 41.6 million in 2016-17. The five-year average has been about 39.1 million. Exports of the main western gains, oilseeds and peas were 36.26 million, slightly ahead of the prior two crop years even after the loss of the India market for peas and lentils. The total matched the previous high set in 2014-15. The five-year average for exports defined in this way is 35.74 million. Non-durum wheat exports rose strongly to 16.23 million, 11% above the previous season's and the highest in three years, into what was probably the most competitive wheat market in history. The five-year average was 16.06 million. Durum shipments reached 3.99 million tonnes, 7% below 4.29 million in the prior year and the lowest in six years, after the recent record set in 2016-17. Barley exports rose to 1.90 million tonnes, a six-year high and 41% higher than the prior year's almost entirely on higher malt and feed movement to China. Oats exports appear to have reached a record at 1.58 million tonnes, all to the US; if not for the American market oats would probably be considered a special crop. Canola shipments of 10.24 million tonnes were just short of the record 10.88 million in the prior year. Exports of peas were 2.07 million tonnes, down from 3.35 because of the suspension of most sales to India. However exports were near the five-year average of 2.34 million. Exports of eastern corn increased 55% to 1.39 million tonnes from 901,000; the average is 909,000. Soybean exports were similar to the prior year's at 3.77 million tonnes of which almost half were from the western Canadian crop. Exports reported by the Canadian Grain Commission do not include direct sales by farmers of canola, wheat and other crops into the US, or containerized shipments of pulses and special crops, which in some cases are now the majority of movement. Off-farm deliveries of western grains of 50.46 million tonnes were 4% lower than in the prior cop year, for unclear reasons. According to the March 31 stocks survey, farmers held 3 to 4 million more tonnes on farms than a year ago. Off-farm sales of non-durum wheat to licenses elevators were about 84% of the prior year's harvest compared to 88% for the 2016-17 crop year, and were also proportionately lower for peas and canola, though higher for durum, barley and flax. Statistics Canada will issue its July 31 grain stocks report with a survey of farm stocks on September 6. (08/13/2018)

CANADIAN SEEDED ACREAGE REPORT FOR 2018

The annual Statistics Canada seeded acreage report on June 29 showed some significant changes from the agency's pre-seeding intentions report in March and actual 2017 acreage, as farmers responded to price movements and spring weather conditions. Compared to intentions reported in March, wheat area was lower and canola higher. Total area devoted to the major crops was similar to intentions and actual 2017 figures. Canola area was 22.74 million acres, up 1.36 million from March intentions and just 160,000 under the 2017 record of 22.99 million. This represents a substantial shift, motivated by strong canola prices compared to the alternatives. In Saskatchewan canola area was 8% above March intentions but 3% under 2017, in Manitoba 8% higher than both and in Alberta 2.5% above intentions but 2% below last year. In Manitoba and Saskatchewan some soybean acreage appears to have been switched back to canola. All-wheat area of 24.71 million acres was below March intentions but 10% above the 2017 figure of 22.39 million. Spring wheat area nationally was 17.30 million acres, 9% higher than 15.80 in 2017 but 5% below March intentions. Durum area was reported 7% above the March report and an unexpected 19% higher than the prior year at 6.19 million, the second-highest on record, exceeded only by 6.53 million acres in 2000. About 39% of all spring-seeded wheat in Saskatchewan is durum this year. Winter wheat area was 1.23 million, 21% below 2017 with declines in all provinces. Winter wheat area in western Canada dropped to 335,000 acres from 535,000 in 2017 because of adverse fall seeding conditions. Very strong feed barley prices in western Canada did not attract a big gain in 2018 acreage, which would also have been expected based on relative input costs. Acreage on the prairies was 6.14 million, a 12% increase from 2017 but far below traditional acreage. A decade ago barley area was between 9 and 11 million acres. Oats were seeded on 2.53 million acres in western Canada, little changed in several years. Area of the main pulse crops in western Canada dropped 9% to 7.84 million acres from 8.66 last year, also 7% below March intentions. Peas were reported at 3.60 million, slightly less than 3.77 million acres of lentils. Chickpea area increased to 469,000 acres, almost triple 2017 area of 160,000 and pre-season intentions or 346,000. Canaryseed area was reported at 212,000 acres vs 255,000 last year and 223,000 intended. Pulse crop area appears inexplicably high considering current cash prices and the market outlook, and also big farm-stored stocks. Flax acreage was cut to just 885,000 acres from 1.04 million last year and 989,000 intended in the March survey. A surprise came in soybean area, which was 13% lower nationally at 6.32 million acres. Most of the drop was in Manitoba and Saskatchewan, suggesting the soybean boom in western Canada may have topped out last year. Soybean area in western Canada was reported at 2.29 million vs intentions of 2.46 and the 2017 record of 3.09 million. Many growers appear to have had disappointing agronomic or gross revenue experiences which discouraged plantings despite lower input costs than canola. There was a 7% increase in Quebec but Ontario acreage was basically unchanged. (07/09/2018)

USDA SUPPLY-DEMAND REPORT USES OBSOLETE YIELDS

The USDA monthly supply-demand report issued on June 12 was not too meaningful because it did not adjust for the dramatically improved outlook for US yields and production, especially corn and soybeans. Acreage and yield figures were not changed from May and were not survey-based. The report was based on an average soybean yield of 48.5 bushels per acre and corn at 174. The June 10 crop condition ratings imply soybean yield of 51.6 bushels with a range of 45.0 to 52.6. A corn yield of 181 bushels is indicated with a range of 166 to 195. The July report, due on the 12th, will adjust only acreage figures according to surveys of farmers. The August report will be the first to show survey-based yields and it will blow the lid off the June numbers if crop conditions do not deteriorate. A soybean yield of 51.6 would give a harvest of 4.536 billion and corn at 181 would be 14.601. All else being equal, carryover would be increased by 256 million bushels or 62% for soybeans and 564 million or 36% for corn. This is a very bearish preview of new-crop prices in the late summer. (07/02/20-18)

THE LIBERATION OF ONTARIO

The best thing about the Ontario election of June 7 was that it did not return an NDP government. The worst thing is that the new premier is minimally qualified with experience only in bush-league Toronto city politics and a problematic personal history. In between, for Ontario agriculture, is the welcome fact that for the first time in 15 years there is decent representation in the government for agricultural and rural Ontario. The new premier has a choice of several farmers for agriculture minister, including Ernie Hardeman who was the minister in the Harris government in the 1990s, and at least three other popular MPPs who are practicing farmers. Of 124 seats in the legislature, the Conservatives won 76, but 51 are first-time members with no legislature experience. Ford promised categorically to eliminate the cap and trade tax on fuel which currently costs Ontario farmers $85 million a year. That would involve dismantling the system and then resisting the federal policy of imposing a carbon tax on province that do not levy their own. The previous Liberal government did not exempt farm fuel from the carbon tax as most other agricultural provinces have. As matters unfold and an election is held in Alberta next year, there will be four-province bloc opposed to the federal carbon tax plan and the resolve to confront the Trudeau government. In opposition, the Conservative party criticized the previous government's draconian restrictions on neonicotinoid seed treatments and now has the power to easily rescind the regulations. Ford also promised to increase funding for the Risk Management Program, a fee-based scheme which makes up part of a reduction in margin from crops and livestock due to fluctuations in market prices or production costs, by $50 million a year. Payments are based on available funding. The new government will have to confront the staggering deficit left by the previous incompetents. It also promised to cut taxes, and doing both is impossible without slashing spending. No matter what the government does it will be at war with teachers', nurses' and civil service unions, whose wings badly need to be clipped.

CANADIAN FARM CASH INCOME STAYS STRONG

If not for grain rail service shortfalls over the winter and India's cut-off of Canadian pea and lentil imports farm cash income would have set another record for the three months ended March 31. Statistics Canada reported first-quarter farm cash receipts last week at $15.40 billion nationally, down 5% from $16.25 billion in the 2017 period. On the prairies farm cash income was 7.3% lower with crop sales down 7.2%. Off-farm sales of all crops in western Canada were hampered by elevator congestion throughout the winter quarter. Pea and lentil deliveries into the cash market were especially reduced because of the export slowdown. Cash revenue on the prairies from crop sales was down $532 million from the 2017 quarter to $6.86 billion, accounting for most of the $824-million difference in the total for the region. The remainder was accounted for by lower government payments, particularly crop insurance benefits, which were unusually high in the 2017 quarter. It was the first year-to-year decline in January-March cash receipts for the since 2014. Farm cash income was lower in all agriculturally-prominent provinces, including 2% drops in Manitoba and Ontario, 11% in Saskatchewan and 6% in Alberta. Farm gate cash sales of crops totalled $8.79 billion in the quarter, down 6% or $573 million from the 2017 period. Sizable declines were reported in canola, peas and lentils, though wheat, soybean and barley sales rose. Physical marketings of canola were down 12% while prices averaged 1% higher. Receipts from sales of peas were 59% lower and lentils 50% lower because of the Indian tariff. Off-farm deliveries of peas were 52% lower and prices 15% lower. Lentil marketings and prices were down 17% and 40%. Dollar revenue from wheat sales was 3% higher, barley 30% higher and soybeans 13% higher. Quarterly livestock receipts of $6.16 billion nationally were basically unchanged. (06/04/2018)

MARCH 31 GRAIN STOCKS INCREASED

Statistics Canada reported western farm stocks of 10 major grains as of March 31 at 28.86 million tonnes, 5% above 27.53 million on the 2017 date. All wheat on farms in the west was 11.89 million vs 12.05. Durum stocks were 15% lower at 2.75 million. Wheat stocks in Saskatchewan were down 6%, Alberta up 5%, Manitoba unchanged. Canola on farms was reported at 7.50 million tonnes vs 6.35 year-ago. Total canola stocks including commercial were 9.07 million , up 14% and highest for the date since 2014. Farm stocks of canola were 15% above year-ago in Saskatchewan, up 23% in Alberta and up 15% in Manitoba. Combined farm and commercial barley stocks were off 26% compared to a year go at 3.4 million. Lentil stocks were 35% higher at 1.5 million and peas up 13% to 1.9 million due to reduced exports, which in the crop year to March 31 were down 41% for peas at 1.8 million tonnes and down 50% for lentils at 1.0. Commercial stocks of the 7 main grains (excluding corn and soybeans) were 6.05 mmt vs 6.15 a year ago. Quarterly disappearance between December 31 and March 31: wheat ex durum 5.956 million tonnes (4.980 year-ago); durum 2.709 (2.009); canola 4.829 (5.450); barley 2.669 (1.092); peas 900,000 (1.01 million); lentils 469,000 (584,000). (05/11/2018)

USDA PREDICTS SMALLER CARRYOVER FOR 2018-19

The US agriculture department's monthly supply-demand report for May issued last week gave its first tentative estimates for the 2018-19 crop year, generally predicting a slightly better balance between production and use, especially for soybeans. The 2018-19 wheat harvest was put at 1.821 billion bushels, unexpectedly up 5% from the current season. Average wheat yield was projected at 46.8 bushels per acre vs 46.3 last year, with winter wheat yields lower. A huge 34% gain was projected in spring wheat and durum production, though the report did not provide detail for wheat by class. US wheat use in the new crop year is expected to be 3% higher at 2.072 billion, reducing carryover to 955 million bushels from 1.070 billion at the end of the current year. US wheat exports were expected to be 925 million bushels vs 910 for the current season and imports at 135 million bushels vs 155 in the current year. Soybean production was forecast at 4.280 billion bushels vs 4.392 in 2017 with yield at 48.5 compared to last year's 49.1. Soybean exports were put at 2.290 billion, up 225 million from 2017-18. Soybean carryover was projected to drop to 415 million bushels from 530 million at the end of the current year, but above 302 million for 2016-17. The 2018 corn crop is projected at 14.040 billion bushels, down from 14.604 last year with average yield of 174.0 bushels per acre vs 176.6. Corn use is expected to be 14.590 billion vs supply of 16.272 billion for carryover of 1.682 billion, 23% less than for 2017-18. US corn exports were forecast at 2.100 billion bushels, down 125 million, partly offset by a 50-million increase in ethanol use to a record 5.625 billion. USDA estimates for world wheat production for 2018-19 in were 689.1 million tonnes mt vs 711.0 for the current year. Wheat use was put at 755.6 million vs 713.9 last year. Global carryover was estimated at 238.3 million, down from 241.3 last year. USDA estimated the world coarse grain crop at 971 million tonnes, up from 932 last year with use of 1.049 billion vs 1.026 billion and carryover at 140.5 million, down from 164.7. USDA projected world oilseed production at 593.7 million tonnes vs the prior year's 572 and carryover at the end of 2018-19 of 100.0 vs 107.0 million last year.(05/14/2018)

SEEDING INTENTIONS SHOW DROP IN CANOLA, JUMP IN WHEAT

Statistics Canada's seeding intentions on April 27 was full of surprises, especially to those disposed to pre-guessing the contents of government reports. Instead of the new record for canola acreage in western Canada that was confidently predicted, the farmers surveyed said they will reduce canola area by 7%. Instead of reducing wheat area, they plan to increase it by 14% to a four-year high. Instead of slashing pea and lentil area because the Indian market has all but disappeared, they will be reducing it just 7% with more lentils in western Canada than peas. The intentions are unexpected, but the historically-large acreage changes do not show that farmers don't know what they are doing They are responding to conditions that are not too visible from your average Winnipeg office. The dryness especially in southern Saskatchewan and Manitoba is under-appreciated (see later story). To growers in these areas this does not look like the year for high-input crops. An acre of canola costs around $270 to grow, including $60 and up for seed and $40 or $50 for chemicals. An acre of wheat can be put in for about $180, oats or flax for $150 and peas for $140, or less if no land is rented. Crop insurance compensation is proportionate but so are the premiums. The report projected canola acreage at 21.38 million, a 7% decline from the 2017 record of 23.0 million. Before the report an increase to a new record between 23.7 and 24.3 million acres was predicted, on nothing more than conjecture. Canola area as reported is still the third highest ever. It is also still stretching rotations; 32% of crop land in western Canada will be in canola meaning the same land grows the crop every three years. The record remains at 22.23 million acres in 2012. Most of this year's decline is in Saskatchewan, where canola area was put at 11.39 million acres, 10.5% less than in 2017. Intentions in Alberta were reported at 6.65 million, down 4%, while acreage in Manitoba is unchanged. The survey found seeding intentions for all wheat nationally at 25.26 million acres, increases of 13% and 9% over 22.39 million in 2017 and 23.69 million in 2016, and the largest all-wheat area since 2013 when 26.03 million acres were seeded. Spring wheat area was placed at 18.24 million acres, 15% above 2017 and also the highest since 2013. Farmers said they will seed 5.78 million acres to durum wheat in the west, an 11% decline from 5.21 million last year but 7% below 6.10 million in 2016. Winter wheat area was reduced by 9% to 1.24 million acres from 1.37 million in 2017 by poor fall conditions in western Canada, where winter wheat area fell 37% to 335,000 acres from 535,000. Barley acreage is expected to increase 5% to 6.05 million acres, from the record low of 5.77 million in 2017. A larger increase could have been expected from high prices and short supplies, especially in Alberta, although growers there do plan an increase to 2.98 from 2.85 million acres. Farmers intended to seed 3.14 million acres to oats, 2% less than in the prior year. Oat area will be down 110,000 acres in Saskatchewan but up 55,000 in Manitoba to 575,000 acres, the highest since 2009. (05/07/2018)

WEATHER OUTLOOK IMPROVES BUT SEASON ALREADY DELAYED

Persistently cold weather during April with temperatures about 10C below normal has already delayed the start of field work across western Canada. In early years seed is often in the ground in southern districts by April 15. The year the earliest that seeding can begin is between May 5 to 10 in the south and after May 20 in the north. However there has been a favorable change in precipitation patterns, following a dry fall and winter and alarmingly dry prospects for the 2018 growing season. The prairie region received more snow in the last few weeks than through the whole of the winter. Areas that needed it most appear to have received substantial amounts. Since early March around a foot accumulated in southern and central Saskatchewan where there had been no snow cover. A Pacific disturbance during the week of April 10 brought heavy snow to southern Alberta and southwest Saskatchewan; in extreme southern Alberta it coincided with a sudden thaw that caused flooding in the Taber and Lethbridge districts. Agriculture Canada's drought map as of March 31 showed four areas of moderate drought, the most serious being in southern and eastern Saskatchewan roughly south and east of Regina to the US border and east into southwestern Manitoba. Another problem area is in eastern Alberta centred around Edmonton, and a third in the eastern Peace River bloc is also dry. Southern Manitoba including the Red River valley has had little snow, however excess spring moisture is often a problem because of table-flat terrain. However the size of dry areas and severity are much reduced. The monthly map does not show improvement that occurred during the first half of April. The droughty tendency may or may not have disappeared but things look infinitely better than in the fall. About 60% of prairie crop area now has reasonably adequate topsoil moisture for seeding. Extended forecasts from Environment Canada, which agree fairly well with predictions of private forecasters, do not indicate a strong deviation from normal precipitation for the April-June period but there is a decided bias to cooler than normal weather for all of western Canada. Shorter-term forecasts predicted a warming trend during the second half April, which appears to have begun last week. (04/23/2018)

LOWER EXPECTATIONS MAY SAVE NAFTA

To the Trump administration optics are everything. It needs to show aggressive, decisive action on its election promises and subsequent policy decisions, and to demonstrate almost immediate success. Or at least claim success, freely exaggerating as necessary for maximum political value in its adherent base. That is the process playing out in the steel-and-aluminum duty declaration, the massive tariff assault on China and now in the NAFTA agreement. There was no definitive announcement following a two-day meeting of NAFTA ministers on the weekend of April 6. The eighth round of formal negotiations, to have lasted 10 days starting April 8 in Washington, was quietly cancelled, though meetings at the civil-servant and negotiator levels continued outside the formal negotiating framework. The deadline for an agreement in principle, set by Trump, remains May 1. However threats to cancel the agreement have disappeared and officials of all three countries declared that a renegotiated NAFTA is within reach. That reinforced ideas already floated that strategy has been changed by mutual consent. Over about the next four weeks whatever compromises can be made on major issues will be made. Items on which compromise is not possible will be left as they are. An agreement in principle could indeed be announced by May 1. Preparing the text would require revising only about a dozen chapters that changed. It could be ready to present to national legislatures for ratification by late June, meeting the requirement that the existing Congresses of the US and Mexico will deal with it, before their composition is changed by forthcoming elections. It would be enough for Trump to claim major gains for US trade, employment and the economy. Although only six of 30 NAFTA chapters have been fully may signed off, it appears that compromises have been made on the five arbitrary US demands. A consensus is said to be close on automotive origin rules, which are the most important part of the agreement and on which most effort has been directed. A formula has been proposed in which duty on motor vehicles entering the US from other NAFTA countries would be scaled to the wage rates prevailing in the factory where the vehicles were built, along with existing rules on the origin of car parts. High-wage origins would face no duty. The US demand for a clause under which NAFTA would expire every five years unless all three countries agree to extend it has reportedly been modified to provide for a mandatory formal review every five years. NAFTA already has a termination clause under which any member can withdraw on six months' notice. (04/16/2018)

CANADIAN FARM CASH AND NET INCOME IS STRONG

Agriculture Canada released its annual agricultural outlook, of which the most interesting part is always its farm income estimates for the previous year and projections for the current calendar year. It is prepared in consultation with Statistics Canada and provincial agriculture departments. As to be expected with such exercises the final results could be much different, especially for the present year. However this is what Canadian farm finance would look like if nothing too extraordinary happens with weather, markets, exchange rates and other variables. The report puts farm cash income nationally in 2017 at $61.84 billion, 2.5% higher than $60.32 billion in 2016 and a record. For 2018 another 1% gain is expected to $62.60 billion. Crop receipts for 2017 are thought to be 1% higher than the prior year's with another 1.5% gain expected in 2018. Cash revenue from livestock sales is estimated to have gained 3.9% in 2017 but will basically flatten out for 2018. Alberta was the top farm gross income province in 2017, followed by Saskatchewan and Ontario (see table, page 2). According to the estimates cash income increased by 3.8% in western Canada over 2016 but just 0.5% in the east. A 10-year history of farm cash income shows a remarkable pattern of increase through periods of changing farm prices, as well as a much faster growth rate in western Canada compared to the east. Crop-origin income rose much faster than livestock sources. Crop prices peaked in 2011 and 2012, but farm cash income in the west continued to rise except for a minor dip in 2016. The outlook report has some startling information about financial conditions at the individual farm level. It estimated gross sales of the average farm in Canada in 2017 at $460,000, with egg, greenhouse and potato farms at over $1 million and hog farms over $2 million. The average farm that was mainly in crops grossed an estimated $413,000 last year, up from $396,000 in 2016. Grain and oilseed farms had average expenses of $320,000 and net operating income of $116,000 last year. As a percentage of gross receipts, grain and oilseed farms had the highest margin of any farm type at 28%. For farms that were primarily cattle raisers the ratio was 8.5% and for hog farms 5.5%. The large scale of hog farms, which had average sales of $2.2 million, explains how they were able to stay viable. Supply-managed dairy farms had net operating income of 24% of sales but poultry and egg farms 15%. According to the estimates the average farm family in Canada in 2017 had an income of $147,000, but only $33,000 was derived from the farm operation and $114,000, presumably off-farm employment and investment income. Crop farming families had average income of $167,000 of which $54,000 was from the farm. Dairy farm families had average income of $151,000 with $98,000 from the farm. Average income of all Canadian households in 2017 was about $74,000. (04/09/2018)

THERE COULD BE HOPE FOR NAFTA YET, AFTER ALL

There has been a dramatic turn in the NAFTA negotiations if a story in the Toronto Globe & Mail last week is true. The paper, with its close ties to the Liberal party, may have inside information, reported that the Trump administration has dropped its demand for automotive content of 85% (from 62.5%) North American and 50% US for vehicles to be admitted into the US duty-free. The story was not officially confirmed and was not carried by other news sources, but it did appear to have some credence. US trade representative Lighthizer later told a congressional committee that NAFTA negotiations are converging. Auto content was the most problematic of the five main US conditions. Trump's public statements about NAFTA have been fixated on repatriating auto and other factory jobs from Mexico. A connection was seen with the appointment of Larry Kudlow as Trump's top economic advisor. Kudlow is best known as a popular TV financial and conservative political commentator but has been a staff economist at the Federal Reserve Bank, Bear Stearns and the Office of Management & Budget during the Reagan administration. He has strong pro-free-trade views and has been an outspoken supporter of NAFTA and the TPP agreement. It could be part of a crude Trump negotiating plan in which no concessions are given until late in the process to see how far Canada and Mexico will bend. Frequent bombastic threats to withdraw the US from the agreement could have been real, or another part of this script. That leaves the dispute settlement process, the five-year sunset clause, the Buy-America preferences in public works projects and Canadian dairy and poultry supply management as the make-or-break NAFTA issues. Canada and Mexico will obviously have to give something in return. The easiest reciprocal concession for Canada would be to forego equal access to US government-funded projects. The next round of talks, to last 10 days, is set to begin April 8 in Washington. (03/26/2018)

STRANGE THINGS ARE DONE IN THE LAND OF ONTARIO

With 34% of the Canadian population, 39% of GDP, public debt amounting to 44% of the total provincial debt and 46% of federal debt and the recipient of $2 billion a year in federal transfer payments, Ontario is everybody's business. It has been grossly misruled and abused for 16 years of Liberal governments and its debt is a danger to the credit stability of the whole country. An election will be held June 7 in which a three-legged dog should be able to defeat the Liberal premier Wynne. Unfortunately the provincial Conservative party, through the most chaotic process ever seen in Canadian provincial politics and possibly anywhere else, on the weekend of March 10 picked a leader who may be the latest in a long line who were unsuccessful in unseating an incompetent, corrupt, crooked and unpopular Liberal regime. They have not even been able to prevent it from getting majority after majority. Comparisons between Donald Trump and Doug Ford are automatic and widely made but irrelevant. The reality is that Ontario's voter dynamics do not assure that an incumbent premier with a 18% public approval rating will lose because her party wins. Ontario politics are split geographically in the familiar way. The Conservative party, no matter who its leader, has stable, overwhelming support in rural, small-town and suburban Ontario. But voting power is concentrated in the heavily left-wing urban ridings where Liberal and NDP support, especially among the low-information sub-middle classes is impregnable. Without a substantial migration of moderate-left voters to the Conservatives in the urban core of Toronto, a win is numerically more or less impossible. Seventeen new ridings were added in Liberal areas since the 2014 election. A pink-conservative leader might have had a chance. Ford is no moderate and the confused leadership selection process as much as the result divided the party itself as never before. An early poll showed Ford with a 48% disapproval rating to 36% approval. The most disastrous outcome in June seems entirely likely: a Liberal minority propped up by the NDP. Perhaps Ford can emulate Trump's surprise victory. If he can, things could get very interesting. Ford was adamant in promising to cancel Ontario's carbon tax and taking on the Trudeau government. He also has pro-business policy ideas that would mean unwinding much of what 16 years of hostile government left behind, with implications for deficits, waste, taxes, regulations, minimum wages and electricity costs. With representation from farm country, a Ford government would include many individuals qualified to be its first viable agriculture minister in over a decade. (03/12/2018)

THE US HARD RED WINTER WHEAT CROP FAILURE

The impact of near-record drought in the US hard red winter wheat states worsened last week, and as wheat starts regrowth the loss in yield potential is probably far worse than expected. USDA's weekly Drought Monitor placed an area in Oklahoma, Texas and southern Kansas covering 40% of the HRW wheat belt in the exceptional (D4) drought category and 80% severe with virtually no topsoil moisture. Strong winds and low humidity worsened powder-dryness of topsoil. The National Weather Service predicted literally zero rain for the region up to at least March 23. As of March 11 winter wheat in Kansas was rated 12% good or excellent and 53% poor or very poor, Oklahoma 7% and 72% and Texas 13% and 53%. These are among the poorest readings ever recorded. Soft red winter wheat in the southeast states is threatened by freezing temperatures this week. Hard red winter wheat seed planted last fall which did not germinate because of low soil moisture may germinate in the spring but will produce plants with no seed because vernalization will have been missed. Vernalization, necessary for the reproductive process, occurs when germinated seedlings are exposed to sub-freezing temperatures for a prolonged period. (03/12/2018)

WHAT CAN THE CNR SAY AFTER IT SAYS ITS SORRY?

Big, well-run, world-class companies do not apologize to their customers. They manage their firms in ways that make apologies unnecessary by giving their customers efficient and reliable service at reasonable rates. That is not the situation at Canadian National Railways, which has not been this shabbily managed since it was a crown corporation. Last week the CNR fired its president, raised its dividend and said it was sorry for the rotten service western grain shippers have been getting. Its share price was at a 52-week low. It said it is taking “immediate steps” to clear the backlog created by weeks of car supply shortfalls to a fraction of what shippers ordered. The railway now, suddenly, has a “sense of urgency” and is “fully focussed” on servicing its grain customers. “Starting today”, it said, there will be “no excuses”. It is offering incentives for employees to delay retirement and postpone vacations, offering their jobs back to recently-retired employees and putting managers on train crews. The CNR will also provide weekly tracking of grain shipments, which is no substitute for actually completing shipments, and a function already ably discharged by the Ag Transport Coalition and the Grain Monitor. As trite as it is to say to, it is too little too late. (03/12/2018)

FIRST USDA 2018-19 CROP PROJECTIONS

The 94th annual USDA Agricultural Outlook Forum was held February 22-23, at which the department issued the first projections for the new crop season calculated from economic trends and do not reflect whatever is already known about crop conditions, notably in wheat. It projected US wheat area for 2018 at 46.5 million acres, slightly above the 100-year low of 46.0 million last year. Average yield was put at 47.4 bushels per acre from 46.3 last year for production of 1.839 billion bushels vs 1.741 last year. Total use of 2.052 billion will be little changed from the current year but carryover should drop to 931 million bushels from 1.009 billion. Soybean area will also be similar to last year at 90.0 million acres. Average yield of 48.5 bushels may be below last year's 49.1 for a soybean harvest of 4.320 billion bushels, virtually unchanged from 4.392. Soybean exports could increase to 2.300 billion bushels from 2.100 with total use of 4.415 billion vs 4.188 in 2017-18, reducing carryover to 460 million bushels from 530 at the end of 2017-18. Corn area for 2018 was predicted at 90.0 million acres vs 90.2 last year but trend yield of 174.9 bushels would be below last year's 176.6. Corn production could drop to 14.390 billion bushels from 14.604. Despite a drop in exports to 1.900 from 2.050 billion, total use could be similar at the current year's 14.520 billion with a slight drop in carryover to 2.272 billion from 2.352. Corn use for ethanol in 2018-19 was estimated at 5.650 billion bushels vs 5.525 in the current year. USDA expects average farm-gate prices for 2018-19 of $4.70 a bushel for wheat (vs $4.60 in 2017-18), $9.25 for soybeans ($9.30) and $3.40 for corn ($3.30). (03/05/2018)

WESTERN GRAIN RAIL SERVICE BREAKS DOWN

The two railways together spotted only 49% of grain rail cars ordered for the 28th week of the crop year ended February 11, according to the weekly report of the Ag Transport Coalition. The already dismal performance of Canadian National deteriorated even further into an unprecedented service collapse. CN provided barely a third, 34%, of the cars ordered for the 28th week, for a fifth straight weekly decline in that key percentage. It was the eighth of the 28 weeks in the crop year so far that the CNR furnished less than 60% of cars ordered. Canadian Pacific did not much better, supplying 69%. It was the worst week of the crop year, and in fact the worst since the winter of 2013-14. At the end of the week shippers were short 3,656 cars, 40% more than just seven days earlier. The two railways filled only 83% of car orders for the Vancouver and Prince Rupert corridors, including cars that were late. Shipper demand rose during recent weeks but is running at only 7,625 a week compared to the average of 8,615 a week since the start of the crop year. The CNR has its own tally of grain traffic on its web site, cleverly organized to make it as hard as possible to understand what it says, The bottom line is that for week 28 the CNR acknowledges receiving orders for 4,888 cars and shipping 2,956 or 60%. It does not go into the timeliness of its service. It prefers to stress the amount of grain it has moved so far in the crop year compared to a year ago and two years ago, completely meaningless information. The site complains of how severe the weather has been this winter. Obviously it has been the same for the CPR. Canadian Pacific, which had been doing dramatically better than the CNR, also slipped. Its 69% fulfilment rate was 80% three weeks earlier. Until now there had been only three weeks during the current crop year that its performance was under 80%. At least the CPR did not ration any cars. Shipper orders from the CPR are running at just 3,400 a week. Not only are the railways not spotting cars on time. They are not picking up loaded cars on time either. The average 'dwell time' after cars are loaded and before they are taken was 61 hours for the CNR and 74 hours for CPR, compared to 42 and 62 for the same week a year earlier. Due to the railway bottleneck primary elevators on the prairies are nearly plugged. Last week the system had only 7% free space, with stocks of 3.489 million tonnes, an increase of 550,000 tonnes in five weeks. Off-farm deliveries declined to 849,000 tonnes from over a million tonnes in recent weeks. West-coast terminal receipts for the 28th week dropped to 387,000 tonnes from 479,000 in the previous week. (02/29/2018)

DECEMBER 31 GRAIN STOCKS ARE RECORD-HIGH

There are three takeaways from the Statistics Canada report issued last week of grain stocks as of December 31. Inventory of the main crops was record-large but not out of line with 2017 production, indicating that the Canadian grain trade is managing to sell crops for export into a fiercely price-competitive world market as fast as farmers want to sell them. Second, the record 57-million-tonne stock on farms is grain waiting to be converted to farm cash income, 3% more than a year earlier, offsetting some of the small average decline in prices compared to a year ago. Third, the figures show how much the Canadian grain industry has expanded just in the last decade. Total stocks of the same grains at the end of 2008 were just 35.44 million tonnes, although 2007 production was unusually low even by the standards of that time due to adverse weather in the west. Canola stocks that year were just 5.02 million tonnes. Canola stocks on December 31 2017 were record-large for the date, at 14.15 million tonnes, up from 13.38 million a year earlier and 13.51 on the 2015 date. On-farm stocks were 12.54 million, compared to 11.55 and 11.83 million. Farm stocks were 89% of total stocks compared to 86% a year earlier and also a record. Combined canola inventory was 66% of reported 2018 production vs 68% on December 1 2016 when the preceding crop was 8% smaller. All-wheat stocks were 2% smaller vs a 5% decline in the 2017 harvest, although total wheat supply for 2017-18 including carry-in was unchanged. Wheat stocks including durum were approximately 79% of production with durum at 97%, compared to 79% a year earlier. Durum inventory at 4.83 million tonnes was 21% lower than the record for the date a year earlier of 6.14 million. Combined stocks of oats were the highest for the date in eight years at 2.85 million tonnes, up 14% from a year earlier after a 17% larger 2016 harvest. Barley stocks at 6.06 million were 6% lower with 95% of barley inventory on farms. Soybean inventory was also record-high at 4.31 million, a big 29% gain over a year earlier with farm stocks 59% higher at 2.80 million. Soybean production was a record 7.72 million tonnes in 2017 and December 1 stocks were 56% of the previous year's harvest vs 51% a year earlier. On-farm soybean inventory in western Canada was 40% of the total compared to 31% a year earlier. Stocks of corn in eastern Canada were 12.20 million tonnes, 5% higher than a year earlier with farm stocks of 9.2 million 4% higher. Stocks of lentils, at 2.00 million tonnes of which 94% were on farms, were 16% higher than a year ago and 78% of the 2017 harvest. A year earlier farm and commercial inventory was 53% of the preceding harvest which was 27% larger. However stocks of peas were only 4% higher at 2.81 million tonnes, with stocks on farms 3% higher. December 31 pea inventory was 68% of production vs 54% a year earlier. These are further measures of the impact of the loss of the export market in India, but they still do not paint the whole picture because pulse crop exports to India have often been back-loaded into the second half of the crop year. (02/15/2018)

NAFTA NEGOTIATIONS AT A STALEMATE AFTER SIX ROUNDS

After six rounds of the NAFTA negotiations consensus has been reached on 10 of the 30 chapters, including energy and telecommunications. This represents about 40% of the agreement, however these are non-controversial subjects in which US demands are not extreme. However there has been no movement whatsoever by the US towards compromise on the three make-or-break serious issues that the Americans brought forth at the start of the process: US and North American content in automobiles, a five-year sunset provision and the dispute resolution procedure. From this standpoint the talks are at a stalemate. At the conclusion of the latest session in Montreal on January 29, the three ministers and other officials said progress was made but no one was able to describe exactly what it was or what it means to the chances of ultimate success. Everybody was talking about the 'work' that remains to be done, when in fact the whole business could be wrapped up in a day if there were an earnest interest in Washington to preserve the agreement. It was agreed that the talks are worth continuing, with the next session in Mexico City starting February 26 and lasting nine days, followed by an eighth round in Washington in March. There was never a risk that the negotiations would not continue after Montreal, so it was not news. The general manager of the negotiations is Lighthizer, who repeated that he is not satisfied with Canadian responses to the original set of American demands. He publicly criticized Canada for its “massive attack” on the entire body of US trade law in its across-the-board complaint last month to the World Trade Organization alleging US trade remedy procedures are not WTO-compliant. He did not link it directly to the NAFTA process but it cannot help but be part of the equation.

Last week Canadian foreign minister Freeland hinted that the WTO action could be withdrawn if the US ended its anti-dumping action against Canadian softwood lumber. If that was the intent, it is an even more naďve, crude and dangerous than it seemed, a clumsy, amateurish blackmail attempt at the worst possible time. Under US law the government cannot end a trade remedy action part-way through. Such actions are initiated by American companies and industries which claim import injury and can only they can withdraw them. The Montreal session underscored the strong support NAFTA has in the US among industries that benefit from it and legislators of Trump's own party. A delegation of American farmers from the ad-hoc Farmers for Free Trade was in Montreal for the talks, trying to send US negotiators the message that NAFTA must be preserved, since Canada and Mexico are America's top two agricultural export markets. Several Congressmen of both parties also attended in Montreal and got a briefing from senior negotiators. They were also on the side of preserving the agreement. (02/05/2018)

TRUDEAU GOVERNMENT LAUNCHES A TRADE TORPEDO

The Trudeau government's decision in December to attack US trade law at the World Trade Organization must rank with the most irresponsible and plain stupid trade strategy decisions of all time. There are worse things in Canada-US trade relations than the abrogation of NAFTA, and before this is over Canada may well suffer them. The Canadian government filed a complaint at the WTO attacking American trade practices used to address dumping of imports on the US market at unfairly low prices and imports which are underpriced because exporters receive subsidies from their governments. These procedures have been in place for many years and apply to all countries. The complaint alleges that the US applies duties at higher rates than allowed by the WTO, calculates duty rates improperly, illegally assesses penalties retroactively and limits or ignores evidence from third parties. It charges that the six-member US International Trade Commission is systematically biased against exporters and that its voting system is rigged. Over 120 examples from US trade actions are cited, not only against Canada but also the EU, China, India and Brazil. In fact about half of the examples cited involve China. Trump intensely dislikes the WTO because he perceives its rules to be restrictions on US lawmaking and incursions into domestic affairs. If the Canadian complaint were to succeed, impairing the ability of the US to use its anti-dumping tools would open the gates to low-ball imports from all WTO countries, specially China. There is no way that any administration would stand for such an outcome and this could conceivably start a chain of events leading to US withdrawal from the trade body, or at least its complete disengagement. If the Canadian action is dismissed or fails at any point, the damage is still already done. There are countless ways, far beyond lumber and newsprint, in which the administration with or without Congress can frustrate or block Canadian imports that have entered freely for decades. (01/22/2018)

CHINA COMES TO THE RESCUE OF AN OVERLOADED MALT MARKET

China has stepped up as the runaway top importer of Canadian malting barley because of the greatly reduced Australian barley harvest and associated quality issues. In fact in the crop year to date China is the only sizable buyer, taking 400,000 tonnes to October 31 compared to 158,000 tonnes in the year-earlier period. No other country, including Japan which traditionally has been a reliable customer for feed barley, has taken more than a fraction of China's volume. China is also the biggest single buyer in the crop year to date of Canadian canola, peas, flax and soybeans. The Canadian supply of malting-grade barley is the highest in four years because of a favorable growing and harvest season and quality is exceptional. If not for China, after domestic malt demand is satisfied the balance would be going into the feed trade. Domestic use recorded by the Canadian Grain Commission is down slightly in the crop year to date at 432,000 tonnes. (12/18/2017)

CROPS DEFY WESTERN DROUGHT, MAKE REMARKABLE YIELDS

From Statistics Canada's final 2017 crop production report issued December 6 it would be impossible to know that the south half of Alberta and Saskatchewan had the driest growing season of the last 20 years. Western farmers seeded 2% more land to the eight major crops and harvested just 1% less than in 2016, when production was the second-largest in history after 2013. Total production of eight major crops in western Canada was 69.46 million tonnes and for all of Canada 91.94 million, compared to 70.23 and 91.73 in 2016. The all-time high was 93.59 million tonnes in 2013. The canola crop was a record 21.31 million tonnes, with seeded area 13% higher and average yields only 5% lower. Yields of spring wheat and oats were virtually unchanged from 2016. Only the crops mainly grown in the south of the prairie grain belt, notably durum, flax and winter wheat, showed markedly poorer results. Manitoba farmers had higher yields of all crops except soybeans and corn and record total production. Statistics Canada again drastically underestimated canola yield and production in its earlier 2017 reports, which put the crop at 18.2 million tonnes in the July survey and 19.7 million in September. Canola yield and output exceeded all expectations by around 1.5 million tonnes, topping the previous record in 2016 by 9%. Seeded area in the west increased by 13% to a record 22.92 million acres while production rose 9%. National all-wheat production was estimated at 29.98 million tonnes, 5.5% less than in 2016 but 2.85 million tonnes or 10.5% above the September estimate. The spring wheat crop was put at 22.16 million tonnes, up from 20.45 million in 2016, but the durum harvest of 4.96 million was 36% smaller than in 2016 on a 16% decline in seeded area and a 28% drop in average yield. Durum acreage, yield and production were record-high in 2016. Winter wheat production in Ontario was 2.19 million tonnes, 9% smaller as average yield declined 5%. Eastern corn and soybean estimates were lowered from the September report. The national soybean number of 7.71 million tonnes was 7% less than 8.32 million in September and corn 14.10 million vs 14.31. However the soybean harvest is a record because of increases in Saskatchewan and Manitoba. The corn crop is the second-largest. Average yield estimates were reduced for both crops from the previous report's. The soybean yield of 39.1 bushels is 12% under 44.2 in 2016. Corn yield of 159.7 bushels was reduced from 160.9 in the previous report but was a bushel higher than the 2016 average of 158.7. The Quebec corn crop was 3.82 million tonnes after a 5.3% increase in acreage was offset by a 5% decline in average yield. In contrast to the prairie drought, moisture was excessive at times in Ontario and eastern Canada. (12/11/2017)

NINE-MONTH FARM CASH INCOME HOLDS UP WELL

Statistics Canada reported on November 25 that Canadian farmers took in $45.35 billion in farm-gate cash receipts during the first nine months of 2017, up 3.3% from the like period of 2016. It was a January-September record and the seventh straight year-to-year increase. All provinces except Ontario and the Atlantic region saw increases. The biggest gain was 7.5% in Manitoba with Saskatchewan up 3.6% and Alberta up 6.1%. Alberta was the top farm-cash province at $10.88 billion, followed by Saskatchewan at $10.43 billion and Ontario $9.08 billion. Revenue from crops nationally increased by 2.6% after a 6.8% jump from the 2016 period over 2015. It was the sixth increase in nine-month crop receipts of the last seven years. Increases were mostly attributed to canola and wheat, with declines in lentil, corn and soybean revenue. The farm-gate value of canola sales was 9.7% higher at $7.22 billion as prices increased 5.7% and marketings 3.8%. Canola was the top-grossing crop, accounting for 29% of all crop-based revenue nationally and 42% on the prairies. Canola sales were just 9.8% of crop receipts in 1989. Receipts from non-durum wheat increased 11.6% to $3.80 billion on an 8.5% gain in marketings and a 2.9% increase in prices. Cash revenue from lentils dropped 17.3% after a 30.6% drop in prices. Soybean receipts were 11.6% as marketings declined by 13.4%. Farm cash receipts from livestock sales increased 2.3% to $18.40 billion. Livestock revenue for the three quarters rose in seven of the last eight years, the exception being 2016 when there was a steep 6.0% drop. Livestock receipts were 4.5% higher in Ontario and 3.3% higher in Quebec. Cattle revenue dropped by 9.6% in Saskatchewan and 19.9% in Manitoba on lower cattle numbers but were 3.3% higher in Alberta. Sales of cattle and calves were down 2.8% as prices averaged 3.8% lower. Hog receipts for the period rose 7.6% as prices averaged 5.7% higher and marketings were 1.8% higher. (12/04/2017)

US EXPORTS LAG YEAR-AGO AND EXPECTATIONS

Combined sales and shipments of all US wheat for the marketing year including yet to be shipped are down 5% at 620 million bushels compared to 680 to the same date a year ago, soybeans down 15% at 1.205 billion compared to 1.413 and corn down 23% at 841 million. The US agriculture department in its latest supply-demand estimates predicted wheat exports for the entire 2017-18 crop year at 5.5% lower, corn 16% lower and soybeans 3.5% higher than the prior year's. Export sales and shipments of hard red spring wheat are down 15% at 172 million bushels compared to USDA's projection of a 17% decline. The US crop year for wheat ends on May 31, others August 31. Slow exports, especially of corn and soybeans, are depressing crop futures and cash prices, but not by enough to make American crops price-competitive against South American soybeans and Black Sea wheat and corn. Chicago futures respond most directly to monthly USDA estimates of year-end carryover. The department will have to soon start adjusting export estimates down and carryover estimates up. Either way, export performance in the season so far is not a good omen for prices into 2018. (11/27/2017)

FIFTH NAFTA NEGOTIATING ROUND ACCOMPLISHES NOTHING

The fifth of seven rounds of NAFTA talks took place in Mexico City last week without minister-level participation but with the expected result. US, Canadian and Mexican cabinet officials agreed not to attend so that negotiators could concentrate on technical details. They did manage to write a bit of text on digital trade, food safety measures, telecommunications and customs enforcement. However Canada and Mexico flatly rejected US positions on the four major points (minimum US and NAFTA automotive content, a five-year sunset clause, elimination of the dispute settlement mechanism, Canadian supply management). Canada and Mexico did attempt to compromise on the US demand that a new agreement is to automatically expire at the end of five years unless renewed; both countries would accept a five-year review without default termination. There is nowhere to go on these items unless the Trump administration backs right down. US Trade Representative Lighthizer said Canada and Mexico are not “seriously engaging” on US demands for a rebalanced agreement. For the Trump administration another step was used up, strengthening the idea that the talks are not getting anywhere and reinforcing the alleged case for terminating the agreement to protect US interests. While the talks were underway Trump again repeated in a media interview that the agreement would have to be cancelled in order for the US to get a better outcome. The US strategy seems to be to let the negotiations run out without visible progress and issue notice of withdrawal from NAFTA, perhaps panicking Canada and Mexico into accepting harsh US terms. (11/27/2017)

TRUDEAU A NO-SHOW AT CRITICAL TPP MEETING

For some hours on November 10 it was reported from Vietnam that the effort to resurrect the Trans Pacific Partnership agreement had been scuttled by the prime minister of Canada. The prime minister now-famously failed to show up at a meeting of heads of state of TPP countries, who were in Vietnam for an ASEAN meeting, where the decision was to have been formally confirmed. Just hours before, trade minister Champagne participated in an announcement by all 11 remaining members that the TPP would proceed without the US on the terms already agreed. It was not Canada's finest hour in trade or international affairs and it got worse. Trudeau cited a “scheduling conflict”, implying he had something more urgent to do in Vietnam than support a trade agreement of immense importance to Canadian agriculture and the export economy. This jerkish, churlish behavior reduced Canada's stature in the TPP group and beyond. The image projected was that of a charismatic but immature, inexperienced and incompetent leader who, not knowing what to do did nothing, without notice and without even elementary courtesy to TPP member leaders. Trudeau was quoted as saying the Canada “was in no hurry” to sign the new agreement, an insult to every other leader who considers the TPP to be urgent, then announced that Canada will require changes before it signs. The Japanese prime minister probably saved the agreement by calming infuriated TPP members, particularly Australia and New Zealand. Momentum has been lost and a clear path to a quick and almost effortless implementation of this agreement has been destroyed by Canada. The final statement from the Vietnam meeting said the 11 countries have agreed to the “core elements” of an agreement, but “more work remains”. The agreement will be renamed the 'Comprehensive & Progressive Agreement for Trans-Pacific Partnership (CPTPP)'. The statement said that after “further technical work” a new text will be presented for signature: in other words a renegotiated TPP. Several areas of the agreement will be re-opened for negotiation, exactly what Japan and other countries tried to avoid. (11/20/2017)

BITCOIN IS A $180-BILLION SCAM

Even investment professionals do not necessarily agree whether Bitcoin, the cryptocurrency, is a medium of exchange with the same function as national currencies or an asset class or a store of value. It is useless for either purpose and to trade in and especially to own bitcoins is as dangerous a gamble as any casino game. Bitcoin was created under murky circumstances in 2012 with the intent that one bitcoin would represent approximately one US dollar. By the end of 2013 it was at nearly $1,000, then settled in at between $500 and $750 until the end of 2016. It rocketed to $3,000 in June 2017, $4,900 in October and a record $7,880 in early November. In 48 hours on November 8 it lost $1,000. The 24-hour high and low on November 13 were $6,741 and $5,816. Bitcoin cannot be a medium of exchange because it is not backed by anything. Before the gold standard was abandoned, paper money represented a quantity of metallic gold. Since then currencies are backed by the faith and credit of governments, which includes the capacity of most of them to tax the hell out of their citizens and borrow in their name. As a store of value the bitcoin also does not represent anything tangible, existing only as digital entries in computer files. It has no physical form or equivalent. It can be exchanged for cash or certain goods but not on any regulated or supervised market. Nevertheless trading in various grey markets is massive. Daily volume has been as high as 1.65 billion bitcoins and market capitalization last week was $108.5 billion. The price fluctuates according to the supply placed into trade and the demand, which is almost entirely speculative. Since there is no central repository, information about who owns and trades bitcoin and the uses it is put to is vague and imprecise, but it appears that ownership is extremely concentrated and so subject to manipulation. Less than 1% of accounts hold an estimated 28% of all bitcoin while 42% collectively own less than 1/10th of 1%. (11/20/2016)

GOVERNMENT BACKS OFF ON DEFERRED TICKETS

The federal government last week relented on an intention, announced in the 2017 March budget, to end historic tax treatment of deferred cash grain tickets long used in western Canada. Deferred tickets, which are literally post-dated cheques, allow cash receipts from grain sales late in the calendar year to be shifted into the next tax year. At the time the finance minister said this deferral was inconsistent with accrual accounting used by all other taxpayers and outdated because of the termination of the Canadian Wheat Board single-desk in 2012. The practice was defended by the farm lobby as necessary to manage uncontrollable variations in production, grain cash income and grain delivery logistics which other taxpayers do not face. Of course nothing has changed since the spring budget except the Liberal government's realization that its small-business tax proposals, also since largely rolled back, were a huge political miscalculation. This is a way to lose fewer votes in the 2019 election. Since the deferred cash system is used only in western Canada, the decision to not eliminate it is a rare regional concession from this government. (11/13/2017)

BONE-DRY FALL LEAVES WEST ALREADY MOISTURE-SHORT FOR '18

It is almost physically impossible for dryness in the spring of 2018 to be avoided, especially in the approximately 40% of the prairie grain belt that had droughty conditions during the 2017 growing season. The final Saskatchewan crop report of the year estimated topsoil moisture at 60% short to very short and 80% in the province's southern third. In Alberta, after a rainy spell in early October, surface soil moisture was adequate roughly north of a line through Red Deer but 50 to 60% poor or fair in the south. Manitoba entered the winter with reasonable topsoil moisture except in the often-dry southwest corner. Subsoil moisture is low throughout the region even where topsoil moisture is passable. If La Nina conditions actually develop, as some predict, western Canada can expect above-average snowfall over the winter. But snow contributes little to topsoil moisture in the spring and practically nothing to subsoil moisture, especially if the spring breakup is rapid. Even if rain next spring is again excessive as in the last five years, subsoil moisture will not be restored. The statistical chances after a string of wet seasons is that early 2018 precipitation will be average or below. A drought catastrophe was avoided in 2017 by saturation of subsoil moisture accumulated over the multi-year wet spell. (11/13/2017)

WE MAY BE LOSING THE INDIAN POULSE MARKET

A month has now passed since India declined to renew the exemption for Canadian pulse shipments from a dubious rule requiring cargoes to be fumigated with methyl bromide at place and time of loading. Another week passed with no explanation either from the Indian government or the Canadian Food Inspection Agency. At least three representatives of large pulse exporters have been to India recently and returned not much wiser. CFIA and government officials have also visited India recently but do not appear to have achieved anything. The authoritative export-import data services Seair and Zauba have no recent information. Indian importers are applying for import permits from Canada but neither permits nor explanations appear forthcoming. In the first half of the current crop year to September 30, Indian imports of all pulses were 3.5 million tonnes. For the second half they are expected by trade sources to drop to 1.5 million, but for the crop year will be about 5.0 million. Indian pulse imports were a record 6.6 million tonnes in 2016-17. Imports continue, but not from Canada. During August, the first month of the 2017-18 crop year, only 10,000 tonnes of peas and no lentils were shipped to India; a year ago pea exports were 159,000 tonnes. Cargoes and containers of Australian, Ukrainian and US lentils and other pulses continue to arrive. The fumigation exemption for exporters which cannot treat outgoing cargoes was extended to December 31 while Canada's ran out on September 30. There is a double threat to the pulse market: rising Indian production which brings it closer to self sufficiency, and overt discrimination against imports from Canada. A Canadian trade mission will visit India starting November 13, which will be an opportunity to get to the bottom of this matter. If it does not return with a clear picture and some means of resolution it will be more evidence that Canada has become a disfavored supplier. There is an explanation for this but it is deliberately not being given. There is no known issue with quality of Canadian crops and indeed the 2017 harvest produced excellent quality of both lentils and peas. Canadian exporters and Indian importing companies have good and long-standing trade relations. Prices adjust themselves but Canadian sellers do not appear to be getting the chance to meet competing prices. In a time like this there is naturally a search for theories that fit the facts. One involves the hypercharged political and religious atmosphere in India. Indian politicians have long accused Sikh immigrants in Canada of sympathy with, and even material assistance to, Sikh separatist causes. There is new agitation in India for a separate Sikh state, which the Modi government is trying harder than previous administrations to suppress. It happens that the Trudeau cabinet and the Liberal caucus have outsized representation of Sikh members. The possibly of a connection cannot be ruled out. (11/06/2017)

ICE CANADA NOW A CANOLA-ONLY MARKET

ICE Futures Canada, the former Winnipeg Commodity Exchange, finally shut down its milling and durum wheat and feed barley contracts late last month. The delisting was a formality because the contracts never had significant volume or open interest and never reached the critical mass of functioning markets. Barley was the only contract with any volume since listing 2012; the last trade was on November 24 2016, when open interest of 25 lots zeroed out. The ICE's contract committee voted to stop flogging the dead horse on October 25 and the computers were turned off the next morning. The contracts were not successful because they did not attract enough trade to offer liquidity, which is not possible without attracting trade. The availability of the established Minneapolis spring wheat contract, especially after Canadian wheat was declared deliverable in January 2012, left little room or need for a Winnipeg milling contract, though a durum contract would have been useful. Minneapolis trade has set monthly volume and open interest records in 2018. Canadian grain companies account for up to a third of all volume. The Canadian non-durum spring wheat crop is over 800 million bushels in an average year compared to 425 million in the Dakotas and Montana. (11/06/2017)

UN CANCER PANEL CAUGFHT RED-HANDED

The stunning news came out last week that the World Health Organization's cancer agency knowingly and deliberately altered and edited findings from its review of scientific literature for data about possible cancer-causing properties of glyphosate. The official report in March 2015 from the International Agency for Research on Cancer rated glyphosate as a Group 2a carcinogen, a class for substances that probably cause cancer. While the report was thoroughly discredited by other experts for its low quality and questionable conclusions, it was not until the Reuters news agency managed to find and compare an initial draft of the report with its final version. It found 10 instances where material not supporting the cancer conclusion was removed or edited. The IARC assessment results were apparently pre-conceived. The cancer connection came solely from laboratory animal studies, many of which were questionably designed and inconclusive. Among material removed was an unequivocal conclusion by the US Environmental Protection Agency that numerous studies showed beyond doubt that glyphosate had not caused any abnormalities in mice. There was no evidence to so much as imply an association of cancer in humans with glyphosate. The WHO panel also committed outright fraud by inserting external and unrelated study results to support its anti-glyphosate position. The flaws in the WHO report which were identified by various sources evident earlier, before the red-handed evidence was found by Reuters, were systematically ignored by pesticide opponents. Massive publicity by environmental organizations has left the widespread impression that glyphosate is dangerous and for calls for restrictions. The report is the basis for class-action litigation against Monsanto, the developer, for allegedly failing to warn users of its hazards. Many other manufacturers now produce it since glyphosate patents expired in 2012. The state of California has placed glyphosate on a list of chemicals “known to the state” to cause cancer. A court challenge by Monsanto against the decision was unsuccessful, although the case has been appealed. The same report has complicated renewal of glyphosate registrations in the EU. (10/30/2017)

WESTERN GRAIN MOVES SMOOTHLY

In the first 11 weeks of the 2017-18 crop year western farmers delivered an average of a million tonnes of grains and oilseeds a week into the commercial system, almost exactly the same amount as a year earlier and in fact similar for the period over the last four years. The railways took it away more or less as quickly as it came in, with the result that country elevators did not get congested except for isolated instances, and lack of elevator space was not a limitation to producer sales. Elevator free space was consistently over 20% of working capacity or roughly a million tonnes. Free space was particularly ample at the largest elevators. The railways were for the most part meeting shipper demand. Shippers requested 46,500 CNR cars in the crop year to October 15 and received 42,200, and ordered 48,300 CPR cars and got 47,200. The ratio of cars ordered to cars supplied in the week for which they were needed was similar through the period, though lower than a year earlier. To the end of the 11th week of the crop year grain shippers ordered approximately 90,000 hopper cars. About 74% were spotted during the required week, about 5% were delivered early and 14% within the following week. Historically speaking this is quite a good performance on the part of the railways. The CPR outperformed the CNR in timely car supply, delivering 74% of cars ordered during the required week to the CNR's 68%. Delivery on time or a week late was 80% for the CPR and 75% for the CNR. A year ago the CNR had a better reliability record than its competitor. For the crop year to date 80% of cars on CNR lines and 85% on CPR lines were supplied in 100-car blocks, 13% and 12% in 50-car blocks and 7% and 4% in smaller strings, including 3% and 2% as single cars. In 2011-12 25% were in 100-car blocks. Producer car shipments, while still an insignificant percentage of total movement, showed a substantial gain in the first 11 weeks of the crop year, from 57,000 tonnes in the 2016-17 period to 87.000. In Alberta shipments rose from 4,300 tonnes (about 50 cars) last year to 12,800 tonnes. Two-thirds of movement was wheat, durum and oats. (10/30/2017)

FARM EQUIPMENT SALES ARE UNEXPECTEDLY STRONG

The best that the farm equipment sector hoped for going into 2017 was to maintain the previous year's business. Instead sales of big-dollar machines rose nicely in the last few months with tractor sales in the serious sizes up 8% and combine sales up 36% in the year to August 31. During August tractor sales were 35% higher and combine sales 71% higher. Factors in the increase were the higher Canadian dollar, low interest rates and manufacturer incentives. Farm-size tractor sales during August were 670 units vs 491 in the year-earlier month, according to the monthly report from the Assn of Equipment Manufacturers. For the year to date deliveries were 6,241, up 8% from 5,783 year-ago. Sales of large 2-wheel drive models were 229 for the month and 2,197 for the year compared to 174 and 2,221. Large 4-wheel-drive sales were 32 for August vs 19 and 588 for the year vs 495. Harvester combine sales were 299 for the month and 1,347 year-to-date compared to 175 and 991. US tractor sales for August were down 10% at 5,951 vs 5,974 and 49,509 year-to-date compared to 51,487. US combine sales were 380 for the month and 2,459 for the year to August 31 vs 387 and 2,592. (09/18/2017)

STATISTICS CANADA'S FIRST 2017 CROP REPORT

Put in the simplest terms, according to Statistics Canada's first crop survey of the season released on August 31, Canadian farmers in 2017 planted 3% more land to the main crops and harvested 19% less grin and oilseeds. In western Canada they seeded 2% more acres and harvested (or expect to harvest) 14% fewer tonnes. Across all crops average yields were 11% lower nationally and 15% lower in western Canada. Yields for the major crops together averaged 9% less in Manitoba, 22% less in Saskatchewan and 14% less in Alberta compared to last year's near-record results. Production of the main crops was reported at 82.62 million tonnes compared to the record of 91.64 million in 2016. That is the bottom line of the 2017 drought in Saskatchewan and Alberta. The most anticipated figures had to do with canola. Statistics Canada revised its 2016 canola production estimate to 19.60 million tonnes from 18.43 million originally reported to conform with later information from stocks reports. The 2017 canola harvest was put at 18.20 million tonnes based on an average yield of 35.2 bushels per acre and a 2.6-million acre increase in seeded area. The Saskatchewan canola harvest was estimated at 9.22 million tonnes, down 14% from last year's revised record of 10.68 million. Production in Alberta declined by 2% after seeded area rose 18%. In Manitoba the canola harvest was projected at 2.79 million tonnes vs 2.61 million last year as similar yield of 38.9 bushels met a 7% increase in seeded area. The national wheat crop was estimated at 25.54 million tonnes, off 20% from 2016 and the smallest Canadian wheat harvest since 2011. Average yield for all wheat was 20% lower at 42.5 bushels per acre with a 29% drop in Saskatchewan. The durum crop is expected to be the smallest in seven years at 3.89 million tonnes, back to back with the 2016 record of 7.76 million. Seeded area dropped 13% while average yield was drought-reduced by 42%; most durum is grown in the areas of southern Saskatchewan that were the driest. Spring wheat production was reported at 18.88 million tonnes, down 8% from 20.45 million last year with average yield was 8.5% lower. Winter wheat production was estimated at 2.75 million tonnes, 21% smaller because of lower acreage and yield in western Canada. As expected from seeding statistics, this was the year of the soybean. Acreage increased by a third nationally to 7.28 million acres and by two-thirds in Manitoba and Saskatchewan to 3.14 million. Production of 7.74 million tonnes, including 1.83 million in the west were new records. Corn production in Ontario rose 6% to 8.56 million tonnes, with increases in both area and yield. (09/02/2017)

CANADIAN BEEF CATTLE NUMBERS STAGNATE

It may be hard to believe, but the shock of the mad cow disease outbreak 14 years ago could be inhibiting Canadian cattle herd expansion and the growth of the beef industry to this day. There are few other explanations for the static cattle numbers reported by Statistics Canada on August 18. As of July 1 the Canadian cattle herd was 12.95 million, a gain of just 35,000 head from the same date a year earlier The number of beef cows and heifers kept for maintaining and enlarging the herd increased by 75,000 to 4.47 million. Beef cow numbers were just 1.2% higher, by 44,000 to 3.80 million. Beef cattle numbers have been quite steady since 2015, after declining 3% during the previous year. The Canadian cattle herd is now 23% smaller than its record set on July 1 2005, when beef cattle numbers ballooned because of the mad cow crisis. The first case of mad cow disease was confirmed on May 20 2003. Importers of Canadian beef, including the US, immediately suspended Canadian imports. Cattle prices crashed and producers, with some government assistance, retained cattle on their farms until conditions slowly improved starting in 2005. During the year ended July 1 beef cattle numbers increased in Manitoba and Saskatchewan by 2% and 1% respectively but declined 0.5% in Alberta. The drop in Alberta may be accounted for by the closure of Western Feedlots early this year. The company's three locations had a capacity of nearly 100,000 head; cattle that Western did not buy were more likely exported to the US than absorbed by other Canadian feedlots. Numbers in Ontario increased 1%. The number of farms reporting cattle declined by 1.5% over the year to 74,530 and by 7% over the past two years. Breeding herd numbers do not predict a change in the trend. Beef heifers kept for breeding were up 0.6% to 673,200 head and beef cows by 0.5% to 3.8 million, but the total will increase the 2018 calf crop by only about 40,000. Calf numbers on July 1 were unchanged at 4.2 million. (08/25/2017)




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