Thursday June 30 2016

Agriline

Agriweek


Agriweek Canadian agribusiness authority since 1967

2016 CROPPED AREA AS HIGH AS IT CAN BE

According to the June 29 Statistics Canada report of seeded acreage, 72.42 million acres are in the major crops this year, a record by a slight margin. Summerfallow in western Canada dropped below 2 million acres, a new low. Area in the major crops on the prairies was a record 63.55 million acres, slightly higher than in 2015 but 4% above 2014, when wet spring conditions limited acreage in some districts. The cropping system is running flat out. Trends in the allocation of area to the main crops were as indicated in the seeding intentions survey in March, except that pulse and special crop area was even higher at an all-time record 10.59 million acres, 17% of total cropped area in western Canada. As recently as 2013 it was 6.33 million or 10%. Lentil area soared to 5.84 million acres, a 48% jump over last year and 14% more than March intentions. Lentils are now the fourth-largest Canadian crop by seeded area, more than the total of corn and soybeans and similar to durum wheat and barley. The other big pulse crop is peas, which also set a new acreage record of 4.27 million, up 16% from last year's 3.68 million. Pea area was exceeded by lentils for the second year. Canola area in western Canada hit the crop-rotation wall at 20.02 million acres, very little changed. Over the last five years canola acreage ranged only from 19.84 to 20.60 million, pretty much establishing that 20 million is the upper limit because of crop rotation considerations. Even so, at 31% of cropped land in the west, the average rotation is 3.2 years, well under the four years recommended for disease management. Canola is the most profitable crop in 2015-16 and seeded area would undoubtedly have been higher if it were possible. It follows that the only path to higher production is increasing yield. Flax area dropped to a five-year low of 925,000 acres, 44% lower under the recent high last year. Wheat area continued its long, slow decline. National all-wheat acreage was about a million acres lower than in the last two years at 23.24 million. The entire drop was in western Canada. Wheat was seeded on 32% of cropped land; 15 years ago it was 39%. Total wheat area is the lowest since 2011 when it was 21.56 million; the recent high in 2000 was 27.36 million. Spring wheat area of 15.44 million is the lowest since 15.12 million in 2007 but durum area is the highest since 2012, rising for a third year to 6.10 million acres, 28% of total wheat area compared to 25% last year and 21% in 2014. Winter wheat in western Canada was a three-year low but rose in eastern Canada to 1.19 million acres. Barley acreage of 6.38 million was 2% smaller than in 2015 but recovered from the record low of 5.88 million in 2014. Area in oats was also down, at 2.86 million acres, compared to 3.34 and 2.82 million in the last two years. Corn area in Manitoba increased 30% to 325,000 acres. Ontario corn area was similar to 2015 at 2.05 million acres. In Quebec it was 890,000, down 1%. Soybean acreage in Manitoba set a new high mark of 1.63 million acres. Soybean area dropped in Saskatchewan, suggesting that beans are not as well adapted as was believed. Soybean acreage in Ontario was 6% lower at 2.77 million and 3% higher in Quebec at 803,000 acres. Summerfallow area dropped to an all-time low of 1.99 million acres, from 2.56 million in 2015 and 4.60 million in 2014. Less than 20 years ago idled land routinely exceeded 10 million. Summerfallowing has been obsoleted by low-tillage cropping methods, adding as much land under crops as there is in all of Ontario. (06/30/2016)

VALUE OF CANADIAN FARM ASSETS CONTINUES TO RISE

Statistics Canada last week released its annual balance sheet of Canadian agriculture, as at last December 31, showing similar 6% gains in farm assets and equity during 2015. Nationally the value of farm assets increased by $33 billion in 2015 to $561 billion, while liabilities were up $8 billion to $87 billion; equity was up $26 billion to $474 billion. Although the smallest annual percentage increase since 2009, equity rose as farm assets again appreciated by significantly larger amounts than liabilities. Farm land values also continued to increase, with farm real estate (including buildings) estimated at $417 billion, an 8% gain during 2015 and a 20% increase since the end of 2013. Current assets (which include crop and livestock inventory for sale) fell 2% to $40 billion but were 2% higher than two years earlier. The value of crop inventory declined by $352 million because of lower quantities as well as lower prices. Marketing board quota, the least tangible of any farm or any other asset class, was valued at $32.4 billion, little changed from a year earlier, but representing an amazing 7% of total Canadian farm assets. In Ontario and Quebec quota was valued at $21.3 billion, 11% of total assets. Gains in asset values and equity were remarkably consistent among provinces with assets rising between 5 and 8% during the year and equity mostly by 4 to 8%. The prairie region showed a slightly higher equity-to-asset percentage of 86% compared to 82% in Ontario and Quebec. Ontario and Alberta were nearly tied with the highest provincial asset value; 46% of Canada's total farm assets were in these provinces. Farm asset value in Alberta was half again as large as in Saskatchewan. Asset and equity growth with comparatively stable farm income lowered the rate of return on assets and equity. Nationally, return on assets was 2.0% and on equity 2.3%, slightly better than in 2014 but below corresponding figures for earlier years, which were 3.8 to 3.9%. (06/26/2016)

USDA PREDICTS TIGHTER 2016-17 SOYBEAN SITUATION

The US agriculture department issued its latest monthly WASDE supply-demand report June 10, basically negative for new-crop wheat, bullish for soybeans and neutral for corn. The 2016 US wheat production forecast was raised 79 million bushels from May to 2.077 billion, compared to 2.052 for 2015-16. Average yield was projected at a record 48.6 bushels per acre. US wheat carryover was projected at 1.050 billion bushels vs 1.029 last month and 980 million last year. Wheat imports from Canada were put at 125 million bushels for 2016-17 vs 130 in May and 117 in 2015-16. The estimate of the 2016 corn crop was unchanged at a record 14.430 billion bushels. Corn exports were projected at 1.950 billion bushels vs 1.825 for 2015-16, reducing new-crop carryover to 2.008 billion bushels from 2.153 inn the May report but still a recent record and 17% above 1.708 at the end of 2015-16. Ethanol use is unchanged at 5.3 billion. The US soybean production estimates was unchanged from May at 3.80 billion bushels but 2016-17 carryover was cut to 260 million bushels from 305 last month and 370 for 2015-16, just above the recent low of 191 at the end of 2014-15. Soybean exports for 2016-17 were forecast at 1.900 billion bushels, up from 1.760 for 2015-16 and 1.843 billion in 2014-15. US domestic soybean crush was put at 1.915 billion, a three-year high. (06/10/2016)

GLOBAL CROP PRODUCTION TO STAY HIGH IN 2016-17: USDA

In its world supply-demand projections, USDA raised the 2016-17 global wheat production estimate to 731 million tonnes from 727 last month, down from 734 last year, but raised expected consumption to 716 million from 712 (708 last year) for global carryover of 240 million tonnes vs 241 last month and 243 last year. World coarse grain output was raised to 1.303 billion tonnes from 1.299 billion last month and 4% above 1.255 in 2015-16. World consumption of 1.306 billion will exceed production, but only by 3 million tonnes. Global carryover will drop to 240 million tonnes in 2016-17 from 241 last month and 243 last year; carryover was 245 million tonnes at the end of 2014-15. World corn projections for 2016-17 were little changed but carryover was trimmed to 205 million tonnes from 207 last month. World soybean production for 2016-17 was unchanged at 234 million tonnes but carryover was dropped 2 million tonnes to 66 million. (06/10/2016)

SPRING MARKET RALLY CONTINUES

Chicago grain and soy-complex future prices roared higher again in the week ended June 10 as the curious and unlikely but nevertheless very real spring rally continued. Between June 1 and June 8 spot-month soybean futures gained 9.2%, soybean oil rose 3.4%, soybean meal increased 5.4%, Minneapolis wheat was up 6.9%, Chicago wheat up 11.3%, KCBT wheat up 9.8% and corn up 6.4%. While some price strength is a normal seasonal pattern at this time of year, these gains came without commensurate changes in supply-demand fundamentals. US futures were supported by the steady erosion of the US dollar index, which dropped 1.87 cents or 2.3% in five sessions ended June 8. The Canadian dollar gained 2.20 cents or almost 3%, although canola futures still rose 2.7%. Exchange rate movements accounted for perhaps a quarter of the overall advance. The grain and oilseed action coincided with similarly impressive gains in non-grain commodities, including metals, energies, sugar and coffee. Over the past six or seven weeks commodity futures markets outperformed equities for the first time since 2007, through a period of comprehensive gains on North American and overseas stock markets. (06/10/2016)

CHINESE CANOLA DOCKAGE RESTRICTION IN LIMBO

Last March the Chinese government agreed to postpone a threatened ban on Canadian canola shipments containing more than 1.0% dockage until September 1 to allow for more research and discussions towards a more permanent resolution. The standard in world grain trade is 2.5%. China's food safety agency ASQIQ contended that blackleg spores in trash can introduce the fungal disease into rapeseed fields in China. Blackleg is endemic wherever canola and rapeseed are grown and it is present throughout Chinese rapeseed areas. It is not established that it can be spread in dockage. Even if it were, Canadian seed goes directly to crush plants. If canola meant for processing is being used as seed in China, it is in violation of intellectual property rights. The disease is controlled using resistant varieties. Fungicides at best reduce severity of infections but do not prevent them. It is now June, and canola export sales will soon be made to China for shipment after September 1. No one seems to know where matters stand. The Canadian Food Inspection Agency which is negotiating with ASQIQ has not indicated whether progress has been made or whether the September 1 deadline still applies. (06/07/2016)

FIRST CRACK IN POLITICAL SUPPORT FOR SUPPLY MANAGEMEMNT?

About 2,000 Ontario and Quebec farmers staged a demonstration in Ottawa on June 2 to protest against duty-free imports of diafiltered milk, a milk-solids ingredient from the US, used in making cheese and yogurt. To stop them, the dairy lobby wants the Trudeau government to create regulations prohibiting cheese-making from anything except 100% Canadian milk. The supply management lobby is also pressing the government for an assurance that multi-billion compensation for the loss of tiny market shares promised by the former Harper government under the Canada-EU and TTP trade agreements, will be forthcoming. The Ottawa event followed by a day the widely-reported announcement from Maxime Bernier, Conservative MP and candidate for the party leadership, that his campaign will include a plan to eventually end the supply management system. Bernier represents a semi-rural Quebec riding with many dairy farmers. Until now all parties unanimously supported supply management in every vote and resolution in parliament. There is a long, maybe too long, road ahead for Bernier to become party leader, install supply management reform as a platform plank and win the 2019 election. However other parties will be in the position of defending a system which has made a very few dairy and poultry farmers very wealthy behind the monopoly wall, while badly hurting the poorest families which can least afford artificially-inflated prices for basic foods. If such a political debate actually unfolds, the supply management lobby will need more plausible arguments than that the system provides an assured supply of safe milk. It actually restricts supply and food safety derives from government regulation and inspection, not quotas. (06/03/2016)

USDA PREDICTS BIGGER CROPS, HIGHER CARRYOVER

The US agriculture department released its first supply-demand estimates for the 2016-17 crop year, projecting a smaller 2016 wheat harvest, larger corn and soybean crops and higher carryover. It put the 2016 wheat harvest at 1.998 billion bushels, down 3% as seeded area dropped to 49.6 million acres from last year's 54.6, but expected yield increased to 46.7 bushels per acre from 43.6. Spring wheat and durum production was forecast to drop 16% on smaller acreage and a return to trend-line yields. US wheat use was seen at 7% higher with exports rising to 875 million bushels from 780 in 2015-16, but wheat carryover was forecast to increase to 1.029 billion bushels, the highest since 1987-88 and nearly half of 2016-17 disappearance. The farm-gate average wheat price for 2016-17 was put at $3.70 to $4.50 per bushel, the lowest in 11 years, down from $4.90 in the previous year and $5.99 in 2014-15. The soybean harvest was projected at 3.800 billion bushels, down from 3.929 and 3.927 in the previous two years. Soybean supply including carry-in will be 4.23 billion bushels, up 2% from 2015-16. Carryover at the end of 2016-17 was predicted to drop to 305 million bushels from 400 million at the end of the present year, but a third higher than 191 million at the end of 2014-15. Soybean exports were projected at 1.885 billion, up from 1.740 last year. USDA expects soybean prices to average between $8.35 and $9.85 a bushel, vs $8.85 in 2015-16. Nevertheless, soybean futures rose by over 50 cents a bushel to the highest in 18 months. The 2016 corn crop was forecast at 14.43 billion bushels, a new record and 829 million bushels or 6% larger than in 2015. Average yield was placed at 168.0 bushels per acre vs 167.6 in 2015. Corn use was expected to be 14.12 billion, up 4%, but carryover will increase to 2.15 billion bushels from 1.80 at the end of 2015-16. It was 1.73 billion for 2014-15. The stocks-to-use ratio will rise to 15.2% from 13.3%. US corn exports were put at 1.90 billion bushels, a three-year high but just 10% higher than in 2015-16. The season-average farm price was projected at $3.05 to $3.65 per bushel compared to $3.60 for the present year. (05/15/2016)

LIQUOR MULTINATIONAL GETS $360K ONTARIO AG FUNDING

On page 4 of the 62-page guide prepared by the Ontario government for applicants under the Growing Forward 2 program which offers financial assistance to food processors to improve their operations and expand their markets is a list of its objectives. They include accessing new markets and retaining existing ones, quality assurance, risk tolerance, labor productivity, efficient use of inputs and, of course, climate change. The program is funded jointly by the federal and provincial governments out of their agriculture budgets, which more than implies that it is intended for purposes that ultimately benefit agriculture. On the ground the program is operated by the provinces, which are assumed to be in the best position to deploy funding in the most effective way. In Ontario it is supposed to encourage innovation, competitiveness, market development and capacity building in the agri-food and agri-products sector. Since its establishment in 2014 the program has disbursed $38 million on roughly 750 projects. The latest was announced last week. Multinational liquor behemoth Bacardi will get $350,000 to improve its product labelling and use recycled cardboard for its rum and whisky cases. The money goes to the sole Bacardi operation in Canada, a bottling plant in Brampton. It is not a distillery or a processor facility. The announcement from the office of provincial agriculture minister Leal said the company is family owned, which is quite so. Bacardi is the largest privately-held spirits company in the world, headquartered in Bermuda with operations in 27 countries and annual sales of $5.5 billion. Its 200 brands also include Dewars scotch, Sapphire gin and Grey Goose vodka. The image of the GF2 program, as intended and understood, is to act as an incentive for presumably smaller Canadian companies to make productivity and business-expanding investments that they would not otherwise undertake due to financial constraints. None of this fits Bacardi. Not a cent of the $350k assists Canadian agriculture in any way. If Bacardi can get money out of this scheme anyone can. The deadline for applications under the program in Ontario is July 31. Companies which might be eligible should quickly investigate it and put in for a piece of the pie before this hapless, spectacularly incompetent minister hands out the rest of its cash to marijuana grow-ops. (05/15/2016)

MARCH 31 GRAIN STOCKS FALL SHARPLY

Statistics Canada's March 31 grain stocks report, issued May 6, showed dramatically lower wheat, canola and pulse stocks compared to year earlier. Canola inventory of 7.49 million tonnes was 10% smaller than a year ago and just 43% of the 2015 harvest vs 51% year-ago. Farm stocks were down 13% after a 5% larger crop, lowest since the 2013 date. Off-farm deliveries or canola since March 31 were about 1.5 million tonnes, so about 6 million remains as of the 39th week of the crop year. Deliveries cannot be maintained at the year-to-date rate to the crop year end. All-wheat stocks at 13.79 million tonnes 24% lower than a year ago and 37% lower than two years ago, the lowest in eight years. Non-durum wheat at 11.22 million tonnes was 27% lower than a year ago and 37% less than two years ago. Durum stocks were similar to the 2015 date but 36% below those of March 31 2014. Wheat stocks on western farms were 28% lower than a year ago, however barley and oat stocks on farms were 13% and 1% higher. Pulse crop stocks dropped most, with lentils in all positions at 416,000 tonnes vs 1.16 million a year earlier and peas at 1.24 million vs 1.73 million. Lentil disappearance between December 31 and March 31 was 625,000 tonnes vs 494,000 year-earlier, and peas at 993,000 vs 546,000. Flax stocks rose 49% to 571,000 tonnes including 491,000 on farms, up 75%, highest in 6 years. In world sagging under overwhelming grain and oilseed surpluses, western grain stocks are the lowest since 2013 after the second-largest harvest in 2015. This is a terrific testament to the efficiency and effectiveness of the grain trade in moving huge supplies to export against extreme competition from other sellers, allowing growers to cash out their inventory in pretty much the most timely way ever seen. It has also managed record exports with 6% smaller commercial inventory, which reduces carrying costs and benefits the whole value chain. (05/06/2016)

TRUDEAU GOVERNMENT READIES SUPPLY MANAGEMENT PAYOFF

The Trudeau government will proceed to ratification of the CETA (Comprehensive Economic & Trade Agreement) with the EU and the first order of business is mollifying the milk lobby. The government said it will meet shortly with dairy supply management representatives to talk about protection from competition from European cheese. Under the WTO agreement the EU has tariff-free access to 13,600 tonnes of the Canadian cheese market. CETA will allow the EU to ship an additional 17,700 tonnes or 39 million lbs annually without duty. Just before the election last October the Harper government, desperate for support in the southern Ontario dairyland, offered $4.3 billion over 15 years to make up for the loss of 5% of the Canadian cheese market and for any decline in milk quota value traceable to the agreement. This is now the starting point for the negotiations. All parties in parliament support the supply management system and the shrinking number of increasingly well-off producers whom it enriches. The dairy boards claim losses of $110 million to $150 million per year will be caused to dairy farmers by the extra half-kilogram per year per capita of EU cheese, equivalent to $6.21 to $8.49 per kg. The supply management sector will be seeking similar offsets if the Trans Pacific Partnership agreement ever comes into force. The Harper government offered a $2.4 billion, ten-year Income Guarantee Program to compensate dairy and poultry farmers for small increases in imports. The CETA-TPP total is roughly half a billion a year, a significant share of the economic benefit to the entire rest of the economy from improved access to European and Asian markets. (05/06/2016)

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)

2016 SEEDING INTENTIONS ARE FENCEROW TO FENCEROW

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)




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