Wednesday July 26 2017

Agriline

Agriweek


Agriweek Canadian agribusiness authority since 1967

CANADIAN FARM WEALTH CONTINUES TO BUILD

Except for getting really, really lucky in the stock market, there is hardly a quicker way to accumulate wealth than to own a Canadian farm. Statistics Canada issued its annual national farm balance sheet last month, showing strongly established trends remain intact: the value of farm assets continues its steady advance, liabilities are almost too low and equity keeps appreciating far faster than the inflation rate. As of last December 31 total farm assets in Canada were valued at $591.2 billion, up 5.0% from a year earlier and 36.5% higher than five years ago. Land, not including buildings, was valued at $403.3 billion or 68.2% of all assets, a gain of 7.3% for the year and 51.5% over five years. Total liabilities of farmers were $90.8 billion, up 7.5% and 34.3%. Equity increased 4.5% during 2016 to $500.3 billion, 84.6% of assets. The best-looking farm balance sheet is in Alberta, where farm asset value is the highest of any province ($162 billion) and rose fastest in 2016 (6.9%). Alberta farmers have the highest ratio of equity to assets at 87.3%. The three prairie provinces contain 53.0% of Canadian farm assets, 55.0% of land value and 54.2% of owners' equity. After land, the biggest farm asset class is equipment, followed by marketing board quota. On December 31 Statistics Canada valued equipment on farms at $48.2 billion, a one-year increase of 3.4% but a five-year gain of only 15.9%. Although estimates of equipment value are the least likely to be accurate, the trend aligns with the idea that larger farms invest less per acre in equipment than medium-sized or small farms as they grow. Rising farm equipment prices, largely because of technological and design improvements, would otherwise cause a faster rise in the value of equipment.The slowest-appreciating farm asset is supply management quota, which was valued at the end of last year at $35.1 billion, up 2.0% for 2016 and 8.3% over the last five years. This is also the asset class at the highest risk. Close to 80% of all quota is dairy quota and in a matter of months a melt-down of dairy supply management could begin if the system does not emerge intact from the NAFTA renegotiation. (07/07/2017)

USDA 2017 ACREAGE, JUNE GRAIN STOCKS

The US agriculture department's seeded acreage and grain stocks reports issued June 30 contained hardly anything not anticipated long before, but triggered the sharpest futures market rally in three years. The acreage report put all wheat area for 2017 at 45.7 million acres, down 9% from the prior year and the lowest since USDA records began in 1919. Winter wheat area was 9% lower at 32.8 million acres of which 25.7 million are expected to be harvested, compared to 36.1 and 30.2 million in 2016. Non-durum red spring wheat was reported at 10.3 million, down 6% from last year, and durum at 1.92 million, down 20%. Soybean area was placed at 89.5 million acres, up 7% from 2016 and very similar to the March planting intentions report. Corn area of 90.9 million acres was 3% under last year but higher than most trade estimates, Of the 890,000 acres by which corn area exceeded March planting intentions, 400,000 acres were in drought-stricken North Dakota. Soybean area did not exceed corn, as was widely expected. US barley acreage was 2.38 million, down 22%, and oats acreage at 2.34 million, down 17%, oat area expected to be harvested for grain was put at 880,000 acres vs 981,000 last year. USDA reported larger than expected grain stocks as of June 1 with soybeans up 11% from a year ago at 963 million bushels, all wheat up 21% to 1.18 billion and corn up 11% at 5.23 billion. Stocks on farms were of interest because of ideas that farmers are holding large amounts of crops off markets for higher prices. This was partly confirmed with on-farm corn stocks up 15% at 2.84 billion bushels and soybeans at 332 million up 18%, but wheat (except durum) of 174 million bushels was off 9%. Durum on farms was 18 million bushels, up 50%. (07/07/2017)

PRODUCER CAR USE SEES DRAMATIC DECLINE

Shipments of western grain by self-loaded producers cars in the 2016-17 crop year will barely reach 300,000 tonnes, or about 3,500 cars. Total movement will be roughly 51 million tonnes, so that producer car shipments will be virtually too small to measure. Producer car use has been in a precipitous decline for some years. The recent high was in the 2012-13 crop year at 1.61 million tonnes. The last year over a million was 2013-14 (1.37 million), dropping by almost half the next year to 772,000 tonnes. In 2015-16 it was 390,000 tonnes. Producer car movements are the least efficient use of railway resources. Cars have to be spotted and picked up one or a few at a time usually from very low volume locations. Any saving that could accrue to actual shippers of producer cars are paid for by all other shippers through railway costs which become entrenched in grain rail rates generally. The right to load them is enshrined in the Canada Grain Act, dating from century ago, originating as an alternative to deliveries to elevators when rates charged by grain companies were often considered excessive. That right was preserved in the numerous revisions to the Act ever since and no one would dare suggest that it be withdrawn. The producer car alternative was heavily promoted by the now-extinct Canadian Wheat Board, in line with its policy of cutting grain firms out of every possible part of the handling process. The Board made it as easy as possible to use producer cars and it is probable that it knowingly incurred and buried extra costs in doing so. The appeal of producer cars has dimmed because the service provided by the elevator system has improved and the price advantage has narrowed. Faced with the choice of an effortless on-farm pick-up of grain by a grain company's trucker and the arduous task of filling a rail car with farm-type equipment in a great hurry, on short notice, at unpredictable times, in any kind of weather, fewer farmers care to subject themselves to the latter. (07/07/2017)

CANOLA IS CANADIAN TOP CROP FOR 2017

Statistics Canada's seeded acreage report on June 29 held a surprise, and it wasn't so much record area seeded to canola. It was the 33% gain in soybean area, including tripling in Saskatchewan, to make beans the third-largest Canadian crop by planted area. It was the biggest year-to-year change in area of any major crop in modern times. In the March acreage intentions survey farmers said they would plant 6.96 million. In Saskatchewan planted area increased by 354% to 850,000 acres from 2016 compared to 730,000 intended. Gains were 40% in Manitoba, 13.5% in Ontario and 22.5% in Quebec. At 850,000 acres, Saskatchewan suddenly becomes the No 3 soybean province in Canada after Quebec and Manitoba is No 4. This is a major shift in the Canadian crop landscape. Larger soybean area did not come out of canola this year but could do so in the future. Area of canola also set a new record at 22.84 million acres, a 12% gain over last year and 10.5% above 2015. Canola area exceeded all wheat for the first time, making it the leading Canadian crop by area was well as value. The biggest gain proportionally was in Alberta at 16.5% to 6.9 million acres, however acreage declined by 1% in Manitoba to 3.1 million, where there was a big swing away from small grains to corn and soybeans. Crops that declined in area were wheat, lentils and barley. All Canadian wheat area was down 3.7% from 2016 to 22.36 million acres, the smallest since 2011. Durum area dropped 16% from last year's record to 5.21 million acres, also 10% below 5.82 million in 2015. However spring wheat area increased 2.5% to 15.79 million. Wheat area in Saskatchewan dropped 7% from 2016 to 11.3 million acres, including an 18% drop in durum to 4.1 million. Barley and oats, once the mainstays of prairie crop farming, continued a long-tern decline towards minor-crop status. Area seeded to barley was 10% lower than in 2016 and 12% lower than in 2015 at 5.77 million acres. Acreage of oats increased 14% over 2016 to 3.22 million acres, however 2016 set a modern-day low and the 2017 figure is 4% smaller than 2015. Area of lentils was 25% smaller (26% smaller in Saskatchewan) at 4.41 million acres after the spike in 2016 to 5.86 million. Area of peas was reported at 4.09 million acres, down 3.5% from the record of 4.24 million last year, however it was the second-largest-ever for the crop. (07/03/2017)

MINNEAPOLIS WHEAT FUTURES SOAR ON DROUGHT

Spring wheat futures prices in Minneapolis tore through the $7-a-bushel barrier for the new-crop September contract on June 28 with a near-limit one-day gain, capping a rally mostly unbroken for 40 days. It was the highest price for a nearby Minneapolis contract in over three years. Life of contract highs were posted every trading day last week. During June the September Minneapolis future gained $1.31 a bushel (22.5%), Chicago soft red winter 32 cents and Kansas City hard red winter 33 cents (7%). Minneapolis Grain Exchange trading volume and open interest set several new records during June. Premiums for Minneapolis wheat futures over Chicago soft red winter and Kansas hard red winter were almost record-wide, at $2.38 and $2.31 a bushel on June 28. The record was over $3 a bushel over Chicago in 2011, also a drought year. The futures market outran cash prices, which gained only about $1 a bushel during June. Nothing can happen to save the US hard red spring wheat crop now. Spring wheat area is expected to be 11.21 million acres, down from 11.31 million in the March planting intentions report. Harvested acreage may be smaller still due to the drought. Yields will be below 40 bushels per acre and production may not reach 350 million bushels. (07/07/2017)

USDA JUNE 9 SUPPLY-DEMAND ESTIMATES LITTLE CHANGED

The US agriculture department made no significant changes in its monthly supply demand report for June. Figures for US wheat were unchanged from May with production at 1.820 billion bushels vs 2.310 billion last year. Exports for '17-18 were held at 1.000 billion, though carryover was raised to 924 million bushels from 914 last month (1.161 last year). US winter wheat production was estimated Kansas hard red winter yield was estimated at 44.0 bushels per acre vs 42.0. Corn production was estimated at 14.060 billion, same as last month and down from 15.150 last year; carryover was unchanged at 2.110 billion vs 2.230 last year. The soybean harvest estimate was held at 4.250 billion vs 4.310 billion last year. US soybean exports were projected at 2.150 billion vs 2.050 last year. Soybean carryover at the end of 2017-18 was raised to 495 million bushels from 480 last month and 450 last year.

USDA estimates global wheat production in 2017-18 were raised from 737.8 million tonnes last month to 739.5 million, just 2% under 754.1 last year. Wheat use was put at 734.7 mmt vs 734.8 last month and 740.2 last year. Global carryover was raised to 261.1 million from 258.2 last month and 256.4 in 2016-17. The world coarse grain crop was put at 1.310 billion tonnes vs 1.312 last month and 1.360 last year. Coarse grain use was estimated at 1.350 billion tonnes vs 1.349 last year, with carryover dropping to 221 million from 221.3 last month and 260.1 last year. USDA raised its world oilseed production figure to 573 million tonnes from 572 in May and 570 in 2016-17. Oilseed carryover at the end of 2017-18 is expected to increased to 103.5 mmillion tonnes from 100.7 last month but slightly below 104.2 last year.

USDA will update US crop production in the next monthly report due July 12 based on the June 30 planted acreage report. Today's figures were not so much a signal that nothing has changed as that USDA's reporting procedure does not usually adjust area or yield in the June report, and there were no strong demand indicators. (06/09/2017)

RAIL TRANSPORTATION REFORM BILL C-49 INTRODUCED

The Trudeau government's transportation policy overhaul bill which finally made its appearance in the House of Commons last week. While the actual mechanics will have to await the regulations, the government has accepted the principle, more fully than ever before, that the railways do not compete for business and must be forced by heavy regulation to treat their customers fairly. The parts that pertain to rail transportation are almost all relevant to the grain haul. The bill contains practically no trace of any recommendation from the Emerson review of the Canadian Transportation Act of 2015. The bill (the short title of which is the Transportation Modernization Act) retains the revenue cap on railway grain charges (Maximum Revenue Entitlement or MRE) with a modification that will consider grain-related capital investment by each railway. The more a railway invests the higher its MRE. The cap was first imposed in 2000 and has been strenuously resisted by both railways ever since. The Emerson transport review in 2015 had recommended it be phased out over seven years and the railways lobbied hard for that measure to be adopted. Shippers will be able to demand service contracts containing provision for reciprocal payments for damages incurred by either party because of actions of the other. Shippers will be able to seek financial compensation in cases where railways fail to meet the terms of service agreements, matching demurrage charges that the railways now apply if cars are not loaded within a prescribed time. Both shippers and carriers will be able to refer disputes to final offer arbitration by the Canadian Transportation Agency, up to a maximum award of $2 million. Arbitrated settlements will be effective for a period requested by the shipper of up to two years. A more exact definition of 'adequate and suitable' rail service will be created as the basis for adjudicating shipper complaints about inadequate service, and the time period within which the CTA must render decisions on complaints will be shortened. The bill provides for extension of interswitching rights to as far as 1,200 km under certain conditions, throughout the country. The CTA will set rates for interswitch traffic annually. The proposals will presumably be better explained in regulations, which could be complex, but the proposal is a radical departure from past interswitching policy. The status of the current 160 km radius is unclear because it is contained in the Fair Rail for Farmers Act, which expires August 1 unless extended. There is no mention of the Fair Rail law in Bill C-49. If not extended, the interswitching radius reverts to 30 km until C-49 is proclaimed. Minimum requirements for weekly grain movement which could be applied under the Fair Rail act are dropped. (05/22/2017)

INDIA PULSE FUMIGATION ISSUE STILL UP IN THE AIR

Some progress was reported last week in the standoff with India on the fumigation of Canadian pulse crops, but information was very sketchy and unofficial. It was hard to say whether a resolution is nearer or if it is more wishful thinking, as the June 30 deadline for the current fumigation exemption approaches. Earlier this month India's phytosanitary authority issued amendments to its plant quarantine regulations accepting phosphine gas as an alternative fumigant for pulse crop cargoes. The practical difference between phosphine and methyl bromide is that phosphine is not prohibited as a greenhouse gas pollutant. It is approved in Canada for various uses including raw agricultural products, feed and processed foods. Several companies offer fumigation services at Vancouver and Prince Rupert for bulk cargoes, containers and in-transit. Obviously there is an issue of cost. It is cheaper to fumigate in India. Canada's preferred solution still seems to be the so-called 'systems approach', possibly for a two-year trial period during which the Indian government would closely monitor its effectiveness. The 'systems approach' does not rely on chemicals, but on good handling and storage practices to prevent infestations or control them by natural means such as sub-zero Canadian winters. Pulse crop cargoes would be certified free of insects without fumigation by the Canadian Food Inspection Agency. However there is no experience to show that such certification would be reliable and no information on what would happen if were found in certified shipments. Temperatures under minus 15C kill insects in a few days, but for most of the year even on the prairies extreme cold is not a usable part of the 'system'. The real problem is India's zero tolerance of any contamination, a policy that it obviously will not change. The best outcome is for fumigation of Canadian pulse cargoes on arrival to be continued indefinitely. (05/22/2017)

FIRST 2016 FARM CENSUS NUMBERS

Statistics Canada has released the first figures from the 2016 farm census, revealing that the long-running trend to farm consolidation seems to have slowed. The number of census farms was reported at 193,492 nationally, a 6% decline from the last count in 2011. It was the smallest five-year drop in 20 years. Between 2006 and 2011 farm numbers shrank by 10% and between 2001 and 2006 by 8%. The number of farms fell by 12,238 in the latest five years, by 23,640 in the five years prior and by 17,550 in the half-decade before that. The total number of farms in western Canada declined by 7.1% over five years to 102,530, a faster rate than in eastern Canada or nationally. To Statistics Canada a farm is any holding that produces any one of a long list of crops and livestock. The majority of census farms are not farms at all in the practical sense, as businesses that can provide a competitive family income to the owners. The census has 11 size categories topping out at 3,520 acres and over, which is more or less the starting point for a commercial farm in western Canada today. Seven of the size groups are below 400 acres. The number of farms under that size was 121,501 in 2016 or 62% of census farms, compared to 128,299 or 63% five years earlier. Statistics for farms by gross revenue are another measure. The latest census showed 56% or 109,239 farms with gross annual revenue of less than $100,000 and 85,229 under $50,000. The number of actual commercial farms in Canada therefore appears to be between 35,000 and 45,000. The threshold size varies with the type of agriculture. Some farms (say poultry) require little land. But in the west a commercial scale crop or cattle farm can be taken as above 2,000 acres. Statistics Canada's size classification are converted from hectares, so the closest tier is 2,240 acres. The number of farms of this size or larger increased by only 209 units on the prairies in the five years to 2016, to represent 18.0% of all farms compared to 16.6% in 2011. This can be considered a shockingly small number, but these farms are responsible for the large majority of farm production. The average size of all census farms in Canada increased to 820 acres in 2016 from 779 acres in 2011. Total area in farms decreased by 0.9% from 160.2 million acres in 2011 to 158.7 million in 2016. However area dedicated to crops rose to 93.4 million acres in 2016 from 87.4 million. The figure is misleading because some land happened to be flooded during the 2011 census survey and was not counted as crop area in that year. The rest of the gain is attributed to conversion of pasture to crops and reduced summerfallow. (05/15/2017)

2016-CROP CANOLA SUPPLY RUNS LOW

Statistics Canada reported March 31 grain stocks on May 5, confirming the extremely tight old-crop canola supply, especially stocks on farms, though a larger inventory of most other crops compared to a year earlier. The total of stocks of the seven major grains plus lentils were 5% larger than on the 2016 date and stocks on farms were also 5% higher mainly due to larger wheat, durum and pulse crop supplies. Keenest attention is on the canola supply, which was reported at 6.57 million tones, down 23%. Farm stocks at 4.99 million tonnes were 28% smaller and commercial stocks were also lower. Between March 31 and April 24 farm deliveries of canola were 1.60 million tonnes so that currently farm stocks are about 3.39 million, assuming reasonable accuracy of the report. Weekly farm deliveries in 2016-17 to date averaged 385,000 tonnes. With 14 weeks remaining in the crop year and at least 19 weeks before new-crop seed starts to become available, deliveries for the rest of the crop year cannot average more than about 175,000 tonnes a week. If farmers included some canola still to be harvested in their responses to the Statistics Canada survey, stocks may be even tighter. Exports, domestic crush or both will have to decline. Otherwise grain stocks are more than adequate to maintain year-to-date exports and still leave plenty of carryover. The slower rate of wheat exports is reflected in the farm supply. Durum wheat stocks on farms were reported 69% higher than a a year ago, though much of the supply is below milling quality and not representative of usable durum. Stocks of peas and lentils were also higher at the farm level reflecting record 2016 production. (05/08/2017)

THE NAFTA REWORK AND STATUTORY GRADING

Grain trade between Canada and the US is a very one-way street. During the 2016-17 crop year the US is expected (by USDA) to import 3.1 million tonnes of Canadian wheat (including 1.3 million of hard red spring and 900,000 of durum) 1.5 million of oats, 325,000 of barley, 1.2 million of corn and 600,000 tonnes of soybeans. The US is the second, third or fourth-largest importer of several Canadian crops. Canadian imports of US grain are negligible if not zero. American millers and horsefolk cannot do without Canadian (or else Scandinavian) oats because domestic production does not meet demand. But in the case of all other crops, the US imports them from Canada while struggling with its own unmanageable, price-crushing surpluses. Imports occur because Canadian grains are often cheaper or more accessible and there are no regulatory obstacles. Canadian grain flows south as easily as American grain moves east and west. The device preventing American imports is the statutory grading system. The situation is massively one-sided. American grain is not treated equally with Canadian grain in Canada and the most fundamental tenet of free trade is blatantly violated. Canadian wheat and other grains are received by US buyers exactly as US grain is received, graded according to US specifications. Once it enters the American handling system it is treated identically with American grain. It is not segregated or identity preserved and is freely commingled with all other grain. Canadian wheat can receive an official USDA grade certificate and is eligible for export as US origin. The same is true of commercial sales into the US by Canadian grain companies. American grain in Canada is treated like foreign matter under the statutory grading system. Only grain grown in Canada may receive an official Canadian grade certificate, in one of a dazzling number of categories and grades. American grain can receive a grade certificate only of the lowest statutory grade for its class. For wheat the grades are feed wheat and No 5 Amber Durum, regardless of quality. The Canadian system is so rigid that even screenings from US grain cleaned in Canada must be handled and disposed of in accordance with a Canadian Food Inspection Agency directive. The bottom line is that non-Canadian grain can never be afforded equal treatment with Canadian grain as long as the statutory grading system exists. It is increasingly ignored in actual export business, especially for wheat. Imagine that all the cars on the road have four wheels but Canada has a regulation requiring five wheels. Eliminating it is in the interest of western grain growers, the grain trade and exporters and importers. However it also has its supporters, like the single-desk selling system had (substantially the same people). The internal momentum to kill it will be slow to build. It is a stretch that reform could be forced from the outside by the new NAFTA, but stranger things have happened. (05/08/2017)

THE CANOLA ROTATION WALL

There is no safer assumption than this: if western canola growers could have increased 2017 acreage even more they would have. Canola has had an amazing run as a revenue producer on farms. Growers may object to high input costs, especially seed, but when they run the numbers it is the hands-down winner. Farmers are seeding all the canola they dare, if not more. Canola has hit the rotation wall in which growing it too often on the same land attracts unmanageable disease and insect attacks. Years of too-tight rotations have created such concentrations of soil-borne diseases that they cannot now be eradicated. Higher production (or possibly even just maintaining it) depends on higher yields, which in turn depend on the development of varieties that are more resistant to the major diseases, including clubroot. A 10-year yield history for canola, shows a very irregular trend and great sensitivity to variations in growing season conditions, which include disease and insect pressure. Canola yield in western Canada averaged 27.0 bushels per acre in 2007 and 42.3 in 2016 while wheat averaged 33.6 and 52.0, 57% and 55% higher. But the average for the first five-year period of 2007-16 was 32.9 and 39.9 bushels for canola and wheat compared to 37.1 and 47.2 in the second. The gain was 13% for canola and 18% for wheat, which does not have the benefit of genetic modification. Canola is a difficult crop to grow, which explains why it is not grown in many parts of the world that are at least as well adapted as western Canada.. (05/01/2017)

RECORD CANOLA, SOYBEAN ACREAGE PLANNED FOR 2017

The Statistics Canada intended acreage report on April 21 showed as seldom before the extent to which cropping intentions were determined by agronomic and market experiences of the previous year. Canola acreage is set to post a new record of 22.39 million acres, 10% higher than in 2016 and 8% higher than in 2015. The previous record was 22.06 million in 2012. The average rotation is a record-tight 3.3 years, compared to 3.45 years in 2016 and the 4.0 years still considered ideal. The report showed a big leap in soybean area to new records in both eastern and western Canada. It is forecast to increase 13% nationally and a stunning 56% in western Canada. Saskatchewan farmers intending to triple their acreage to 730,000. Soybean area in Ontario and Quebec will increase 12%, though not at the expense of corn, which will increase 9%. Area in western Canada is projected at 2.93 million acres, a 76% gain over 2015. In 2016 soybean plantings in Saskatchewan declined to 240,000 acres. Total wheat area was put at 23.28 million acres nationally and 21.94 million in western Canada, almost unchanged from 2016, with an 8% increase in spring wheat an a 17% drop in durum. Spring wheat area recovered somewhat from the low 2016 figure but remained historically low; it has been less than canola for six years. As recently as 1999 spring wheat area was over 20 million. Acreage of oats, which dropped to a long-time low under 3 million acres in 2016, will increase to a more typical 3.42 million. However barley area of 5.88 million acres will be a recent record low, 8% under 2016 and 9% lower than in 2015. Pulse crop intentions were reduced substantially from the 2016 record with lentil acreage down 25% to 3.42 million and peas down 6% to 3.90 million, however both figures are the second-highest ever, both larger than in any year before 2016. The market outlook for peas and lentils remains clouded by the India fumigation issue, but growers are apparently assuming that it will all work out. (04/21/2-17)

BEGINNING OF THE END FOR SUPPLY MANAGEMENT

The process of unwinding the Canadian supply management system for dairy has begun. Any chance that the belligerent attitude from the Trump administration was just a pre-negotiation bombardment faded last week when Trump categorically committed to opening up the Canadian market to the US dairy sector in the NAFTA negotiations. On a regular campaign-type visit to a Wisconsin cheese plant last week, he said that “in Canada some very unfair things have happened to our dairy farmers”. He said he would “demand an explanation” from prime minister Trudeau. Trump obviously has no conception of the issues, but his attitude and policy would be no different if he had. Trump's comments can be taken as the administration's policy and passage of a point of no return. Ironically, import restriction under supply management, in effect for nearly 60 years, is not the flash point. That is the controversy over ultra-filtered milk, a high (85%) protein dry concentrate which substitutes for whole milk in cheese, ice cream and other dairy foods. The product enters duty-free because it was developed after the list of regulated imports was prepared. Imports began in 2012 and in two years reached 14,000 tonnes, the equivalent 17.5 million litres of raw milk. Canadian marketing boards responded by creating a new Class VI for industrial milk for sale to Canadian processors at US-competitive prices on condition they take up ultra-filtered production. Domestic output of ultra-filtered milk is ramping up and US imports are declining. The US dairy industry sees this as a new and unfair trade barrier and contrary to Canadian undertakings in trade agreements. Three or four processors in Wisconsin and New York state account for almost all exports of this product and are affected and are reducing milk purchases from several dozen farmers, attracting much publicity. In normal times the US complaint about ultra-filtered milk would not stand a chance in any trade dispute forum because there are few or no provisions in trade agreements preventing a country from displacing imports with increased domestic production. But manipulation of prices through the value chain by the marketing board system introduces unique circumstances. In the coming NAFTA negotiations the American position will be that all dairy import restrictions must be removed. (04/21/2017)

CIVIL SERVANTS, FARMERS RUN GRAIN COMMISSION

For the first time in its 105-year history, there is no one at the top of the Canadian Grain Commission with any real-life experience in the grain trade. Jocelyn Beaudette, a career civil servant most recently in Agriculture Canada's farm income program, is the new chief operating officer succeeding the retiring Gordon Miles. The chief commissioner is Patti Miller, formerly of the Canola Council of Canada and prior to that also an Agriculture Canada employee. The assistant chief commissioner is Manitoba farmer Doug Chorney, and the commissioner is Alberta farmer and former Liberal politician Lonny McKague. (04/21/2017)

FARM LAND VALUES KEEP ON RISING

Farm land values in the US midwest and plains states are eroding as the interval of low crop and livestock prices shows no sign of snapping out of it. In the best cases, for highly productive land, prices have held their own, but second- and third-tier land has lost as much as 20% of its value over four years. There is no national land price survey in the US, so conclusions about the market come from many sources with different methodologies. In Canada, the government farm lender Farm Credit Canada conducts what amounts to an annual appraisal of a sample of farm properties and extrapolates them into a national price survey. According to the report for 2016 released recently, land values are still rising virtually everywhere in the country if at slower rates. The FCC compiles the annual farm land value report by conducting an appraisal of a fixed set of benchmark properties in each province with reference to comparable recent sales. The report was formerly issued twice a year. The evaluation uses percentage changes and does not give dollar-per-acre values. Sales information on comparable properties presumably is wholly or largely from loan applications, a comprehensive source since the FCC provides the majority of mortgage financing for land purchases. For all Canada the average increase in farm land prices was estimated at 7.9% compared to 10.1% in 2015. Land values in BC rose by an average of 5.2% last year (after 6.5% in 2015), Alberta 9.5% (11.6%), Saskatchewan 7.5% (9.4%), Manitoba 8.1% (12.4%), Ontario 4.4% (6.6%) and Quebec 7.7% (9.6%). In the Atlantic region increases ranged from 1.9% (New Brunswick) to 13.4% (PEI, the highest in Canada). No province showed a year-to-year decrease in 2016. According to the FCC survey, land prices have risen every year since 1993 in Alberta, since 2002 in Saskatchewan, since 1992 in Manitoba, 1988 in Ontario and 1986 in Quebec. (04/17/2017)

GRAIN COMMISSION, AWASH IN RETAINED EARNINGS, RAISES FEES

The Canadian Grain Commission, which is sitting on roughly $100 million in cash which it overcharged to users over the last five or so years, raised most fees for services according to its predetermined schedule as of April 1. Adjustments are made in mid-crop-year because April 1 is the start of the government fiscal year. The cost of inspection of grain being loaded on ships increased to $1.70 a tonne from $1.68 though outward official weighing during loading of ships, which is highly automated, remained at 16 cents per tonne. Outward official inspection of railway cars, trucks and containers now costs $153.43 instead of $151.01. License fees per location went from $289 a month to $294. The fee for inspection of submitted samples rose to $50.07 from $49.28. In view of the controversy over charges and fees that far exceed the cost of providing them, and the fact that the grain trade is forced by law to use most Grain Commission services, the least it could have done was to freeze rates for a year as a public relations gesture while the underlying issues are investigated. (04/17/2017)

IGC ISSUES PRELIMINARY 2017-18 PROJECTIONS

The International Grains Council issued its first complete projections for world crop supply and demand for 2017-18 on March 30, forecasting a total cereal harvest of 2.050 billion tonnes. It would be a 3% decline from 2.106 billion last year but still the second highest in history and 2% above 2.007 billion in 2015-16. Consumption of 2.079 billion in 2017-18 will exceed production for the first time since 2013-14. Carryover is expected to drop to 484 million tonnes from 513 last year but will exceed the 479 of 2015-16. However record carry-in will almost offset the decrease in production. Total global supply of cereals was projected at 2.563 billion tonnes compared to 2.585 billion in 2016-17 and 2.464 billion in 2015-16. Wheat production is expected to be 2.5% lower at 735 million tonnes from 754 in 2016-17 and 736 in 2015-16. World wheat use is forecast at 740 million tonnes vs 737 and 719. Wheat carryover at the end of 2017-18 was put at 234 million, only 5 million under the current year's and 11 million higher than two years ago. Coarse grain output was projected at 1.315 billion tonnes (3% below 1.352 last year), with consumption similar to the current year's 1.339 (1.335) and carryover 250 million (274). The world corn harvest for 2017-18 was estimated at 1.024 billion tonnes, down 2.8% from the previous year's 1.053 billion with carryover of 205 million tonnes compared to 225 million. World soybean production was forecast at 345 million tonnes, a 3% gain over 336 in the current year. Anticipated use at 347 million would exceed production. Carryover will drop to 35 million tonnes from 38 million. However the IGC estimated Brazilian production at 110 million tonnes, 1 to 3 million below later forecasts. (04/10/2017)

IS THE TRUDEAU GOVERNMENT UP TO THE NAFTA REDO?

Canada has some seasoned and experienced trade experts. But as the day of NAFTA reckoning approaches, it is unclear, and actually doubtful, whether the best people will be selected for the job by the Trudeau government, given its disturbing, radical obsession with diversity and matters of gender and partisanship. Even in the best case, the political and negotiating bench strength in Canada is far from a match for the American side. For the US, negotiations will be directed by commerce secretary Ross, the US trade representative-to-be Robert Lighthizer and Peter Navarro, director of the recently-formed National Trade Council. To a man they are extremist trade hawks and protectionists with identical ideas. There is no sign of a willingness to compromise, no acknowledgement that Canadian and Mexican points of view may be legitimate and no admission that the NAFTA agreement has benefits for the US. All three have faithfully and repeatedly restated in more civil terms the Trump bombast, that the US has been on the short end of NAFTA for two decades. Every word they have said about the agreement and alleged trade imbalances with Canada (see page 3) and Mexico has been belligerent, threatening and hostile. Ross, Lighthizer and Navarro are also highly capable and accomplished people. Actual face to face bargaining will be conducted by professional negotiators and trade lawyers but directed by the political level. Both (or all three) parties will meet and describe their positions, but the authority of negotiators to commit their countries is necessarily proscribed. They must go back to their administrations at each step, where it will be determined what is not negotiable, what concessions may be made and what trade-offs can be offered. The make-or-break decisions will be made by semi-pro politicians, specifically the prime minister and cabinet, where there is not trade or economic expertise commensurate with the need. (04/10/2017)

WHAT HAPPENS TO INDIA PULSE EXPORTS AFTER JUNE 30?

Not much more has been heard lately about the very disturbing pulse crop fumigation issue with India, especially not about what to expect after June 30. Cargoes that leave Canada before that date can still be fumigated on arrival in India. The Indian government previously and flatly refused an offer of certification of Canadian pulse shipments by the Canadian Food Inspection Agency as being free of insect pests. Even if accepted such a guarantee would be risky because infestations could develop during the roughly 25-day transit through tropical waters. The CFIA is understood to be exploring the use of phosphine in place of methyl bromide but Canadian ports do not have facilities to treat entire shiploads with any fumigating agent. Lentil and other pulse crop prices, which fell sharply in mid-February, had not recovered as of last week. (04/10/2017)

US SOYBEAN AREA SOARS, CORN AND WHEAT DOWN

The US agriculture department's prospective plantings report issued March 31 put soybeans at 89.5 million acres, a record and a 7% gain over 2016. Planted area was 83.4 million in 2016 and 82.7 in 2015. Area reported by USDA was more than 1.2 million above average pre-report estimates. High-production states including Iowa, Minnesota, Michigan and Indiana showed some of the biggest increases. All wheat area was put at 46.06 million acres vs 50.15 last year, the lowest since USDA began keeping records 98 years ago. HRW area was 23.8 million (26.6 last year), spring wheat 10.6 (10.7) and durum 2.0 (2.4). Pre-report forecasts were for 46.1 million acres. All winter wheat area including SRW was 32.7 million, down 9% from last year. HRW in Kansas was 7.5 million acres vs 8.5 last year. HRS wheat in North Dakota was forecast at 5.4 million down 10% from 6.0 last year and 24% under 6.7 million in 2015. Durum area in the state was reported at 1.15 million vs 950,000 in 2016. Corn acreage was reported at 90.0 million, down 4% from 94.0 last year but above 88.0 in 2015. The average trade guess was 91 million. (03/31/2017)

US MARCH 1 CROP INVENTORY

US grain stocks as of March 1 were close to expectations. Soybean stocks were 2nd-highest on record, up 13% at 1.73 billion but farm stocks of 669 million were 8% lower and quarterly use was 2% lower at 1.16 billion. All wheat was reported at 1.66 billion, up 21%, with farm stocks 9% higher. Use in the quarter ended February 28 was 13% higher at 422 million. Corn stocks were a record high, up 10% from year-ago at 8.62 billion bu; quarterly use was 3.77 billion bu vs 3.41 a year earlier. (03/31/2017)

INDIA RELENTS ON PULSE FUMIGATION, SORT OF

The Indian government last week agreed to a 90-day extension to June 30 of the exemption for Canada and other pulse exporters who cannot fumigate shipments with methyl bromide at loading, allowing fumigation on arrival to continue. However it said this is the final extension and thereafter all shipments will have to arrive fumigated. A Russian wheat-trade delegation was told India might accept alternatives to methyl bromide such as phosphine, during a transition period to June 30, but would require evidence that it is equally effective. India also last week unexpectedly applied a 10% duty on wheat imports, a decision unrelated to pulses but another sign of the confusion and disarray in India's trade and commodity regulation. Whatever happens Canadian exports of lentils and peas have been disrupted and about a month of normal movement has been lost. The extension means that cargoes can be loaded for India only to about June 1. The issue is not resolved, as a statement from Ottawa claimed and pulse business to the biggest buyer is as much in limbo as before. Pea and lentil prices did not recover with green lentils down 27% and reds down 21% from January highs. Indian pulse production for 2016-17 is officially placed at of 22.1 million tonnes, up 35% from the previous year, but seems to have been over-estimated by a sloppy and manipulative bureaucracy. More imports may be needed if consumption rises due to lower domestic prices. The lack of information, conflicting information and disinformation surrounding this matter is driving special crop dealers to distraction. No or almost no new-crop contracts are available. This is the third case in a year in which bureaucratic bungling in importing countries and sudden and unexplained policy changes led to trade disruptions and price consequences. Pulse crop acreage for 2017 will obviously be reduced, possibly sharply. (03/31/2017)

MARCH 22 BUDGET IS SILENT ON AGRICULTURE

The March 22 budget was far more notable for what was not in it than for what was. Pre-budget consultations traditionally held by the finance minister with various interest groups led to an expectation of hostile changes to capital gains taxation. Small business owners and farmers are well treated under the present law with the lifetime exemptions and the 50% effective rate. These provisions remain. It was also feared that tax rates on corporate and higher personal incomes would be raised. In the end there were no significant tax increases. Excise taxes on alcohol and tobacco were raised by amounts almost too small to measure. However the government intends to make changes that will restrict the use of private corporations to lower taxes to small-business corporate rates from high-income personal rates and also the use of dividends and capital gain by small business corporations for income splitting in a family. A discussion paper outlining these changes will be issued shortly. Highly technical changes are proposed for treatment of spread trading in derivatives to defer taxable income, which could apply to individual commodity futures traders. A change in the way insurance companies are taxed on farm policy premium revenue may have the effect of slightly raising casualty insurance premiums in the future. A change will be made in the trade remedy system to allow interested parties to request an investigation by the Canada Border Services Agency to determine whether specific imported products fall within the scope of a trade remedy measure. Unions will have the right to participate as interested parties in trade remedy proceedings. Agriculture is mentioned a few more times without specifics, in connection with research and innovation support and transportation. The Canadian Food Inspection Agency gets an extra $149 million over five years to improve meat plant inspection. The finance department will propose restrictions on the use of crop sales cash ticket deferrals as a way to defer income but that is for another budget. And that's about it, except for a 6-cent-per-$100 increase in employment insurance premiums. Use of the unemployment insurance system as a delivery vehicle for welfare will be expanded further. Most big-money budget provisions simply detail how the $81 billion allocated to so-called infrastructure programs stretching out as far as 17 years will actually be spent. The emphasis is on expanding welfare and deeper federal government intervention into every part of the economy. Most new programs extend beyond the government's present mandate. It gives effect to the Trudeau principle that indefinite deficit spending is fine and the government does not have a year in mind in which it will start to pay its way from current resources.. (03/27/2017)

MANITOBA HOG INDUSTRY FREED

The Manitoba government has introduced legislation that will end the 11-year de facto ban on hog barn construction and renovation imposed by the former NDP government. The measure is Bill 24, the Red Tap Reduction Act, which repeals a total of 15 different regulatory schemes. The hog-farming prohibition is in the Environment Act. The bill will also remove the restrictions against manure spreading on fields during the winter months. However the regulation is not opposed by livestock groups and will remain under another law. Both measures were intended to reduce phosphorus run-off into Lake Winnipeg, and eventually covered the entire province, including areas far from the lake. Hog production and manure disposal were long ago shown to be minor contributors to lake pollution. Most of the phosphorus entering the lake comes from cities and towns in the watershed, including Winnipeg and communities south of the US border along the Red River. Phosphorus loading has been reduced in recent years. Under the hog-barn restriction, new construction and expansion were permitted only if they included prohibitively-costly industrial-type waste treatment facilities using anaerobic digestion or a similar process. A pilot project in 2015 allowed the use of two-cell manure lagoons for manure treatment but created little interest or new development. Hog production in Manitoba is dominated by Hutterite colony farms and large operations owned by or otherwise linked to the two large packers. Both are in a good position to expand quickly, with the most logical locations in western and southwest Manitoba, closer to packing houses in Brandon and Neepawa. (03/27/2017)

US ACREAGE RESTRAINT COULD TRIM WORLD SURPLUS

The US agriculture department will release its annual prospective plantings report, based on a national survey, on March 31. But numerous private broker and market advisory firms have already released acreage predictions all of which point in the direction of increased soybean area, much less corn and record-low wheat acreage. With the return to more normal yields from the records of 2017, US crop production could fall substantially with or without adverse growing season weather. If demand in 2017-18 holds up, especially this season's brisk exports, world grain and oilseed stocks could drop noticeably for the first time in five years. Other major producers are not cutting acreage because their prices, in weak currencies, are not low enough to discourage production. But in the US spot wheat prices under $4 a bushel are cash-money-losing. Corn at just above $2.75 is barely break-even in high-yield areas. Soybeans at $8.50 are making a few dollars an acre. So, according to the average of the credible estimates, some based on surveys of farmers, projected US corn area at 90.3 million acres compared to 94.0 in 2016, soybeans at 86.5 vs 83.4 and all wheat 45.7 against 50.2. Winter wheat was estimated at 32.7 million vs 36.1 last year, non-durum spring wheat at 11.3 million compared to 11.6 and durum at 3.05 million, up from 2.41. Corn area would still be the seventh largest area of recent years, although 7.3 million acres below the recent high in 2012 when it was 97.3 million. Soybean area would be a new record. Wheat acreage would be the smallest since 1919. In 2016 US average yields for corn, wheat and soybeans set new records at 174.6, 52.6 and 52.1 bushels per acre respectively. These were exceptional results that are not expected to be repeated soon. Trend-line yields are projected by USDA at 157.0 bushels for corn, 45.2 for wheat and 43.4 for soybeans. Assuming an average ratio of harvested to planted area, the US corn harvest should drop to 13.88 billion bushels from last year's 15.15, soybeans to 4.14 billion against 4.31 and all wheat to 1.86 billion from 2.31 billion. With carry-in from 2016-17, corn supply would be 16.20 billion bushels for 2017-18, soybeans 3.093 billion and wheat 2.885 billion. Using the same export and domestic use as in 2016-17, US corn carryover would drop 32% from 2.320 billion bushels to 1.580, soybeans would increase to 485 million from 435 million and wheat stocks would fall 40% to 614 million bushels from 1.025 billion. Corn carryover would be the smallest in almost 10 years and wheat the smallest in four years. Soybean carryover would be a record but by only 50 million bushels. (03/20/2017)

CFIA GOES OVERBOARD IN TB INCIDENT

Bovine tuberculosis was discovered in a cattle herd in South Dakota on March 2. The differences in the way that case is being handled compared to the hysterical reaction to the TB incident in southeast Alberta by the Canadian Food Inspection Agency are arresting. The South Dakota herd and 12 directly adjacent properties with 8,000 head were quarantined for testing, which is well along after less than a month. Herds in which no positives were found were immediately pronounced clean and released. Only 26 cattle on the origin ranch have been euthanized and there is no plan to wipe out the entire herd. Control of animal disease is a state matter in the US and this case is being managed by the state veterinarian. South Dakota retains its TB-free status and officials stressed that there is no human health or food safety risk. No meat-importing country took or mentioned any trade action. Standard protocol is to track all cattle that can be identified brought into and sold from the affected herd over the last five years. Up to eleven states could be involved but as of last week no other state had placed restrictions on cattle from South Dakota. A single case of bovine TB was also confirmed in Michigan last week, a two-year-old steer thought to have been infected by wild deer. As of last week the CFIA still had 53 farms in southeast Alberta and adjoining Saskatchewan under quarantine, seven months after the first case came to light. Just 20 farms with 7,500 head have been released. Six animals have tested positive, all in the original herd. Over 10,000 cattle have been destroyed. The CFIA said last week that the investigation could take several more months and more sites could be quarantined. There are international standards for handling animal disease outbreaks. The CFIA has decided that greatly exceeding them enhances Canada's reputation as a source of safe food. We know that the costs of this policy are very substantial. We have not seen anything in the way of a market advantage. (03/20/2017)

CBC FAKE NEWS STORY HAMMERS BANK STOCKS

Grown-up stock market investors don't mind it when a stock price drops. Prices fluctuate all the time for hundreds of reasons. Share prices go up and down. But when a stock drops 5.5% in one day (as happened on March 10) because a bunch of little boys and girls at the CBC decided to do a hatchet job on the biggest Canadian bank, it is beyond the pale. TD shares dropped from $70 to $66 after a spurious story alleged that its employees have to break banking laws to keep their jobs because of 'incredible' pressure to grow revenue. The CBC has a 'Go Public' portal to attract story tips, which are usually about cell phone bills and bad dental work. But when three complaints about a big bank turned up, the CBC saw some real dirt. A stream of pumped-up, sensationalized, repetitive stories was spread on radio, TV and its web sites, and was picked up by dozens of financial news outlets. When the stock tanked the CBC literally gloated. TD Bank has 81,000 employees and 10 million customers. It is regularly on lists of the top employers in Canada in ratings that assess workplaces from the employee point of view, and has been first or second in the respected JD Power customer satisfaction survey for 10 years. It has an internal hot line where employees can report any issue directly to top management. Everything a major financial institution in Canada does is under the constant purview of the Superintendent of Financial Institutions. Either the things the CBC alleged are false, were invented by disgruntled ex-employees who could not do their jobs and embellished, or occurred so rarely as to be completely not notable. The CBC wiped $6.7 billion off the assets of TD shareholders in 12 hours. Share prices of other banks also fell. Lasting and quantifiable damage has been wrongly done to TD's reputation and to that of the Canadian banking system. Bank stocks are held by pension funds and are the core of many people's old age security. With similarly malicious, twisted intent the same could be done to literally any company, any time. Every employer, including the firm that publishes this newsletter, has felt the wrath of vengeful separated employees and experienced the ensuing complications. There is no news here except fake news. A few irregularities in millions of transactions a month are insignificant. The CBC stories were irresponsibly written to create the impression that a tiny tip of a gigantic iceberg has been discovered by 'investigative journalists'. TD Bank won't sue the CBC for defamation, but shareholders should, forcing it to reveal the quantity and quality of its evidence and to account for its grossly, deliberately misleading conclusions. Short-selling activity in TD stock in the preceding month should be investigated. Then the CBC should be switched off. (03/20/2017)

PHONY INDIAN PHYTOSANITARY DEMAND THREATENS PULSE SECTOR

After March 31 India will accept incoming shipments of pulse crops and wheat only if they have been fumigated to Indian specifications using methyl bromide at the port of loading. This has crested a crisis in the Canadian pulse crop industry, which developed largely because of the huge Indian market. Ostensibly the purpose of fumigation is to kill certain nematodes and other insects to prevent their entry into India. However all these pests are already present and widely dispersed in the country. Most are not present in Canada, and those present do not survive winter temperatures. Peas and lentils that have been stored in the conventional way over a prairie winter cannot possibly harbor any of these insects. Until now Canada and several other countries were exempted from the rule and their bulk and container cargoes were fumigated on arrival. The exemption was in the form of a 'derogation' for six-month terms that have been renewed without incident since 2004. This was considered a bureaucratic formality and the renewal was until now automatic. Fumigation involves the use of a gaseous form of methyl bromide. It is ineffective below 50 degrees F and most effective above 80 degrees. The applicable Indian regulation runs to 167 pages and covers more than 2,000 designated items from wood (with and without bark) to seeds and plants for propagation. In many cases imports without fumigation are specifically allowed subject to certification by a competent authority in the exporting country guaranteeing the goods are pest-free. But when the Canadian Food Inspection Agency proposed such a solution for pulse crops it was turned down flat. Canada cannot meet the fumigation requirement. Indian officials know it and they know exactly what they are doing. The renewal was declined with the expectation and intention that Canadian pea, lentil and chickpea imports would be immediately terminated. The Indian government pretends that this is a phytosanitary issue and is not interested in a resolution. It will not co-operate in the search for one. US exports to India are in the same situation, but not those from Australia, which also harvested a record pulse crop in 2016. Australian shipments to India have always been fumigated at the source and there are excellent facilities at export ports. India also has its own bumper crop of pulses, estimated at 22 million tonnes, a 35% increase from the prior year. The difference of about 7 million tonnes from 2016 is close to recent annual imports. The Indian government has a vital interest in maintaining prices to its growers, both to encourage higher domestic production in the future and alleviate rural poverty that is even more threatening than in China. Subsidies to both farmers and low-income consumers are already an overwhelming fiscal strain. Artificially supporting pulse prices by blocking imports is a way to transfer wealth from consumers to farmers without directly involving the government. It has chosen a crude, highly unethical way to keep unwanted imports out, probably taking a cue from China. (03/06/2017)

SMALL DROP IN WORLD WHEAT: IGC

The International Grains Council last week forecast world wheat production in the 2017-18 crop year at 735 million tonnes, 2% less than in 2016-17, with both area and yields expected to be slightly lower. It is a very small decline in view of the size of the world wheat surplus. For 2016-17, it raised its forecast for total cereal output to 2.102 billion tonnes from 2.094 a month earlier, up 4.8% from 2.006 in 2015-16. Global cereal consumption was raised to 2.069 billion tonnes from 2.062 in the January report. Its forecast for 2016-17 world wheat production at 752 million tonnes was unchanged from January, 2.0% above 737 million in 2015-16. Global wheat carryover was estimated at 236 million tonnes, up from 235 million last month. The world soybean estimate for 2016-17 was raised to 336 million from 334 million tonnes last month. Consumption was put at 334 million tonnes, up slightly from 333 million in the prior year. Carryover remained at 35 million tonnes. (03/06/2017)

CANADIAN FARM INCOME EXPECTED TO BE QUITE STABLE

Agriculture Canada has released an annual outlook report, including farm income forecasts, for 2017. The report is a consensus forecast developed with the provinces and Statistics Canada. It expects virtually no change in gross farm receipts between 2016 and 2017. Farm cash receipts, including government payments, are forecast at $59.08 billion in 2016 and $58.88 billion in 2017, after the record $59.77 billion in 2015. Similarly small changes are expected for individual provinces. Crop-based farm cash receipts are estimated to have increased by 2% in 2016 to $32.59 billion, and are expected to gain another 1% in 2017 to $32.87 billion. Crop receipts are projected to increase primarily because of larger marketings and high prices of canola. However year-to-year changes are similar in eastern and western Canada. Farm gate income from livestock sales is expected to drop to $22.80 billion in 2017 from $23.87 billion in 2016 due to erosion in North American cattle and hog markets from record highs of 2015. Farm gate receipts from cattle and calves are expected to drop by 13% in 2017, partly offset by higher marketings. Hog revenue is forecast to drop 2% in 2016 and 8% in 2017. All livestock receipts, which declined by an estimated 7% in 2016, are forecast to slip by a further 4% for 2017. Government program payments rose by 24% in 2016 from the historic low of 2015 to $2.63 billion and are projected to rise another 22% in 2017 to $3.21 billion. Most of the increase is accounted for by crop insurance payments. (02/27/2017)

WHEAT MAY BECOME A CANADA-US TRADE ISSUE

The Western Canadian Wheat Growers Assn has joined US Wheat Associates in urging the Canadian government to remove restrictions on US wheat imports into Canada and to allow as free a flow north as south. Both organizations agree that such action would improve the efficiency of the grain handling systems of both countries and narrow the artificial price differentials that are the main reason for large-scale US imports from Canada. They could have added that unless Canada takes such steps voluntarily, the inequality of market access and the large volume of Canadian wheat exports to the US will become an issue in the renegotiation of the NAFTA agreement. Currently Canadian wheat delivered by farmers to US primary elevators or traded commercially by grain companies receives the same treatment as US-grown wheat. But because of legislation and regulation, essentially the Canadian statutory grading system, virtually no American wheat is imported into Canada. US wheat delivered into the western Canadian elevator system, regardless of its quality, automatically receives the lowest grade, generally feed. US wheat does not qualify for a statutory grade even of varieties registered in Canada. It is not possible to see how the imbalance can be neutralized without abandoning the Canadian statutory grading system. The Canada Grain Act states that only Canadian wheat can be assigned a legal grade and that no wheat can be exported unless officially graded and inspected. Much American wheat is of varieties not registered in Canada, while the Act insists that wheat eligible for grading must be of an approved variety and class. (02/20/.2017)

USDA MAKES FIRST 2017-18 CROP PROJECTIONS

The annual USDA outlook forum was held February 23-24, with preliminary projections for 2017. The figures were anticipated as the first official assessment of 2016 prospects. All wheat area was projected at 46.0 million acres, down 8% from 50.2 million in 2016. The wheat crop was put at 1.837 billion bushels, 20% under 2.310 billion in 2016 as average yield was also projected to fall to 47.1 bushels per acre vs 50.2 last year. US wheat exports for 2017-18 are projected at 975 million bushels compared to 1.025 billion in the current crop year. Carryover at the end of 2017-18 is expected to drop to 905 million bushels from 1.139 billion, the lowest since 2014-15. Soybean acreage was expected to increase 5.5% to 88.0 million acres from 83.4 in 2016. The soybean harvest was projected at 4.108 billion bushels, down 5% from 4.307 billion last year. Average yield is expected to be 48.0 bushels per acre from 52.1 last year, which was the record. With carry-in, 2017-18 supply will rise to 4.625 billion from 4.528 in 2016-17. US soybean exports in the new crop year are expected to increase to 2.125 billion bushels from 2.050. Carryover at the end of the 2017-18 marketing year is seen unchanged at 420 million bushels. USDA projected the 2017 corn harvest at 14.065 billion bushels, down 7% from 15.148 in 2016. Corn planted area of 90.0 million acres was forecast, down 4% from 94.0 last year. Average yield was foerecast at 170.7 bushels, compared to the 2016 record of 174.6. Corn use for ethanol was estimated at 5.400 billion bushels, almost unchanged from 5.350 for 2016-17. Corn exports are expected to drop to 1.900 billion bushels from this year's 2.225. Carryover will drop just slightly to 2.215 billion bushels from 2.320 at the end of the current year. USDA's forecasts for average farm-gate cash prices in 2017: corn $3.50 per bushel ($3.40 in 2016); soybeans $9.60 ($9.50); wheat $4.30 ($3.85). The numbers had no evident market impact, though soybean area was smaller and corn area larger than many pre-forum estimates. Some expected soybean acreage to be higher than corn, which has not been seen since the 1980s. (02/24/2016)

CANOLA AREA HITS THE ROTATION WALL

The much-quoted German newsletter Oil World (350 euros for six months) passed the opinion last week that canola area in Canada will increase “slightly” (up to 10%) in 2017 because of attractive prices. There is no argument about prices; canola futures last week were 5% higher than a year ago and 15% higher than two years ago. But canola area in western Canada is maxed out. Soybean prices are even more attractive, with futures 23% higher than in January 2016. High prices over several years have stretched canola acreage beyond a reasonable limit for five years. In 2016 32% of cropped area in the west was canola, including areas where little or none is grown. The average rotation is just over three years instead of the universally recommended four. Canola acreage has hit the wall, and while it is most likely to be similar to last year's 20.25 million acres it could be lower. Soybean area will continue to increase in western Canada and could reach 2 million acres for the first time, and some of the gain could come from canola. According to production cost estimates for 2017 from the Manitoba agriculture department, a 36-bushel-per-acre soybean crop will return $95 per acre after expenses at present prices compared to $56 for canola. Wheat will net $29 and barley will lose $22 per acre. (01/20/2016)

ETHANOL MORE EFFECTIVE IN GHG EMISSION REDUCTION

A new study from the US agriculture department on the life-cycle greenhouse gas balance of corn ethanol should but probably will not silence claims that ethanol use provides little or no environmental benefit. The study found that GHG emissions associated with corn-based ethanol are about 43% lower than gasoline on an energy equivalent basis. The use of ethanol at current rates was found to reduce emissions by as much as 35.5 million tonnes per year. The study is based on actual experience over the past decade, the current GHG profile of corn-based ethanol and the latest information about corn yields, inputs and fossil energy use. Corn and ethanol production uses less energy than ever before because of advances in both corn growing and ethanol distilling. Corn growers are producing corn more efficiently, using conservation practices such as reduced tillage, cover crops and improved fertilizer management which lower GHG emissions. Corn yields rose over 10% between 2005 and 2015 with little or no additional input use. During the period US ethanol production rose from 3.9 billion gallons a year to 14.8 billion. Improved ethanol production technology reduced GHG emissions at ethanol plants. If and when all available practices are adopted by farmers and ethanol producers, GHG benefits of corn ethanol would represent a 76% reduction compared to gasoline. Potentially GHG emissions can be reduced by over 120 million tonnes of carbon dioxide equivalent annually by 2025. (01/20/2016)

WHAT A WAY TO RUN A GRAIN COMMISSION

In the issue of this newsletter for April 11 2016 it was first noted that the Canadian Grain Commission is drastically overcharging for its services. Most of them, under the Canada Grain Act, are mandatory, so everyone subject to the Act is a captive customer. Commission charges and fees come out of the value of crops at the farm level, as do all other costs incurred in getting grain from where it is grown to where it is consumed. The Commission was required, like all federal government agencies starting in 2013, to substantially finance itself out of user fees. About $5 million a year continued to be paid by Ottawa because certain of its activities (it is hard to imagine which) were deemed to benefit the country at large. The Commission was given unlimited freedom to set fees and conditions of service, with the proviso that the risk of unplanned subsidies from the government be irreducible. The arrangement took effect at the start of the 2013-14 crop year, when massive increases were imposed. The cost of an elevator license rose by 33 times. Most other fees doubled or tripled. An automatic increase of 1.6% was set for each April 1, the start of the government financial year. Over the next three years the Commission collected $46 million more than it spent, and a 'revolving fund' into which all fee revenues go and out of which all expenses are paid soared to $65 million. This is nothing less or more than retained earnings by a government agency that is not supposed to be a profit centre. The only commodity organization that noticed this is Western Canadian Wheat Growers and it took until last week to do so. By now the so-called fund is around $100 million. The WCWGA wants fees adjusted back to a cost recovery range and the excess rebated to farmers. The Grain Commission fell through the crack between the Harper and Trudeau governments. The Junior Trudeauistes have as irresponsibly neglected the Commission as they have frivolously neglected numerous other core responsibilities of a credible government. The CGC was left without a slate of commissioners for over a year, during which it went into a self-driving mode while retaining all its powers and authority. The Grain Act, the Commission and the comical statutory grading system need a top-to-bottom zero-base shakeup. It is unpredictable when the conditions favorable for such an event might pertain, but it is definitely not in the foreseeable future. (01/13/2016)

FINAL US PRODUCTION NUIMBERS FOR 2016-17

The US agriculture department on January 12 issued its final 2016 crop production estimates, quarterly grain stocks and winter wheat seeded area. There were minor changes in both directions in corn and soybean production figures, not large enough to change the massive oversupply. Corn yield was lowered from 175.3 to 174.6 bushels per acre, still a record, and production reduced by 78 million bushels. Soybean yield was lowered by 0.4 bushel to 52.1 and production from 4.36 billion bushels to 4.31. Wheat figures were unchanged. Carryover at the end of 2016-17 was raised slightly for wheat to 1.186 billion bushels, an unprecedented 51% of production and 53% of crop-year use. Soybean carryover was lowered from 480 million bushels to 420, but still dramatically higher than 197 and 191 million for the preceding two years. Corn carryover was also reduced from last month but at 2.36 billion bushels is 37% larger than a year earlier
. US grain stocks as of December 1 were higher for all crops but close to trade expectations based on quarterly use. Wheat stocks were 2.07 billion bushels (1.75 a year earlier), soybeans 2.90 billion (2.72) and corn 12.38 billion (11.24). US winter wheat area seeded last fall was reported at 32.4 million acres, down 10% from the previous year's 36.1 million, with hard red winter at 23.3 compared to 26.6 million. Wheat area was the smallest since 1909 and the second-lowest since records began to be kept. Changes in world supply-demand estimates from the last report were too small to have market influence. Soybean futures prices rose by double digits following the report's release and wheat also rose, but the report was considered market neutral for old-crop prices. Reduced US wheat area for 2017 harvest is a positive sign but the report refers only to winter wheat. Spring wheat area could be maintained or increased because of strong prices, so that competition with Canadian wheat may be little changed in 2017-18. (01/13/2016)

CANADA'S 2015 HARVEST IS SECOND-BIGGEST

Statistics Canada issued its final 2016 crop production report on December 6, and it was immediately second-guessed by just about everybody. The farmer survey from which it was developed was taken between October 21 and November 13 when the harvest was far behind and the outlook for completing it was at its most bleak. Ideas of yield loss from weather were all over the map. Not only were yields much better than feared according to Statistics Canada, but the 2016 harvest turns out to be the biggest crop that Canada has ever seen except for the miracle year of 2013. It is only the second time that national output of mainline crops exceeded 90 million tonnes. In western Canada it was only the second to top 70 million. The December report commonly shows higher figures than the first survey conducted in July and reported in August. It happened again, though not to the extent of other recent years. Last week's report showed 4.5% or 3 million tonnes more production than Statistics Canada estimated in August. In 2013 the December estimates were roughly 18% higher than indicated by the July survey and in 2014 9% higher. Nationally the all-wheat harvest was put at 31.73 million tonnes, 15% above last year's 27.95 million because of a jump in durum in the west, and recovery of the Ontario crop after the unusually short 2015 result. The wheat harvest was the second-largest of recent times, exceeded only by 37.53 million in 2013. All-wheat production in Alberta was reported 19% higher than in 2015 and 12% higher in Saskatchewan but little changed in Manitoba. The Ontario wheat crop recovered to a more usual 2.54 million tonnes from 1.55 million in 2015, when acreage of winter wheat was sharply reduced by a late soybean harvest. The average wheat yield in Ontario was a record, 90.9 bushels per acre, a 16% increase over 2015. The durum crop was reported at 7.76 million tonnes, up 44% from last year on only a 6% increase in seeded area. Durum yield was estimated at an astonishing 48.8 bushels per acre, barely 3 bushels below the spring wheat yield of 52.0 and 14 bushels above last year's 34.4, difficult to believe given the growing season. Provincial crop reports said about 9% of spring wheat area in Alberta and 6% in Saskatchewan had not been harvested when work ended. It is not clear what will be salvaged in the spring or what amount of yet-to-be-combined production is included in the estimates. The canola crop was estimated at 18.42 million tonnes, almost unchanged from the revised 18.38 million for 2015. It was 1.4 million tonnes higher than the first figure in August but strikingly similar to the 18.31 million predicted by the September satellite-image model. Prairie-wide average yield rose to 42.3 bushels per acre, a new record, but harvested area relative to seeded area was unusually reduced because of excess rain. Harvested (or to be harvested) canola area was estimated at 19.19 million acres compared to 20.37 million seeded. In Alberta harvested area was estimated down 11% from 2013. Average yields in Alberta and Saskatchewan were records at 46.4 and 41.2 but unexpectedly dropped in Manitoba to 39.0 bushels from 40.3 in 2015 and 41.0 in the record year of 2013. (12/12/2016)

PULSE CROPS POST RECORD PRODUCTION

Lentil production reached a record 3.25 million tonnes but results overall were disappointing. The harvest was 28% larger than in 2015 but seeded area was 45% higher and harvested acreage 42.5% higher. Average yield dropped to 1,248 lbs per acre from 1,391 in 2015 or 10%. In Saskatchewan average lentil yield was 16% lower. Peas did remarkably well considering adverse growing conditions. Area and production set new records with 4.84 million tonnes harvested with an average yield of 42.7 bushels per acre, 10 bushels better than in 2015 and second only to the 2013 record of 43.7. (12/12/2016)

FARM INCOME POSTS NEW HIGH FOR 2015

Statistics Canada recently updated farm income statistics for 2015 and the first three quarters of 2016, which suggest that farm-gate revenue continued to climb to new records until the July-September period of 2016. Farm cash revenue grew by 3.2% for the 2015 calendar year over 2014 to set a fifth consecutive all-time high of $59.77 billion, following a 4.8% increase in 2014. The rising trend continued into 2016 with cash revenue 5.9% higher than a year ago in the first quarter and 2.5% higher for the second. However the bottom fell out in the third quarter with revenue down 8.8% because of lower prices for cattle and hogs and some crops, and lower quantities marketed in some cases. However 2015 was a banner year, according to the latest Statistics Canada figures. Nationally farm cash receipts from crop sales were 6.1% higher at a record $31.95 billion vs $30.12 billion in 2014. Canola sales generated $8.07 billion, 10% more than the previous year's $7.34 billion, accounting for 25% of national crop revenue and over a third in western Canada. Revenue from all wheat was $6.39 billion. Cash received from pulse crops also rose sharply in 2015, by 110% from lentils to $2.25 billion and 5% for peas to $870 million. For the first three quarters of 2016, farm cash receipts did not show the degree of decline that might be implied from downward movements in crop and livestock prices. The national total was $43.50 billion, a fractional difference from $43.59 billion in the same 2015 period. Nine-month cash receipts increased by 6% in Quebec, were unchanged in Ontario and Manitoba and declined by 1.4% in Saskatchewan and 2.4% in Alberta. Nationally, January-September revenue from crop sources was 6% higher at $24.33 billion and a new record, while livestock receipts were 7% lower at $17.81 billion. Nine-month canola sales were 12% higher at $6.70 billion, while wheat sales were 8% lower and barley 18% lower. Wheat marketings were slightly lower. Revenue from peas was 63% higher and lentils 3% higher, though the biggest gains will appear in the fourth quarter. (12/05/2016)




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