Farm Credit Canada - December 9, 2005

Note from Editor Kevin Hursh & Associate Editor Allison Finnamore

There's more bad news to report for grain and oilseed prices this week. Statistics Canada has increased its production estimates on a number of crops, particularly canola. We have a story on the StatCan numbers and Mike Jubinville in his Market Focus tells us what the extra production may mean for price levels.

As always, you can reach us with comments and ideas at kevin@hursh.ca.

The November production estimate from Statistics Canada has confirmed record production levels on a number of crops.

Both Saskatchewan and Alberta set records for canola production. The big production is the result of near-record harvested areas on top of the highest average yields ever reported in these provinces.

By comparison, the adverse weather conditions in Manitoba resulted in a 29 per cent production decline in canola.

Prairie-wide, canola production increased by 25.5 per cent over last year to a total of 9.5 million tonnes.

Prairie flaxseed production jumped to 1.1 million tonnes, just shy of the record set in 1970. Saskatchewan’s flaxseed production was the most ever.

Prairie durum wheat production hit 5.9 million tonnes, an increase of 19 per cent over last year. The 10-year average is 4.6 million tonnes.

Canadian soybean production was a record hitting 3.2 million tonnes. Production was down 2.9 per cent in Quebec to 505,000 tonnes, while production in Ontario rose 4.4 per cent over last year to a record 2.6 million tonnes.

Genetically modified soybean acres in 2005 were 43 per cent of the total soybean acreage in Ontario and 41 per cent in Quebec, a ratio unchanged from 2004.

Corn production in Quebec remained unchanged at 3.4 million tonnes, not far from the record of 3.5 million tonnes set in 2003. In Ontario, corn production hit 5.8 million tonnes, the result of a record yield of 145 bushels per acre. Corn yields in Ontario have risen steadily since 2000.

In Quebec, 44 per cent of the corn area was genetically modified, while in Ontario, 39 per cent was classified as GM. These percentages have risen considerably since data was first collected in 2000, but the numbers have leveled off in recent years.

Producers from the Canadian Wheat Board are receiving final payments for grain delivered in the 2004-05 crop year. These final payments represent the balance of the money owing to producers after their grain has been marketed through the CWB, and after operating costs have been deducted.

The final payment on the base grade of No. 1 CWRS wheat, 12.5 per cent protein is $11.91 a tonne, bringing the total payment before freight and handling deductions to $196.01 per tonne. The Pool Return Outlook for the current crop year is $201 a tonne on the base grade.

On No. 1 durum with 12.5 per cent protein, the final payment is $12.07 per tonne, bringing the total payment to $210.07. The PRO for the current crop year is lower at $192 a tonne.

No. 1 feed barley in Pool B (second half of the crop year) has a final payment of $17.68 a tonne, bringing the total payment to $131.68. By comparison, the PRO for Pool A feed barley in the current crop year is $126 a tonne, while Pool B is $118.

The final payment on the top grade of designated barley is $12.95 a tonne, bringing the total to $179.95. The PRO for the current crop year is $172.

The full listing of final payments is available at www.cwb.ca under the Payments link.

This is the earliest the CWB has issued final payments. Direct deposits were credited to the accounts of farmers on Dec. 6. Final payment cheques were dated Dec. 6 and were to be mailed on Dec. 9.

Western Canadian dairy producers now have an incentive to look for Johne’s Disease. Canwest DHI is offering producers a $400 rebate for testing their whole herd and following up with a one-hour veterinarian consultation.

Johne’s Disease is a contagious bacterial infection which thickens the intestinal tract lining, leading to poor nutrient absorption, decreased milk production, weight loss and diarrhea. Some scientists suggest that Johne’s Disease may be linked to Crohn’s Disease in humans. If such a link is confirmed, it could have a devastating impact on the dairy industry. Given the actual and potential effects, it is in the industry’s best interest to try to eliminate Johne’s Disease from dairy herds.

The Johne’s Disease program has been available in Ontario for five months and was made available in the four western provinces on Dec.1. The incentives come from $300,000 in federal funding received by Canwest for Johne’s Disease awareness and training.

The ELISA milk test is as accurate as blood testing but much simpler and cheaper. Samples cost $9 each, plus a $50 herd administration fee. Canwest DHI general manager Neil Petreny says the chance of a false positive result is “low,” noting that farmers are more likely to get “false negative” results.

Nearly 6,000 cows in almost 200 herds have already been tested in Ontario. Although less than four per cent of samples were positive, over 20 per cent of herds had at least one positive cow. DHI does not make recommendations on what to do with positive cows. Instead, DHI provides the information to herd veterinarians and asks farmers to consult with their veterinarians. Petreny notes many U.S. dairy producers test their cows at dry-off since most cows with Johne’s Disease are culled.

Some farmers privately suggest that positive tests create a dilemma. “Since there may be a link to Crohn’s Disease, do you send the cow to slaughter anyway?” one farmer asked.

The test is not sensitive enough to pick up a positive from one or two cows in a bulk tank, nor is a single test enough to certify a herd as Johne’s-free.

Canwest is also developing tests for leukosis and Neospora. The leukosis test could be available within a year but the Neospora test still needs much more work.

The two general farm organizations in P.E.I. that will be affected by amendments to the Farm Registration and Farm Organization Act find themselves on opposite sides of the issue.

Like many other provinces, P.E.I. implemented a mandatory check-off system that required farmers to pay a fee based on gross farm income. Dues range from $75 to $350 per registered farm. The fee was directed to either the P.E.I. Federation of Agriculture or the National Farmers Union. There was also provision for a no questions asked refund.

However, the act provided no penalties for producers who failed to register, and, as a result, only about half of the province's 1,800 bona fide farmers actually did.

Federation president Eddie Dykerman said this is the main reason the federation asked Agriculture Minister Kevin MacAdam to introduce amendments making membership in a farm organization a condition for obtaining a provincial sales tax exemption on fuel. Plus, there is no longer a provision for a refund.

"It can be argued that farmers are every bit as professional as doctors, lawyers and social workers and make an equal or greater contribution to society," Dykerman said. "In most cases, professionals have well funded organizations that their members are required to join in order to reap the benefits of their organization. Farmers should be no different."

However, the P.E.I. district director of the National Farmers Union has a very different view of the legislation. Danny Hendricken feels the amendments are undemocratic and "represent our worst fears back when the act was first introduced. That's one of the reasons why we decided to participate because we didn't want our members to suffer financially."

Hendricken had first indicated the NFU might challenge the bill in the courts. However, he said such a strategy would be both costly and time-consuming and "I'm not sure that's how our membership would want us to use their funds."

He said it is unfortunate that, given the many challenges facing the industry, attention will be diverted to what is essentially an administrative issue. Even though his organization may see additional revenue from the move, Hendricken said he remains opposed to the concept and predicts there could be a backlash within the agricultural community.

The district director said the NFU might consider offering a refund to people who felt they were forced to join the organization against their will. Agriculture Minister Kevin MacAdam said there is nothing in the legislation that would prevent the group from taking that action.

Alberta’s Olds College, along with several commercial and provincial research partners, are the first in North America to combine advances in computer technology with a new method of measuring feed efficiency to help increase beef herd profits.

The technology, developed by GrowSafe Systems of Airdrie, Alberta, uses computerized bunk-style feeders. Sensors on the feeders read the electronic ear tag of each animal, producing a record of feed consumption by individual animal over a 24-hour period.

The new measurement is called Net Feed Efficiency (NFE). NFE helps identify animals that gain weight on less feed and is the difference between an animal’s actual feed intake and its expected feed requirements.

Data is collected over 120 days of feeding to determine each animal’s NFE and can then be used to generate Expected Progeny Difference (EPD) ratings on bulls with improved feed efficiency. The EPDs are used to select breeding stock with the genetic potential for feed efficiency.

Results from three years of NFE feeding trials at the College were used to generate EPDs for 221 bulls this year. Testing will continue at Olds this fall and winter, as well as at Cattleland Feedyards, a commercial feedlot near Strathmore. Cattleland is offering the first commercial bull test services in Canada aimed at collecting NFE data. The feedlot is currently in the process of assessing close to 190 head of bulls from 50 purebred breeders.

Researchers believe that the ability to select breeding stock with a genetic predisposition for feed efficiency could save the cattle industry millions of dollars annually in feed costs. According to a report released by the Canadian Cattlemen’s Association, feeding trial results at Olds indicate savings as high as $80 per head over the 120-day feeding period.

Neil French, an instructor at the College who specializes in feedlot management and animal breeding, points out that NFE assessments are not a breed issue since all breeds can have animals with improved feed efficiency. For example, early 2005 bull test results showed a Simmental bull with the highest NFE among 40 other bulls from three breeds, while his half-brother ranked 35th.

A research project has been launched to help grape and tender fruit growers use wind machines more effectively in reducing the risk of spring and fall frosts as well as winter injury.

Wind machines improve crop protection by drawing down warmer air that is located 12 to 24 metres above ground level. The warmer air is mixed with colder air closer to the ground and raises the ambient temperature around the trees and vines.

While wind machines are used in many different crops in many other countries, the use of wind machines to minimize cold injury damage is unique to Ontario conditions. The approximate cost of each wind machine is $30,000. Each one can protect about 10 acres of crops.

The research will take place over the next three years. Since wind machines are expensive to operate, the research will examine ways to optimize their use to reduce operating costs. The work will also examine ways to minimize the impact of noise on off-site residents.

CanAdvance, through the Agricultural Adaptation Council of Agriculture and Agri-Food Canada has approved funding of $133,000 for the project. Grape Growers of Ontario and the Wine Council of Ontario are major sponsors.

Hernder Farms of Niagara-on-the-Lake will be one of the cooperating growers working with the researchers.

Massey Ferguson has introduced three new specialty tractors equipped with pressurized cabs and air filtration systems. The system seals out pesticide particles and other contaminants to protect operators during specialty applications such as orchard spraying.

The Series 5400AS tractors and cabs are designed specifically for close-quarter work such as spraying fruit tree rows in mature orchards. The body styling is narrow, cabs are tapered and rear view mirrors are mounted inside the cab.

A pressure gauge in the cab roof provides constant monitoring of cabin pressure and indicates when filter service is needed.

The models are 90, 95 and 105 PTO horsepower. There are two-wheel and four-wheel drive models.

The Montreal Exchange and Chicago Climate Exchange have signed a Letter of Intent to develop a new joint venture to create the Montreal Climate Exchange, a Canadian market for environmental products. The announcement was made in Montreal during the United Nations Framework Convention on Climate Change.

The two parties will develop trading, clearing and registry services for Canadian environmental products. The first product base will be the Canadian carbon market, something that is expected to become important to agricultural producers.

The Montreal Exchange is Canada’s oldest exchange and is a leader in derivative products. The Chicago Climate Exchange is described as North America’s only, and the world’s first, voluntary, legally binding rules-based greenhouse gas emissions allowance trading system.

Michel Robert and Lorraine Mondou haven’t let farming in northern Quebec slow their dream of becoming successful dairy and grain producers.

Robert and Mondou were the Quebec honourees at the 2005 Canada’s Outstanding Young Farmers program. Young producers from across Canada met in Halifax last month to participate in the final round of the national program. P.E.I. dairy producers Steve Reeves and Jessica Francis and Ontario cattle producers Philip and Luanne Lynn share the 2005 top award.

Robert and Mondou run a 1,220-acre dairy and grain operation in northern Quebec, near the Ontario border, about 170 kilometres north of North Bay. After Robert and Mondou married in 1989, the couple returned to the family farm and bought out the operation in 1993. They were ready to expand the 37 cow, 34 kilograms a day production and 325 acres. They have been growing steadily ever since.

Mondou manages the farm finances and began the expansion by mapping out a 10-year financial plan. Now, she says, when they work with financial institutions, they have a clear plan on how to reach their goals.

But the couple points out that as important as it is to have their goals outlined, it’s also essential to be flexible. Their plans to build a traditional barn changed dramatically when they had the opportunity to buy a second nearby farm that included a free stall barn and double eight milking parlour. They grew from 90 head and 325 acres to 150 head and 850 tillable acres and 350 acres of managed woodlot.

They also began milking at two sites, deciding that despite the logistical challenges, it was more cost efficient than building a large barn and milking parlour at one of the two sites. Milk production at the dairy operation is now at 100 kilograms a day.

Farming in the isolated region of northern Quebec is challenging, however, the couple points to the micro-climate of the area near Temiscamingue Lake, boding well for grain production. They’ve produced corn silage for five years at 2,300 heat units and, in 2005, wrapped up their second year of flax production, producing eight varieties to help with continued research. Their 875 acres of cultivated land is split into 110 acres of corn silage, 240 acres of barley, 150 acres of canola, 26 acres of flax and 350 acres of hay.

Key to their operation, they note, is good staff. Robert and Mondou work to retain long-term employees and ensure tasks are assigned based on employee strengths. They also host regular social events like a staff Christmas dinner.

Statistics Canada released their latest production summary for Canada on Wednesday. It is bearish for canola with all-time record production estimate of 9.662 million tonnes. This is even above the high end of trade expectations. This is the largest surplus and lowest price environment in canola history.

Below is a table highlighting the StatCan report data compared to the estimates made back in October. Production is in thousands of metric tonnes.

The 1.2 million tonne upward revision for the canola production estimate from the previous report in October throws everyone’s supply/demand forecasting into a quandary.

The number is unquestionably bearish, but it is hard to judge how aggressively this market will respond with futures already at 20-year lows and the spec funds holding a huge net short. While a good measure of bearishness has already been worked into prices, sustainable rallies will be hard to come by for some time.

I believe canola is attractively priced internationally to generate new business to China and Pakistan, but it’s going to take a whole lot of extra 50,000 tonne shipments to dispose of this surplus.

Unfortunately, there is no easy way out of the canola situation. My initial sense is that oversupply for the canola market will take much longer to resolve. Year-end carryout now seems destined to top the previously unimaginable 3 million tonne level.

The bottom end to this market has yet to be found. I suspect it’s not a matter of how much lower this market needs to go, rather how long current prices need to be maintained in order to dispose of the surplus. It is likely to extend right into the 2006 growing season unless new fundamentals come to light, such as a problem with the South American soybean crop this winter.

The trade should soon begin to adopt the perception that 2006 canola acreage could decline more than expected.

Other commodities including wheat, barley, oats and flax were a little higher than the October report, but this was expected. There is more bearish news for durum, with a large jump from October. There will be no immediate price impact for durum, but the numbers highlight why deliverable opportunities through the CWB will be challenging this year, with a lot of crop likely to be carried into the 2006/07 marketing year.

The size of the durum increase to 5.9 MMT guarantees a record sized carryout likely near 3.5 MMT and assures that the CWB delivery opportunity of 50 per cent is correct.

Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit http://www.pfcanada.com to find out more about his services.