Farm Credit Canada - March 17, 2006

Note from Editor Kevin Hursh & Associate Editor Allison Finnamore

FCC has asked us to pass along information on the following opportunity. As always, comments on the Express newsletter can be forwarded to kevin@hursh.ca.

Farm Credit Canada would like to hear more from Canada's agricultural and agribusiness communities. Vision, the FCC research advisory panel, will become a major voice in Canadian agriculture, seeking the opinions of thousands of operations across the country. Members of Vision may be contacted once or twice a year to participate in specialized focus groups or surveys that will help FCC grow Canadian agriculture. Each time members participate in a survey or focus group, they will receive an incentive. Participation is voluntary and confidential each time. Join the Vision community on-line at www.fccvision.ca

The Canada Border Services Agency has made a final determination of dumping and subsidizing regarding unprocessed grain corn being imported from the United States. The decision reaffirms the preliminary determination made on December 15 of 2005.

Provisional duty of $1.65 US will continue to be imposed on imports until the Canadian International Trade Tribunal concludes its inquiry regarding injury to Canadian production.

The Tribunal's public hearings will begin in Ottawa on March 20. The Tribunal will make a final decision by April 18.

A copy of the Statement of Reasons from the Canada Border Services Agency will be available at www.cbsa.gc.ca/sima within 15 days.

A positive test result for BSE has been confirmed on samples taken from a non-ambulatory cow on a farm in Alabama. The United States Department of Agriculture (USDA) says a local private veterinarian euthanized and sampled the animal. The animal was buried on the farm and did not enter the animal or human food chains.

The USDA says the animal only resided on the most recent farm in Alabama for less than a year. Efforts are underway to trace the herd of origin.

The attending veterinarian indicated that based on dentition, it was an older animal, quite possibly more than 10 years of age. This indicates the animal was born before the 1997 ruminant-to-ruminant feed ban.

Since June of 2004, the U.S. has tested more than 660,000 animals as part of its enhanced BSE surveillance program. The first positive BSE case in the U.S. was found in December of 2003. Including this most recent case, only two positives have been confirmed since that time.

"U.S. cattle producers do not anticipate this announcement to have an impact on our relationship with our international trading partners," said Terry Stokes, CEO of the National Cattlemen's Beef Association in a prepared statement. "The United States will continue to engage in trade that is consistent with the international standards outlined by the World Organization for Animal Health (OIE), and we expect countries that trade with us to do the same."

Cattle industry officials and observers are advising producers to age verify their 2006 calf crop. It could mean better sales opportunities and perhaps a better price for the animals.

Only beef from cattle under 21 months of age can be exported to Japan and age verification is required. As well, Alberta intends to make age verification mandatory for all cattle born in 2006 or later that are marketed in Alberta.

To date, on the www.canadaid.com website run by the Canadian Cattle Identification Agency, 1.75 million birth dates have been registered for cattle from across Canada. Most are from last year's calf crop.

More than 34 per cent of the cattle registered to date are from Ontario. Although Alberta and Saskatchewan have much larger beef herds, dairy operations are more prevalent in Ontario and dairy producers typically track their herd information closely.

Alberta animals make up just over 25 per cent of the birth dates registered to date. Quebec has nearly 15 per cent, B.C. is almost 9 per cent of the total, and Saskatchewan and Manitoba are each at less than 6 per cent of the 1.75 million.

Ages are entered on the website to correspond with each animal's identification ear tag. Producers say the process is easier if you can buy tags that are sequential. Other than the time involved, there's no cost involved with age verification. Producers without Internet access can have a third party enter the information.

A producer can enter just the birth date of the first calf of the season and then all the calves are assumed to be that age. However, it's better to have an actual date for each calf. There should be a back up written record in case a producer is ever audited.

Last week's announcement by Ontario's agriculture minister, Leona Dombrowsky, that the provincial government would be injecting $125 million into the agricultural industry, has received mixed reactions from the farming community. More payment details have become available this week.

A bright spot is the news that farm-fed grains would be deemed eligible for the funding. Farm-fed grains were excluded from the federal government's funding announcement for the grains and oilseeds sector in late 2005.

Payments through the Ontario Grains and Oilseeds Program will be based on 90 per cent of a producer's average yield, acres and claim price. Payments to eligible edible horticulture producers will be based on 2.6 per cent of their 2004 eligible net sales (ENS). A complete listing of eligible horticulture crops is available at http://www.agricorp.com/en-ca/uploaddocuments/d1080+CommodityListOEHCP.pdf.

Funds will be delivered automatically to producers enrolled in the 2004 Market Revenue Insurance program and who have already reported their eligible acreage for the 2005 crop year. Application and yield reporting needs to be registered with Agricorp, who is responsible for the delivery of the Ontario Grain and Oilseed Program, by May 1, 2006.

Producers who did not participate in the Canadian Agricultural Income Stabilization (CAIS) program must submit an application form and a copy of their T2024 or T1163, as submitted to the Canada Revenue Agency, to Agricorp by June 30, 2006.

Ontario grain and oilseed farmers have long pointed a finger at their U.S. counterparts for having higher subsidies and support payments. New figures from the province suggest otherwise, but farmers don't buy it.

Last week, Leona Dombrowsky, Ontario Minister of Agriculture, Food and Rural Affairs, released a one-page document entitled "Comparison of actual benefits to Ontario grain and oilseed farmers." It shows results for Ontario farmers who grew grain and oilseeds on a 500-acre model farm in Ontario consisting of 200 acres of corn, 200 acres of soybeans and 100 acres of wheat. Each farmer would receive $73.31 per acre in payment from provincial and federal sources.

"I was surprised when I saw those figures," Dombrowsky said.

The document shows the biggest discrepancy in soybeans, Ontario's biggest crop. Ontario farmers get a $68.62 per acre payment for soybeans and U.S. producers get $27.09 per acre.

Americans make up for the difference in corn. They get $125.47 per acre, and Ontario farmers get $91.51.

In wheat, the comparison is much closer. The difference is less than $6 per acre. The U.S. pays $52.03 per acre, compared to $46.50 in Ontario.

The Ontario figures included payments from the Canadian Agricultural Income Stabilization (CAIS) program, the federal Grain and Oilseed Payments Program, the provincial special grains and oilseeds payment, and production insurance.

In the U.S., farmers received production insurance, a loan deficiency payment, a direct payment and what's called a counter-cyclical payment.

Ontario grain and oilseed farmers refute the province's claims. They say using the United States Department of Agriculture (USDA) subsidy numbers, the 500-acre model farm would get $73.40 per acre under U.S. programs. This is a bit more than the provincial estimate, but just $59.59 per acre in Ontario (2005-06 crop year estimates), if the provincial special support program payment is excluded.

"In Ontario, this is ad hoc money, but the U.S. has a long-term program producers can rely on," says Brian Doidge, general manager of the Ontario Corn Producers' Association. "The bottom line is, support is not equal."

A class-action lawsuit that, if successful, could force Eastern Canada's largest rendering conglomerate to pay as much as $1 billion to citizens angered by the odours from one of its plants, has been given the go-ahead by Quebec Superior Court.

The suit was brought forward by the Regroupement des citoyens contre la pollution, a non-profit group that has for years complained about the smells emanating from the Alex Couture rendering plant in Charny, a small town just south of Quebec City.

Opened in 1965, the plant annually transforms about 270,000 metric tonnes of animal carcasses and by-products from slaughterhouses and butcher shops. It turns fat, bones, feathers, offal and blood into bone, blood and feather meal, animal feed and refined fats.

According to Stéphane Nadeau, a Montreal lawyer who represents the citizens' group, people living within a four-mile radius of the plant have long complained to municipal and provincial government officials about what he called "the putrid stench" that comes from the plant.

"People have been forced to put up with an intolerable situation for years," Nadeau told AgriSuccess. "They deserve to be compensated."

In its lawsuit, the group is asking the courts to order the rendering company to pay, among other things, $500 a month for damages to the "health, physical integrity, well-being and quality of life" to residents who live - or have lived - within a four-kilometre radius of the plant since March, 2001.

In his decision to allow the lawsuit to proceed, Superior Court Judge André Roy estimated that the lawsuit could involve as many as 20,000 people and add up to as much as $1 billion in penalties to Alex Couture Inc.

The lawsuit is expected to be heard in early 2007.

Company officials scoffed at the ruling, saying the enterprise has spent $7 million in environmental upgrades since 2001 - improvements that have earned accolades from the province's environment ministry.

"The number of complaints has fallen from a few thousand to a few dozen," said François Houle, an employee of National, the public relations firm that has been hired to speak for Alex Couture Inc.

Houle added that company-commissioned polls have found "a high level of satisfaction among Charny residents concerning the (smell)."

He also rejected calls that the plant be moved, saying it would cost $50 million. Instead, Houle lauded Alex Couture Inc.'s activities as "an essential public service."

Alex Couture has a second rendering plant in Montreal, one of three rendering companies that merged in 1987 to form Sanimal (the other two were Lomex and Fondoir Laurentide).

Supplied by the company's fleet of 300 trucks, which travel more than seven million kilometers a year, the two plants render animal carcasses and food industry by-products from some 25,000 customers across Eastern Canada and the American Northeast.

In its 2006 budget, Manitoba has eliminated all provincial taxes on pure biodiesel produced within the province. This more than doubles the province's tax incentive to spur biodiesel production.

The province is no longer collecting the road tax and provincial sales tax on pure biodiesel that meets the American Society for Testing and Materials fuel quality standard. Manitoba says the incentive will remain in place for five years to give the industry time to grow.

The removal of the taxes provides an 11.5 cents per litre advantage over regular diesel and is in addition to the four cents per litre tax break offered by the federal government. The tax advantage applies to the biofuel portion of biodiesel blends.

As part of its biodiesel action plan, Manitoba is working on the establishment of a biodiesel fuel quality testing centre. As well, it is studying the feasibility of using specified risk materials (the components of livestock remains that are restricted due to BSE) for the production of biodiesel.

Biodiesel is made from vegetable oils (canola oil is preferred due to its superior cold flow properties), as well as animal fats and/or waste restaurant grease.

There are currently two pre-commercial biodiesel production facilities in Manitoba – Bifrost Bio-Blends in Arborg and Celtic Power in Rapid City.

Processing growers in P.E.I. are now collectively entitled to close to $700,000 in refunds from the Potato Board following a ruling by the Natural Products Appeals Tribunal.

Following a vote supported by 76 per cent of P.E.I. growers last spring, the commodity board doubled the levy it charged growers from seven to 14 cents per hundredweight. The extra money was used to pay growers $200 per acre to keep potato land out of production as part of an effort by producers in Canada and United States to reduce acreage in the hope of increasing price. P.E.I. led the Canadian effort with over 10,000 acres of spuds diverted from the marketplace.

A group of processing growers tried to gain an exemption from the double levy, claiming they were not part of the overproduction problem since all of their spuds were destined for processing.

Dwight Gardiner, who was board chair at the time, resigned and joined the fight to have the double levy rescinded. He, along with two other former potato board chairmen, Leslie MacKay and Allison Dennis, led the case before the Natural Products Appeals Tribunal.

The tribunal ruled the processing growers should be assessed an additional levy because "the overall prosperity of the potato industry depends on the health of all three sectors - tablestock, seed and processing - and because knowledge gained from the results of the buy-down program benefits the entire industry."

However, the tribunal ruled the levy for processing growers should be adjusted to 9.6 cents and ordered the potato board to refund the extra 4.4 cents on all processing production sold in 2005.

Both sides still have the option of appealing the tribunal ruling to the Supreme Court of P.E.I. While the ruling wasn't a "slam dunk", Leslie MacKay said the group of processing growers is relatively happy with the ruling. The P.E.I. Potato Board has made limited public comment since the ruling was handed down.

The tribunal spent five days hearing the case, which first began just before Christmas. In total, 65 of the Island's 85 core processing growers (defined during the hearing as those who channel at least 75 per cent of their production into processing), signed on to share the legal cost of the tribunal challenge.

Many producers are currently in the process of finalizing rental or crop-share agreements. Don't get caught with some unpleasant and unexpected tax problems that could result from the nature of the agreement.

People who rent their land on a cash or crop-share basis are generally not considered to be using their land in the business of farming. These types of rental arrangements can potentially jeopardize the ability to roll the property to a child without capital gains implications during the owner's lifetime or on death. This is because the property must have been used in the business of farming prior to the rollover.

It is generally suggested that producers consider the use of a custom work or a joint venture agreement to ensure that the property is considered to be used in the business of farming. Producers who hire an operator to perform farm work for a flat fee, or who hire the custom operator to carry out many of the farming activities, but who maintain control over all the key cropping decisions and associated risks, are generally considered to be engaged in the business of farming.

Similarly, joint venture arrangements, where both parties incur expenses, are involved in the management decisions and assume some of the risks, should ensure that both parties to the agreement are considered to be in the business of farming.

It may also be possible to rent your land without the complication of custom farming or joint venture agreements if your farm meets a time/usage test that was introduced for agreements entered into after 1992. Prior to that time, the land was required to have been used in the business of farming immediately before the transfer. However, the new rule only requires the land to have been used principally in a farming business before the transfer, by you, your spouse or a child on an active, regular and continuous basis.

Principally is considered to mean more than 50 per cent. For example, if a producer farmed the land for ten years and rented it for nine years prior to the transfer, the test would be met, since the land would have been farmed more than half of the time. However, if the land was farmed for ten years and rented for 15 years prior to the transfer, it would not be considered to have been used in the business of farming for purposes of the test.

The rules are complicated. Be sure to consult a tax professional to ensure you have not jeopardized your ability to rollover the property to your children merely because of the nature of the agreement you have in place.

An Ontario mushroom producer has put technology from hog barns to work on his mushroom farm.

Clay Taylor's mushroom facility is located in Ashurn, north of Toronto. As new housing construction prospered in the area, Taylor faced increasing public pressure about his composting operation, the initial step in mushroom farming. Complaints soon turned into legal action and Taylor decided to take steps to mend neighbourhood relations. He initially considered installing biodigestors to reduce the odour from composting, but instead opted to use ozone injectors.

The ozone injectors are the first in the country to shift the commonly used hog technology to the mushroom industry. The three ozone injectors, each atop of composting bunkers, are two 1,500 gallon tanks. As part of the normal composting process, air is vacuumed from the composting material. It then passes through into an injector tank where ozone is added before being dispersed in the air. The addition of ozone depletes the odour associated with composting.

"It's a logical replacement to biofiltration," Taylor explains. "Ozone has no byproducts and it's less money." Each of the three injectors came with a $130,000 price tag.

Since 1995 when the first legal action was launched against Greenwood Mushroom Farm, Taylor said the company has spent over $1 million on legal bills. "It's just a cost of doing business now." Yet he's met the issues of urban crush head-on. When all is said and done, Taylor said agriculture, the community and municipal planners need to work together more effectively. "The land use conflict comes from poor planning from municipal government," he states.

I've been a dollar bull for a long time, but the two-cent decline to $0.86 cents U.S. this past week has everyone second-guessing this market.

A recent sharp decline in metal and energy markets, as well as dovish comments from the Bank of Canada pertaining to further interest rate hikes and a stronger U.S. dollar, caused our Loonie to plunge by two cents after nearing 15 year highs at the start of the month.

There are now ideas that the downward correction in the currency will continue for some time. The emerging argument is that the appreciation of the Canadian dollar since October of last year reflected very sustained, pent up demand for the Canadian unit, not just against the U.S. dollar, but on the crosses with other currencies as well. That pent up demand resulted in the Canadian dollar making some big moves against most of the main global currencies.

Part of the demand that had been built up was linked to firm commodity prices along with elevated mining activity in Canada. Some of the demand was also attributable to the Bank of Canada and its rate-tightening schedule.

All of these factors combined to generate the pent up demand for the Canadian currency that took it to the $0.88 U.S. cent level. However, some of that demand for the Canadian dollar was lost when the Bank of Canada's accompanying statement, after announcing its latest quarter percentage point rate hike on March 7, moderated their view on further rate increases.

The less hawkish view on future interest rate hikes caused investors to lighten up their Canadian dollar positions and in turn take some profits.

There is also the belief that the Canadian dollar is in the midst of correcting itself, technically, with the $0.85.1 U.S. cent level a possible target over the next month.

As for the downward correction in the Canadian currency continuing, few are willing to venture beyond that point for now.

As long as we continue to see a continuation of the favourable economic data in Canada, the fundamental backdrop that is pointing up will not change. Once the correction down near the $0.85 U.S. cent level has occurred, I suspect that investors will once again realize the Canadian dollar is still a good deal and that there is room to strengthen it further.

However, while the industrial commodities have taken a backseat to interest rate considerations, one can not necessarily rule out their affect on the currency either. If we see a fairly sharp move in commodity prices, either up or down, the currency market will sit up and take note and incorporate that action in the Canadian dollar as well.

The possibility of the Canadian dollar moving to the $0.90 U.S. cent level cannot be totally removed from the outlook. The actions of the Bank of Canada this past week have lessoned the probability. If you asked me the week before, I would have agreed that the Canadian dollar was on its way to the $0.90 U.S. cent level. This is something I have suggested for some time. However, with the Bank of Canada's change in interest rate policy this week, there is less likelihood of that occurring.

However, once the price correction is over and the market shakes out its weak position holders, the Canadian dollar could eventually move back into the $0.87 to $0.88 U.S cent level.

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.