Farm Credit Canada - September 8, 2006

Note from Editor Kevin Hursh & Associate Editor Allison Finnamore

Although we carry reports of interest to specific industries and specific provinces, we’re always on the lookout for stories that will resonate across the nation. This week’s stories on new organic regulations, cattle age verification and the new funding for integrated traceability are good examples.

We appreciate your feedback. Just e-mail to kevin@hursh.ca.

James Richardson International Limited (JRI) has announced that it will build its new canola crushing plant in the vicinity of Yorkton, Saskatchewan. The plant will be capable of crushing 840,000 tonnes of canola per year and the construction cost is estimated to be in the range of $100 million.

JRI was also considering locations in Manitoba and North Dakota. However, the company notes that Yorkton in east central Saskatchewan is situated in a prime canola-growing region, with access to major rail carriers, a good highway system and the availability of required infrastructure.

Initial site preparation work is expected to begin before the end of the year, with actual construction starting early in 2007. Construction will take 18 to 24 months. Once operational, the plant will employ up to 70 people, mostly in high-skill positions.

JRI, a subsidiary of James Richardson and Sons, Limited, claims to be the largest privately owned Canadian agribusiness. In addition to handling grains, oilseeds and special crops, JRI is actively involved in food processing through its subsidiary, Canbra Foods Ltd.

The process of regulating Canada's organic industry took another step late last week with the release of changes proposed by the Canadian Food Inspection Agency.

The pre-publication of the organic regulations appeared in the Canada Gazette (Vol. 140, No. 25, Sept. 2, 2006) and marks the beginning of a 75-day comment period for stakeholders, both domestic and international. Then, the federal government will review the comments and make any necessary changes before final publication and enactment of the regulations.

According to the CFIA, the country's organic food sector is expected to grow by 20.6 per cent a year between 2006 and 2015. Farm gate prices were around $200 million in 2003 and are estimated at $350 million for 2005.

Despite the current and anticipated rapid growth in the industry, the nation's organic industry is self-regulated by voluntary national standards set by the Standards Council of Canada. The CFIA explains that national mandatory regulations are essential to maintain and grow trade opportunities.

"Canada has been informed that its organic food products will lose access to the European Union market," CFIA states, adding the opportunity exists to expand export markets with a national regulatory system.

CFIA is proposing the creation of the Canada Organic Office, which would certify organic producers and processors across the country and regulate the industry.

The Organic Trade Association (OTA) is calling the pre-publication of the regulations a "major milestone" to national organic standards.

"The Canadian organic community has been seeking mandatory national organic standards that will ease the way for trade of organic products both within Canada and with other countries," says Caren Wilcox, OTA's executive director.

Harvest has advanced rapidly and is well ahead of normal across the prairie region.

The Alberta Crop Report for August 31 lists overall harvest progress in that province at 35 per cent. However, Jim Broatch, an insect and crop specialist with Alberta Agriculture, Food and Rural Development, says progress is now probably nearing the 50 per cent mark.

Overall, Alberta Agriculture expects dryland yields on all crops to be average to below average. Quality is good but there are many reports of lower test weights in areas with light soil textures.

Broatch says some producers have delayed the combining of swathed canola due to green seed problems. The canola is dry, but green pigment has been locked into too many seeds - probably the result of the hot temperatures at swathing. It's hoped that some of the green in the seed will clear if there are rains to again hydrate the seeds.

The September 3 crop report from Saskatchewan Agriculture and Food puts harvest progress in that province at 62 per cent, an increase from 37 per cent the week before. The five-year average for this time period is 32 per cent combined. Last year, only 18 per cent had been harvested.

The Saskatchewan harvest is most advanced in the southwest where 86 per cent is combined and least advanced in the northeast where combining is at 45 per cent.

With over 90 per cent of the Saskatchewan pea and lentil crops combined, crop reporters estimated that 94 per cent of the peas and 91 per cent of the lentils would fall into the top two grades.

In Manitoba, there was another week of good harvest weather. In many areas, the cereal harvest is virtually complete and producers are working on oilseeds.

In the central region of Manitoba, the agriculture department reports that soybean maturity is rapidly advancing with some early varieties harvested. Some edible beans have been harvested, but in some cases the beans have become too dry and cracking is an issue. The potato harvest has also started.

Winter wheat planting is underway in many regions of Manitoba, although the lack of soil moisture is an issue.

There are concerns about pasture conditions and dugout levels due to the lack of significant rainfall in recent weeks.

While the hot, dry weather throughout August and into September has been good for getting the prairie harvest done, it is also creating issues around grain storage.

"The advantage of having nice clear skies and warm temperatures means you get an uninterrupted harvest, but on the other hand grain going into the bin at 30 degrees can have some problems," says Blaine Timlick, entomologist with the Canadian Grain Commission.

Farmers have been contacting the CGC with reports of rusty grain beetles being present while they are unloading their crop and putting it into storage.

"Our issue with rusty grain beetle is that it reproduces very quickly especially if temperatures are adequate, and grain temperature of 30 degrees is the ideal environment for this insect to feed and reproduce."

Timlick says under current conditions the pest can go through its entire life cycle in 21 days, which can cause serious damage as the grain beetle not only feeds on the grain, but also uses it to lay its eggs.

While chemical insecticides are not intended for storing canola or flax, they can be used in bins where cereal grains are located. Timlick pointed out that treating a bin before it's filled can be a good preventative option for growers.

"It will stop the insects from migrating into the bin, or if they do migrate in they will succumb to the insecticide. So it is helpful as a starting process, but by no means is it the complete answer to an infestation problem."

Cooling stored grain to 15 degrees and keeping it under 14.5 per cent moisture is the most effective ways to mitigate pest problems. The insects quit reproducing at cooler temperatures.

Aeration is one of the most effective options in reducing the temperature of stored grain. The CGC advises turning on fans during the early evening, night and early morning, when the temperature outside the bin is below that of the stored bulk grain.

"When the air temperatures cool down outside the bin, air currents will to start moving in the grain. The cooler air near the wall of the grain will start moving down and force warmer air up the centre."

Timlick says the air from aeration fans follows the path of least resistance and if the grain is not level, convection currents can occur where the heat will move into the peaked areas which then creates ideal conditions for the rusty grain beetle to persist.

The CGC reminds producers and the grain industry that by law, grain handlers are not permitted to accept infested grain. The CGC monitors railcars for the presence of insects.

Canadian grain producers participating in this year’s Canadian Grain Commission Harvest Sample program can now get their grade and quality results online.

“We are pleased to offer our new web service designed for producers who want to get their 2006 Harvest Sample results quickly and easily,” says CGC Chief Commissioner Chris Hamblin.

Each year, thousands of producers across Western Canada send their harvest samples to the CGC for testing. In return they receive a grade and quality analysis for each sample they provide and their names are entered for prize draws.

Participating producers can use their identification number to access the web service at www.grainscanada.gc.ca.

In addition to the web service, producers can also get their sample results by calling 1-888-324-2248, or by visiting the CGC booth at the Agri-Trade Expo in Red Deer from November 8 to 11 or Canadian Western Agribition in Regina from November 20 to 25.

The CGC blends samples of the same kind, grade, class and protein content, or provincial origin, for testing at the CGC Grain Research Laboratory. In this way, wheat, oilseeds and pulses can be tested for their processing characteristics. The results are used by domestic and international marketers and buyers.

The Alberta Research Council (ARC) has teamed up with Ovistech Corporation and several other partners to develop the first technology of its kind to help producers monitor the health of their animals.

The technology uses ear tags and collars that monitor key events such as temperature, feed and water patterns, and mobility. High temperature and immobility are often key signs of a health problem. Using wireless technology, the devices transmit to an appliance with an antenna that picks up the signal and reads the results.

The project, called FARM (Feedlot Animal Remote Sensing), was field tested this past spring on 45 feeder calves. Additional testing is scheduled for later this year. Reg Schmidt, Chairman of the Feeder Association of Alberta and owner of Rivera Farms near Thorsby, Alberta, where the testing occurred, was impressed with the results.

Schmidt estimates the system has the potential to save him as much as $35,000 per year. “The biggest savings are with death loss and antibiotics. It is shocking when you do the math. The system can identify a sick animal more quickly than humans.” In fact, during the testing process when information was relayed to an offsite monitor for analysis, Schmidt says, “the system identified sick animals 24 to 30 hours before we saw them (using visual inspection).”

There is also the issue of labour. Schmidt notes that labour costs are not really an issue, since labour to fill vacant positions is simply not available in Alberta’s overheated economy. What it does mean is that he can better utilize the labour hours he has available by being selective. He no longer needs to look at all the animals but can zero in on those that the system has identified as possibly sick or stressed.

Lloyd Osler is the president of Ovistech Corporation, the Edmonton company that developed the software. According to Osler, the system provides real-time feedback that can be limited to the farm location or expanded to use the power of the Internet to allow remote monitoring while the producer is away from the site – anywhere in the world.

Osler notes that the ear tags can also incorporate the information required by the Canadian Cattle Inspection Agency so that only one tag is needed. He estimates the cost of the tags at between $5 and $7 for beef cattle. Tags for dairy cattle will have a higher cost because of the need to track additional information. The one-time cost for the hardware is anticipated to be a maximum of $500 for lower end systems.

Ovistech and the ARC are presently looking for more producers to help with the testing, as well as additional investment partners. Osler estimates the system will be ready for the dairy industry in about six months and for beef cattle in 12 to 18 months.

The Canadian Cattle Identification Agency (CCIA) says it continues to see increased participation in age verification by producers across Canada. Since March of 2004, over 2.5 million birth dates have been submitted on the Age Verification website.

"August saw a record of just over 110,000 birth date submissions, and with the fall calf run just around the corner, we expect to see this number continue to increase," says Nadine Meade of the CCIA.

Meade says the recent increase in submissions is also because various industry segments such as auction marts and feedlots are actively and positively promoting age verification to their customers.

Many producers are expected to age-verify their calves shortly before sending them to market. However, industry observers recommend that producers verify as soon as possible to make sure there are no problems with the data entry on the website.

Age verification is free and is offered to producers across Canada. Producers who do not have Internet access can assign a third party to submit the data on their behalf. More information is available at www.canadaid.ca.

Some markets, particularly Japan, want the assurance of age verification to know that imported Canadian beef is from animals under 21 months of age. However, market analysts are unsure whether age-verified calves will command a price premium this fall.

Alberta has proposed mandatory age verification for April 1, 2007. Other provinces have said age verification will remain voluntary, but a large number of feeder cattle from other provinces are sold to Alberta feedlots.

Federal Agriculture and Agri-Food Minister Chuck Strahl has announced the Canadian Integrated Traceability Program worth $1.7 million. The new program is to accelerate the development, implementation and integration of traceability systems across the Canadian meat and livestock industry.

The CITP provides funding to support pilot projects in the livestock and meat sector which demonstrate integrated approaches to traceability implementation across the value chain. Funding of up to 50 per cent is available to a maximum of $150,000.

This is one of a number of measures introduced to help the industry deal with the BSE issue.

To find out more about the CITP and to obtain application forms, visit www.agr.gc.ca/citp or call 613-759-7150.

Ontario producers who have developed unique and innovative practices to enhance their farm operations now have the chance to earn some cold, hard cash for their entrepreneurial efforts.

The provincial government has announced that up to 55 innovative regional projects will receive awards through the Premier's Award for Agri-Food Innovation Excellence, a five-year, $2.5-million recognition program. Funding was committed in the 2006 provincial budget.

In announcing the program details, Ontario minister of agriculture Leona Dombrowsky said, "This program recognizes the innovation that farmers have always shown in running their businesses."

To be considered for the project funding, farm operators need to make application, detailing their innovation. All projects will be assessed for uniqueness and originality, stage of development, and the impact or benefit of the innovation's, adoption and/or commercialization.

Up to 55 regional projects will be chosen, with winners pocketing $5,000 for their innovation. From the regional winners, two outstanding projects will be further recognized, with one being named as the Premier's Award winner and receiving up to $100,000. A second recipient will receive up to $50,000 as the winner of the Minister's Award. Special recognitions will be given for these honours at the 2007 Premier's Agri-Food Summit.

"One idea can generate new products, new jobs and new opportunities. That's why we're recognizing and honouring the spirit of innovation that thrives on our farms," says Ontario Premier Dalton McGuinty.

An independent panel of judges, with representation from across the Ontario agri-food industry, will review the applications.

More information on the program, including guidelines and application forms, are available by calling the Agricultural Information Contact Centre at 1-877-424-1300 or online at www.omafra.gov.on.ca. Applications must be received by November 30, 2006.

The two general farm organizations in P.E.I. are upset with a provincial government decision to cut funding for a post harvest virus testing program in the seed potato industry.

Under the province’s Plant Health Act, all seed potatoes in the province must be tested by an accredited laboratory with the results reported directly to the Department of Agriculture, Fisheries and Aquaculture. Seedlots that have a virus level of 3 per cent or higher can’t be planted in the country’s largest potato producing province.

The provincial government and industry had been cost-sharing the $400 testing fee equally, but Agriculture Minister Jim Bagnall indicated earlier this year the government was withdrawing funding from the program. Eddy Dykerman, the president of the P.E.I. Federation of Agriculture, said the industry had been hopeful Bagnall would agree to a 70/30 split with industry assuming the lion’s share.

"This program is crucial to a healthy potato sector on PEI and a healthy potato sector is good, not only for agriculture, but for all Islanders as it is the main cog in the Island’s primary industry," said Dykerman.

He said the money involved is quite small (approximately $ 40,000 from the government), but it could be a significant cost for some individual producers. Dykerman added, "For me the money is important, but is it more about the message we are getting from the PEI government. It seems that the agriculture industry is no longer a priority.”

Danny Hendricken, the district director of the National Farmers Union said the move is an "insult" at a time when farmers are facing depression level prices while at the same time being asked to pay for a growing number of environmental and food safety programs.

"This could be huge for some the seed producers since many of them have a number of small seedlots that have to be tested individually," Hendricken said.

He said the usual procedure is to have 400 tubers tested per seedlot. However, he noted some countries such as Uruguay, require more rigid testing.

The Trappers Association of Nova Scotia is predicting changes to the province’s trapping laws will mean more wild animals around agricultural crops and increased losses from crop damage, flooding and livestock predation.

Previously, trappers didn’t need permission to set approved traps on privately owned forest lands, as long as the traps were beyond 200 yards from homes and there were no signs prohibiting trapping. Permission was required to set traps near cultivated land or on any land within 200 yards of dwellings.

The trapping laws changed recently, extending the distance to 300 yards and requiring trappers to gain permission from neighbours within 300 yards in all directions of the trap, even if they don’t own the property where the trap is located.

“This means that the control of nuisance wildlife that threatens the livelihood of farmers is now dependent on neighbourhood approvals rather than on farmer and trapper management,” the trapper association states in a news release.

An association survey of its 1,800 members indicates trappings of beaver, fox, racoons and coyotes are down about 50 per cent during the 2005-06 season under the new regulations. During the previous trapping season five trappers harvested 855 raccoons in the blueberry lands of northern Nova Scotia, but harvested only 47 during the past season.

After hitting price peaks earlier this spring/summer, wheat markets corrected downward through much of July and August before stabilizing and starting to trend higher again over the past two weeks.

There is plenty of market talk regarding supportive fundamentals. Tightening world wheat balance sheets, improved demand prospects and bullish technical factors had futures moving higher this past week. The wheat market does have a bullish fundamental story to keep traders' attention and when technical features are added, a supportive combination is set, sending sellers running for cover.

News of French wheat rallying to contract highs (deteriorating crop conditions through harvest), a larger-than-expected import tender from India and rumours of index funds exiting energy markets in favour of grains has provided support to keep buyers enthused in wheat. Speculation of smaller crops in Australia and Argentina also help to generate a buzz to keep speculative buying fuelled.

Nonetheless, I want to be somewhat cautious on this wheat bounce. Seasonal market factors typically point higher for wheat at this time of year, but that doesn’t last indefinitely. Some rains have been received across the U.S. southern winter wheat areas since the beginning of August, so drought worries ahead of seeding, while still under the surface, are diminished at the present time.

The market will probably be ultra-sensitive to drought issues in U.S. hard red winter wheat areas this fall given the very difficult circumstances of the past year. But in past seasons, we have seen many dry seeding periods with dire predictions only to see some opportunistic spring rains that allow crops to flourish.

The Australian situation is similar. In no way do I want to discount drought related issues, especially in a global environment where wheat inventories seem to be in a state of decline, but the Australian wheat crop has a history of recovering quite nicely should decent September/October rains develop.

So we watch developments in the wheat market with great interest and with the hope this rally extends far enough to again make use of Canadian Wheat Board Fixed Price Contracts as a marketing option.

The CWB’s Early Payment Option is also something for growers to consider. The EPO is really a cash flow tool. It allows farmers to manage board grain deliveries and set a floor price for their grain. Producers should look at the floor price they'll be locking in with an EPO and at the discount costs, then determine how it all relates to time, value and money.

Producers should advise their elevator agent that they've signed up for the Early Payment Option when they deliver their grain and make a settlement for initial payment. The CWB then issues an additional payment within ten business days, bringing the total value of that delivery up to 80, 90 or 100 percent of the Pool Return Outlook.

As sales are made and the return is greater, and once the pool return exceeds the EPO, producers are eligible for additional payments.

While marketing the crop currently being harvested has one’s attention, let’s also consider the next crop further down the road in 2007/08. Beginning September 1, the CWB started offering a new program whereby farmers can lock in a December 2007 wheat futures value on a CWB Basis Payment Contract (BPC). This enhancement allows farmers to take earlier advantage of market rallies as part of their seeding plans. Under the BPC, a farmer can lock in the futures value including foreign exchange, in minimum increments of 20 tonnes.

While I consider it too early to act today, a run towards US $5.00/bu and hopefully beyond on Dec/07 MGE wheat futures is in the upper 10 per cent of the market’s 30 year historical price range making it worthy of consideration.

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.