Note from Editor Kevin Hursh & Associate Editor Allison Finnamore
After our story deadline, there was an announcement affecting the third story in this week’s line-up, the one on Canadian cattle exports to Mexico. Agriculture Minister Gerry Ritz has announced that Canada, the U.S. and Mexico have reached an agreement harmonizing North America to the World Organization for Animal Health's (OIE) standards for trade in bovine breeding stock. This will also allow Canadian cattle to be shipped through the U.S. to Mexico.
As always, we welcome your comments. Just e-mail to email@example.com.
Table of contents: March 28, 2008
A number of prairie farm groups and the Canadian Wheat Board are asking the federal government for a full rail costing review. To support the request, the groups are using the results of a study commissioned by the CWB that shows the two major railways are making over $100 million a year in “unreasonably excessive returns at the expense of Canadian farmers.”
The Canadian Federation of Agriculture, the National Farmers Union, Keystone Agricultural Producers, Agricultural Producers Association of Saskatchewan, Wild Rose Agricultural Producers and the CWB held a media event March 25 in Winnipeg to release the results of the report and call for a review.
The report was conducted by rail analyst John Edsforth. His study estimates that the railways in 2006-07 made $175 million, or $6.25 a tonne more than what was considered reasonable compensation for moving grain under the previous Western Grain Transportation Act. Last year, Prairie farmers paid more than $850 million to move their grain to port.
This year, the Canadian Transportation Agency found the railways had been allowed to earn revenue that was triple their actual costs for rail car maintenance. The CTA has reduced the revenue cap for grain by $72 million per year. The railways are appealing aspects of that ruling. Even with the $72 million reduction, Edsforth’s study says rail costs are at least $100 million too high.
Farm groups note that since 1992, the federal government has not conducted a full review of what it actually costs the two major railway companies to transport grain. They say the railway costs used to calculate the revenue caps for grain freight rates are significantly out of date, failing to account for major reductions in the number of grain elevators, rail track mileage, rail service and car supply over the past 17 years.
The grain freight rate from Saskatoon to Vancouver has risen to $42 a tonne this year, up from $30 a tonne in 1992. A producer near Saskatoon moving 1,300 tonnes of grain by rail to the port of Vancouver pays $54,600 a year in freight. On top of this is the cost of trucking grain to the elevator.
While rail costs have increased, service has deteriorated. The CWB says that on average for 2007, the railways provided only 52 per cent of the rail cars ordered by the CWB as compared to 83 per cent in 1999. As well, the car cycling time from loading in the country to unloading at port to returning the empty car to the country is virtually unchanged since 1992 at an average of 18 days to the Port of Vancouver.
Bill C-8, which was passed into law at the end of February, provides for a rail service review to be conducted in the near future. The farm groups and the CWB are requesting a full costing review be undertaken in conjunction with the service investigation.
2. Returns drop for greenhouse vegetables
The greenhouse vegetable sector is in bigger financial trouble than the hog industry, says B.C. Vegetable Marketing Commission chair George Leroux. “I think the crisis is more severe,” he told the BCVMC annual meeting in Delta on March 19.
BCVMC market analyst Andre Solymosi’s statistical review seems to bear out Leroux’s dire comments. Solymosi says B.C. greenhouse vegetable sales totaled $182 million last year, a drop of over $40 million from 2005. The drop occurred despite a 95-acre increase in production area from 535 acres in 2005 to 630 acres in 2007.
The situation could be worse this year as B.C.’s total production area has increased another 50 acres, primarily in beefsteak and large tomato-on-the-vine production. Greenhouse vegetable production is also increasing in Mexico and Ontario, putting even more pressure on prices.
Solymosi says prices in all products were down last year. Despite a 28 per cent reduction in acreage, beefsteak tomato prices dropped 13 per cent. Tomato-on-the-vine prices dropped 11 per cent, the third year in a row their price has declined. Bell pepper prices were down 17 per cent while the average for long English cucumbers fell 11 per cent from 2006, despite a slight decrease in acreage.
At the same time, input costs are high and getting higher, Solymosi says. Retail diesel prices were up six per cent in 2007 and are forecast to increase another 11 per cent this year. Natural gas increased three per cent last year and is expected to jump another nine per cent in 2008. Fertilizer nutrient prices are at record high levels and not expected to drop anytime soon.
Leroux says growers should co-operate more and pursue innovation and value-added products as they can not expect to compete in a commodity market.
“The commission can’t force it. You have to want to work together,” he says, adding “Even larger players can’t compete with the regulatory mess we’re in.”
Steve Newell of Windset Farms blames the commission for at least part of the mess, saying it ignored expert advice about potential consequences when approving production for one grower-marketer last year. He claims that grower is now undercutting the market, forcing down returns for the entire industry.
3. Canadian cattle exports to Mexico remain in limbo
In a statement released earlier this month, Todd Staples, Texas Agriculture Commissioner, issued an order to stop specific Canadian cattle from passing through any of the state’s five livestock export facilities located on the border with Mexico. Arizona and New Mexico quickly followed suit, effectively shutting down any movement of Canadian cattle into Mexico.
Staples’ concern centres on a trading protocol signed in March by Canada and Mexico allowing the importation of certain dairy and beef cattle less than 30 months old, including breeding stock. The same protocol had not been extended to the U.S., which is currently limited to exports of U.S. dairy heifers under the age of 24 months.
Live cattle from Canada have been shut out of Mexico since the first case of BSE surfaced here in May 2003, explains John Masswohl, director of Government and International Relations with the Canadian Cattlemen’s Association. The U.S. stated that if Mexico accepted live cattle from Canada, they would not accept live cattle from Mexico due to health concerns.
Once Rule 2 (allowing Canadian cattle born after March 1, 1999 into the U.S.) was adopted by the Americans in November 2007, negotiations between Mexico and Canada to reopen cattle trade began in earnest.
According to Masswohl, Canadian authorities were surprised when the Mexican government extended a more favourable agreement to Canada. “We thought Canada would get the same deal as U.S. cattle -– that is, dairy heifers under 24 months. We are all seeking the same thing –- that all live cattle from the U.S. and Canada be permitted into Mexico,” he says.
Masswohl believes Canada accepted the interim deal on the understanding they would eventually be allowed full access under World Organization for Animal Health, or OIE, international standards. But Masswohl says the U.S. has indicated it is not willing to settle for an interim deal. The U.S. release states, “USDA officials have expressed disappointment with their counterparts in Canada for yielding confirmed science to political maneuvering.”
Masswohl says that everyone was caught off-guard by the Mexican offer to Canada, resulting in some harsh words. “Now that the acrimony and rhetoric are over, officials are working together to get what we all want.” Everyone is hoping for a quick resolution, but Masswohl cannot offer any timeframe for a conclusion to the current negotiations that have reopened between the U.S. and Mexico. In the meantime, Canadian cattle exports to Mexico remain in limbo.
4. Ontario commits more money to agriculture
The Ontario Federation of Agriculture is praising the 8.5 per cent increase in core budget funding for the Ontario Ministry of Agriculture, Food and Rural Affairs. In this week’s Ontario budget, funding went from $870 million to $946 million.
The OFA says areas of good news in the budget for producers included a land transfer tax exemption on sales from corporations to individuals, something the OFA has sought for several years. As well, $14 million was added for funding promotion of the Ontario Farm Fresh program and $30 million over a four-year period was dedicated to Internet broadband development in rural Ontario.
“Knowing the province’s overall financial prospects at this time, this is a good budget for Ontario farmers,” OFA president Geri Kamenz says.
5. New chemical regulations on the way
New regulations controlling the sale of some chemicals, including various fertilizers, are on their way.
Nitrogen fertilizer products such as ammonium nitrate are included in the new regulations since they can be used as an ingredient for making illegal explosives. Implemented by the federal departments of Natural Resources and Public Safety, the regulations are intended to reduce the risk of terrorist attacks.
The new regulations will require anyone selling ammonium nitrate or any of the eight other chemicals be registered with the Explosives Regulatory Division of Natural Resources Canada and comply with security measures for storage, record keeping and customer identification.
There are nine chemicals under the new regulations: ammonium nitrate, nitric acid, nitromethane, hydrogen peroxide, potassium nitrate, sodium nitrate, potassium chlorate, sodium chlorate and potassium perchlorate. Ammonium nitrate, nitric acid, potassium nitrate and sodium nitrate are used as fertilizer or in the making of fertilizer.
The regulations take effect for ammonium nitrate on June 1, 2008, and for the eight other restricted chemicals on March 1, 2009.
The federal government will provide registration and annual reporting procedures and services, and will undertake outreach activities to raise awareness of the regulations with both sellers and end users. Natural Resources Canada and the Canadian Food Inspection Agency will conduct compliance inspections for ammonium nitrate using the cross-country network of CFIA inspectors.
Canada's fertilizer industry supports the new federal regulations.
“We encourage everyone involved in the agriculture industry to be in full compliance well before the regulations start coming into effect on June 1,” says Canadian Fertilizer Institute president Roger Larson. "Security is everyone's business.”
CFI and agri-retailers have distributed thousands of copies of a brochure and poster to educate stakeholders on secure storage, transportation and sale of ammonium nitrate as part of the "On Guard for Canada" program. The program urges everyone who handles ammonium nitrate to implement security plans, maintain records of all sales of ammonium nitrate and alert law enforcement officials of suspicious activity by using a toll-free RCMP hotline:
“Care needs to be taken to keep ammonium nitrate in the right hands,” says Dave Finlayson, executive director of the Fertilizer Safety and Security Council. “Retailers know their customers, local soil conditions and the products needed for farming in their area. This knowledge can be put to use when selling ammonium nitrate, which is particularly important to farmers in Eastern Canada. Retailers are keeping records on ammonium nitrate sales to protect the public.”
Additional information about the Explosives Act and the implementation of its new regulations is available at www.nrcan.gc.ca.
6. Poultry processing alliance planned for Maritimes
A corporate alliance between one of Canada’s largest meat processors and one of the country’s biggest poultry producers will pay off in spades for chicken consumers across the Maritimes, the heads of both companies say.
However, critics say the strong-arm tactics they’re using to coerce the sale of New Brunswick’s only existing slaughterhouse may spike their plans.
"In an open market and a very competitive environment, the poultry industry should gain strength from this partnership,” Réjean Nadeau, president and chief executive officer of Olymel l.p., and Thomas Soucy, his counterpart with Groupe Westco, say in a joint statement issued at a March 19 press conference in Fredericton to announce the deal. “(It) brings together producers and operators with complementary expertise that will make the poultry supply chain for New Brunswick and the entire Maritimes more efficient.”
Under the terms of their agreement, the details of which are still being worked out, the two companies intend to consolidate their poultry production, slaughtering, cutting and deboning operations in New Brunswick for the Maritimes market.
The two companies say they plan to jointly build a $30-million slaughterhouse in New Brunswick over the next two years. Until that facility is built, Westco, which owns hatcheries, breeding farms and shipping companies in N.B. and Manitoba, will temporarily transfer most of its slaughtering volume to Olymel’s slaughterhouse near Quebec City beginning July 20, and the rest in September.
According to a spokesperson for Montreal-based Olymel, which is already involved in poultry production in the Maritimes –- albeit mostly involving turkeys -- Westco proposed the partnership idea a year ago. “They came to us and said they wanted to expand their operations in the Maritimes,” Richard Vigneault says.
He adds that two companies have since tried, but failed to buy the Nadeau Poultry facility from Maple Lodge Farms, a family-owned Ontario company that employs 2,200 people and processes a half-million chickens a day for export to more than 30 countries. Nadeau is the only facility of its kind in New Brunswick.
Westco’s birds, and those of other companies it controls, represent roughly 80 per cent of the poultry slaughtered at the Nadeau facility, which employs 350 people and has a 12,000 bird-an-hour slaughter capacity. Under the company’s alliance with Olymel, that production will quit the province beginning this summer.
“We’re still hoping (Maple Lodge Farms) change their minds and sell the facility to (the new partnership),” Vigneault says. “But they’d better hurry before we build (the new slaughterhouse).”
The partners’ ultimatum, however, isn’t sitting well with Maple Lodge Farms officials.
“They’re basically holding a gun to our head and saying, ‘Sell us your facility at this price or else,’” says Yves Landry, general manager of the 50-year-old Nadeau Poultry slaughterhouse. “They’re trying to bankrupt us. That’s blackmail, not business.”
Landry says his company has asked both the New Brunswick government and the province’s poultry producers, who have only 2.8 per cent of the country’s poultry quota, to come to their defense.
“No province in Canada would allow their birds to be shipped somewhere else like they’re planning to do,” he says. “This isn’t over.”
7. Maple Leaf double shifts Brandon plant
Maple Leaf Foods is proceeding to double shift its Brandon, Man., pork processing plant. The company is also expanding a plant in Winnipeg, while closing another plant in that city.
Maple Leaf says it is investing approximately $50 million to support the increased processing at Brandon. That will commence in June and be complete in September of this year. By the end of 2009, all primary pork processing will be in Brandon and the capacity will be 86,000 hogs per week.
The company is also investing about $25 million to expand its Lagimodiere Road plant in Winnipeg to consolidate its ham boning operation in Western Canada to one dedicated facility.
As a result of the expansions, Maple Leaf will close its fresh pork operation located at Warman Road in Winnipeg. That plant currently processes carcasses received from Brandon into value-added pork products. The Warman Road plant is expected to close by the end of September as the ramp-up of value-added cut activities is completed in Brandon.
8. Dairy innovation receives a boost
A $925,000 investment by the federal government will help in the development of new and innovative dairy products.
The money has been made available to the Gencor-owned Thornloe Cheese Plant in New Liskeard, Ont. to coordinate the project and support the development of novel dairy products with functional food characteristics. This will include new cheese varieties and cheese alternatives. Functional foods, such as probiotic-fortified yogurt, provide health benefits in addition to nutrition.
“This project will not only lead to a more competitive dairy industry, but provide Canadian consumers with a greater variety of healthier foods,” says Dave McKenzie, the MP for Oxford, Ont.
McKenzie made the funding announcement on behalf of federal agriculture minister Gerry Ritz, who acknowledged Canada’s worldwide reputation for high quality, nutritious and tasty dairy products. McKenzie says the funding will allow the dairy industry to continue developing innovative new products while taking advantage of new market opportunities.
Brian O’Connor, Gencor’s general manager, is excited about the new opportunities this funding will create for the company. Producer-owned Gencor acquired the Thornloe Cheese Plant in January 2007 because the co-operative’s membership saw the movement into an integrated further processing plant as a logical area for them to explore some strategic opportunities.
“One of the key reasons we bought the business was to grow the production in the plant and develop new products for the growing ethnic markets in Canada,” O’Connor says. The plant has the capacity to handle over 10 million litres of milk annually but currently production is only 3 million litres.
O’Connor expects the first of the new products to be available in the marketplace by the summer of 2008. A blue, Stilton-style cheese, a St. George semi-hard Portuguese cheese and some of the Hispanic cheeses will be the first to be released.
The company is in the early stages of functional foods product development and O’Connor does not anticipate that these will hit the marketplace until possibly 2009.
“We see great opportunity in these areas of developing cheeses for the growing ethnic markets and functional foods and we are very pleased that the funding agencies are able to help in this business development,” he says.
The project is funded in part through Agriculture and Agri-Food Canada’s Advancing Canadian Agriculture and Agri-Food program with delivery by the Agricultural Adaptation Council. “(The project) will also provide an opportunity for producers to be involved in an integrated value chain with the production and processing of milk directly through to the consumer,” says Kim Turnbull, AAC chairman.
9. Premiums offered for wheat shipped through Churchill
The Canadian Wheat Board says it will pay premiums and storage payments to producers in the Churchill catchment area for wheat stored on-farm for shipment through the northern Manitoba port.
Producers participating in the Churchill Corridor Guaranteed Delivery Contract will receive a premium of $2.50 per tonne for Nos. 1, 2 and 3 Canada Western Red Spring wheat stored on-farm until it is called for shipment to the port. In addition, there will be monthly storage payments of $1 per tonne.
The CWB says this new program will result in significantly higher payments to producers than the previous freight advantage rebate program.
The timing of the Churchill shipping season requires that grain be held over from the previous harvest for shipment starting at the beginning of July. Paying producers a premium is meant to compensate them for holding the grain for sale late in the crop year.
A list of eligible delivery locations in the Churchill catchment area is available at www.cwb.ca.
Last year, the CWB shipped 621,000 tonnes of Western Canadian wheat and durum through Churchill, the highest volume since 1977. Exporting through Churchill saves rail freight costs and St. Lawrence Seaway charges.
10. Market Focus – Grain markets rebound ahead of USDA reports
I can almost hear the sigh of relief from the farm community at the time of this writing (Wednesday, March 26). Although still wary, we feel as though we have weathered a horrible market storm. Thankfully, following the most calamitous two week stretch in canola marketing history with the futures market plunging nearly $200 per tonne, our reward is to begin this week (Monday and Tuesday) with an impressive $72 per tonne bounce in nearby May canola futures.
While markets corrected harshly downward in March, there is a sense in the trade that buying interest is returning to the ag commodities and commodities generally. Of course, it’s difficult to call anything with conviction these days. These are the wildest markets ever witnessed.
I’ve stated repeatedly in conversation with growers that the underlying fundamental feature of the food markets globally is that we continue to struggle to enable production to keep up with rapidly rising demand. While 2008 may yet produce record large crops, that’s still far from given at this time. Meanwhile, all the global grain and oilseed inventories continue to erode.
A shock to the global economic system, infrastructure or psyche (whatever you want to call it) was delivered lately on ideas that recessionary influences, most notable in the United States, were about to spread to a worldwide condition. With a worldwide recession, demand for products -- commodities included -- would be diminished. As financial and banking conditions threatened to worsen, the highly leveraged positions held by speculative hedge and index funds quickly responded with an enormous rush to long liquidation.
And make no mistake, that process may not be completed yet, as the speculative sector still maintains a very large stake within commodity markets. These remain volatile times to say the least.
But with the massive market flush out of the way for now, I think these grain markets will start to refocus on underlying fundamentals.
The first big issue lies straight ahead -– the U.S. Department of Agriculture’s prospective plantings and quarterly grain stocks reports due Monday, March 31. These are going to be some pretty important numbers coming out, numbers that may well set the stage for the spring market.
The more important of the two reports is likely the Prospective Plantings report. Expectations for U.S. seeding intentions seem to be centering around 87 million acres for corn and 71 to 72 million acres for soybeans. Those estimates compare to 2007 acreage of 93.6 million and 63.63 million, respectively. Intentions for U.S. spring wheat are expected to exceed last year’s acreage.
The planting intentions estimate will provide a benchmark for anticipating actual plantings. What may not be captured in this report are recent price changes that include much lower soybean futures and an extremely weak new-crop soybean basis that have shifted potential profitability back in favour of corn over soybeans in much of the Midwest. But on the other hand, generally cool and very wet conditions in some areas may lead to the anticipation of corn planting delays, and ultimately a forced swing to more soybean acres.
While many U.S. producers have locked in their planting decisions for most of their acreage, history reveals that some significant differences between intentions and actual planted area can occur. Factor in the uncertainty about growing season weather in the northern hemisphere and the ingredients for large price swings are in place. With dwindling old-crop inventories, strong 2008 production is needed to sustain adequate stock levels in the 2008-09 marketing year.
Monday has the potential to be a big day for the markets.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call
Invest in the future
This report is protected by copyright and is intended for the personal use of the subscriber only and may not be reproduced or electronically transmitted to other companies or individuals, in whole or in part, without the prior written permission of FCC/AgriSuccess. The views expressed in this report are those of the authors and do not necessarily reflect the opinion of the editor or FCC/AgriSuccess.
Copyright 2008, Farm Credit Canada