Note from Editor Kevin Hursh & Associate Editor Allison Finnamore
There have been many projections regarding seeded acreage in Canada this spring. Some analysts are predicting only small acreage shifts. Others are predicting large swings from one crop to another. Statistics Canada will release its seeding intentions report on Monday, April 21. That widely anticipated report is likely to cause price adjustments in a number of grains, oilseeds and specialty crops. We’ll have a full analysis next week.
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Table of contents: April 18, 2008
The average value of Canadian farmland increased by 7.7 per cent in the second half of 2007. British Columbia led the nation with a 14.5 per cent increase, followed by Alberta at 10.3 per cent, Saskatchewan at 7.8 per cent and Manitoba at 7.3 per cent.
The picture is less buoyant in the eastern half of the nation: Ontario up 1.2 per cent, Quebec up 3.6 per cent, Nova Scotia up 3.1 per cent, Prince Edward Island down 1.4 per cent, New Brunswick down 3.3 per cent, Newfoundland and Labrador unchanged from the first half of the year.
The statistics are based on the Farmland Values Report released by Farm Credit Canada. FCC uses a system of benchmark properties across the nation appraised semi-annually to come up with price changes.
FCC says much of the strong increase in B.C. land values can be attributed to very high demand for land suitable for grape production in the Southern Interior and Okanagan areas. Small wineries are starting up and other wineries are consolidating to achieve economies of scale and secure their own production base.
The 10.3 per cent increase in Alberta during the second half of 2007 follows a 6.4 per cent increase in the first half of the year. FCC says with grain and oilseed markets reaching record highs, so has the demand for grain growing land. Demand for specialty crops such as potatoes are sited as a key factor in the increased prices of irrigated land. Urban and industrial pressure is also a big factor as producers sell out and relocate.
At an increase of 7.8 per cent, the Saskatchewan land market is reminiscent of the late 1970s. High grain prices are the overriding factor. FCC says there’s recognition that Saskatchewan farmland is attractively priced relative to farmland in other provinces. Demand is coming from investors and out-of-province buyers, many of which are from Alberta, as well as local producers within Saskatchewan.
The 7.3 per cent increase in Manitoba over the past six months is attributed to the increase in cash crop prices. Most of the land value increases were in the Red River valley south and west of Winnipeg, the southwest portion of Manitoba from Manitou to Killarney and the western area around Portage la Prairie.
Ontario farmland values increased just 1.2 per cent. The FCC report says optimism felt by cash crop operators in early 2007 diminished somewhat due to inconsistent rainfall in the prime growing months. This cut yields of corn, soybeans and wheat in a number of counties. The difficult financial situation in the hog and beef industries has also dampened the land price increase. However, urban buyers relocating to rural areas continue to have a significant effect on land values.
The 3.6 per cent increase in Quebec is less than the national average, but it’s the biggest increase in the province since 2002. The highest increases, says the FCC report, occurred in regions with greater grain crop potential. Land value increases were lower in areas with high numbers of hog producers.
Prince Edward Island’s average farmland values decreased by 1.4 per cent. FCC notes that challenges in the hog, beef and potato sectors have resulted in more land going on the market. There are fewer buyers than previously as renting has become a common alternative.
Nova Scotia land values increased an average of 3.1 per cent during the last half of 2007. Continued demand for land by dairy producers provided incentive for operators to purchase good quality forage land. The report notes that strong returns in the blueberry industry have also kept upward pressure on land suitable for those crops.
The biggest drop in farmland values was in New Brunswick, a decline of 3.3 per cent. FCC says values have decreased in both of the province’s traditional potato belt regions, while the dairy and beef regions have enjoyed a small increase in values. According to FCC, the price for potato land has remained low because there are fewer producers competing for available land and those still in the industry are purchasing lower priced land that is farther from their home sites.
Land values were unchanged in Newfoundland and Labrador. FCC says the province has reached a point where producers who want more land are buying land that needs to be cleared. The cost of developing and clearing land ranges from $4,000 to $5,000 per acre.
The complete Farmland Values Report is available at www.fcc-fac.ca.
2. Initial grain payments boosted
Initial payments for wheat, durum and Pool B feed barley sold through the Canadian Wheat Board increased effective April 17. The increase for wheat ranged from $34 to $53 per tonne depending upon grade, class and protein level. Milling durum went up by $80 a tonne, while Pool B feed barley increased by $65 a tonne.
For deliveries already made, adjustment payments will be issued. Payments by direct deposit will be received on May 2. Cheques will be dated May 2 and mailed May 6. Producers who wish to defer payments have until April 23 to notify the CWB by calling
A complete listing of payments for all grades can be found at www.cwb.ca.
3. Crop input shortages loom
Seeding is just starting in southwestern Saskatchewan, but already there are shortages of various crop inputs. The weekly crop report from Saskatchewan Agriculture says producers are reporting the following products to be in short supply: Edge, trifluralin, Clean Start and several types of glyphosate herbicide, some types of fertilizer and seed treatments, and Invigour canola seed.
Producers are complaining about escalating prices. The price is up dramatically on many types of glyphosate. The most startling price is for phosphate fertilizer at $1,200 a tonne.
While seeding has started in the southwest corner of the province, most central and northern areas are one to three weeks away from seeding.
Saskatchewan Agriculture says using a diagonal line from northwest to southeast as a reference, with areas below the line generally in a short to very short topsoil moisture situation. Areas above the line are generally in an adequate to surplus topsoil moisture situation.
Overall, 50 per cent of the crop land in the province is rated as having adequate topsoil moisture, 39 per cent is short or very short, and the remainder is in a surplus condition.
4. New management tool available to Ontario producers
The current warmer weather pattern moving through Ontario is a reminder the 2008 cropping season is about to begin. And with stronger crop prices right now there is some renewed optimism in the field crop sector.
But in tandem with the increased crop prices is increasing input costs. Management tools can help producers maximize their operation’s profits.
One tool field crop producers should be aware of is the Ontario Enterprise Budgets, designed to help evaluate the economics of field crop production decisions. It was prepared by John Molenhuis, the business analysis and cost of production program lead with the Ontario Ministry of Agriculture, Food and Rural Affairs. Online or printable budgets are available for the following field crops: hay, barley, canola, beans, corn, oats, flax, soybeans and wheat, including organic field crops.
Available in two input formats (manual or electronic versions), the budgets are a management tool with sample costs based on a number of assumptions, including seeding rates and fertilizer applications. Sample costs are not averages or recommended treatments and are intended as a guide for producers.
Manual printed forms provide sample figures for income and expense items and space on the printable form to allow producers to enter their own operation. The 2008 Field Crop Budgets are available online in either html or pdf format at http://www.omafra.gov.on.ca/english/busdev/facts/pub60.htm or http://www.omafra.gov.on.ca/english/busdev/facts/pub60.pdf.
Similar features are available with the online version, prepared in Microsoft Excel format, but allow producers the opportunity to input their own operations figures directly into the online spreadsheet with calculations performed automatically. An additional bonus of the online budgeting tool is that producers can access the potential impact of production and marketing risk factors and risk management strategies.
The electronic versions are available at http://www.ontario.ca/agbusiness by selecting “Cost of Production Budgets.”
5. Saskatchewan announces review of crop insurance
Saskatchewan Agriculture Minister Bob Bjornerud has launched a review of the Saskatchewan Crop Insurance program. The project will focus on ways to improve the crop insurance program for producers. Meyers Norris Penny has been contracted to carry out the review.
"We are fulfilling our election promise to undertake a review of the program and obtain the information we need to make effective changes," says Bjornerud.
The review will include extensive consultations with farmers and research into production insurance programs in other jurisdictions. A toll-free telephone line 1-866-622-CROP and web site at www.skcropinsurancereview.ca are being launched to help engage Saskatchewan producers in the review.
A review of the Wildlife Damage Compensation program will also take place. WDC is a program funded by governments to compensate producers for crop and feed losses due to waterfowl and big game.
The review process is to be completed in the fall of 2008. Recommendations from the review will be considered for the 2009 program.
6. Ottawa invests in studying, preventing red tape
The prestigious Richard Ivey Business School is being tasked to help cut and prevent red tape in Canada's cumbersome agricultural regulatory environment.
The school at the University of Western Ontario in London received a $2 million grant last week from Agriculture and Agri-Food Canada for what is being called the Agriculture and Agri-Food Project.
The five-year, multi-faceted project is designed to identify and address emerging agricultural regulatory issues, and provide advice and recommendations on regulations. A regulatory impact chair will be established at the school to co-ordinate the project.
"The agriculture and agri-food industries are critical to Canada's economic, environmental and social sustainability," says Carol Stephenson, dean of the business school. "The regulatory issues facing the agriculture and agri-food industries are nested in larger business issues, and the (school) is positioned well to heighten awareness and understanding of these issues."
The project will conduct research that will focus on government policy-making and regulatory decisions. Research findings will be presented to media, government agencies, community groups and the general public.
The project will have a significant outreach role. It will hold annual workshops and seminars for industry, government, rural and academic stakeholders to discuss and identify regulatory solutions.
As well, the project will produce teaching materials and executive training programs, and create an online platform for farmers and others to gather regulatory information, and network.
Students from the business school will be engaged in the project to expose them to agriculture and agri-food issues. Ottawa calls this "an opportunity to develop a new generation of business managers to continue to lead the agriculture sector to sustainable profitability."
Support for the project is being channelled through Ontario's Agricultural Adaptation Council. Kim Turnbull, council chair, says producers and others in the agri-food value chain "will benefit from having a research team and a high-profile chair completely dedicated to understanding and advancing the sector."
7. Manitoba hog production moratorium now in effect
Legislation enacting a moratorium on hog production in parts of Manitoba is now in effect.
Manitoba Conservation Minister Stan Struthers says water protection will be strengthened and the long-term sustainability of the hog industry will be ensured with the amendments.
The amendments to the Environment Act legislate the halt to industry expansion in three regions of the province to enhance existing environmental protection:
- Southeastern Manitoba is classified as an intensively-developed area, meaning it does not have sufficient land base to allow for further sustainable spreading of livestock manure.
- The Red River Valley Special Management Zone, which includes the capital region of the province, is a high-risk area. It was identified by the Phosphorus Expert Committee as a vulnerable region because it is a flood-prone area. At 54 per cent, the Red River is the highest source of phosphorus loading to Lake Winnipeg.
- The Interlake region borders Lake Winnipeg to the east and Lake Manitoba to the west. In addition, wetlands and other marginal and ecologically-sensitive land make the region unsuitable for further hog industry expansion.
The remaining regions of the province would be subject to new, stricter requirements, including extending the ban on winter spreading of manure to all operations by 2013.
8. B.C. greenhouse vegetable industry funded
British Columbia’s greenhouse vegetable industry has received $750,000 in support.
The funding will go towards a number of initiatives identified in the industry's most recent strategic plan, including raising public awareness of the greenhouse vegetable industry, developing partnerships, and assisting growers to improve operational efficiency. It will also support research into such areas as pest management, energy use, environmental impact assessments and crop production methods.
Funding will be used to plan for the industry’s future says Sarah Ryall, vice president of the B.C. Greenhouse Growers' Association.
“We are excited about this new funding. It will help us address a number of recent challenges faced by our growers and help promote the long-term sustainability of the greenhouse vegetable sector,” Ryall says.
9. Analyst expects strong oat prices
Oats could be the sleeper this year for several reasons, according to David Drozd, senior market analyst with Ag-Chieve in Winnipeg. He points to the United States Department of Agriculture forecast that producers south of the border will plant nine per cent less oats this year.
According to USDA estimates published in the March 31 issue of Prospective Plantings, growers intend to plant about 3.42 million acres in 2008 compared to the 3.76 million acres planted in 2007. This would represent the lowest level on record.
Here in Canada, many analysts expect seeded area for oats to decrease by 15 to 20 per cent, while Randy Strychar of OatInsight estimates harvested areas will be down by 24 per cent. Drozd says oats follow the wheat and corn markets. And with corn hitting new contract highs over the last few weeks, he believes the oat market is well supported by the lower seeded area.
Drozd says there is much uncertainty in the markets as wet weather continues to hamper corn planting in the U.S. Midwest. The delays could result in lower corn acreage this year helping to push corn prices to a USDA target of US$7.30 per bushel.
Even though the U.S. has produced five of its largest corn crops in the last five years, it has not been able to keep up with the demand. Drozd says the tremendous growth rate is spurred not only by the burgeoning number of ethanol plants, but also by a demand for grain-fed meat protein from an increasingly affluent Asian population.
Drozd, who believes oat prices could go to US$5 per bushel this year on the Chicago Board of Trade, thinks “oats will be a good crop to grow this year.” Even if there is record production in Canada this year, Drozd expects to see oat prices go up as they piggyback on corn.
He also points to the fact that Canada exports more oats than the U.S., making the crop relatively more important to the Canadian market than it is to the U.S.
10. Market Focus – Corn market update
Chicago corn futures continue along a bullish price trend that extends well back to the harvest. Following a brief period of correction in March, tapping into fresh contracts is at all-time highs. All contract months this week are now trading above what had served as psychological overhead chart resistance at US$6 a bushel.
Planting delay concerns remain paramount as the latest forecasts call for rain in the Corn Belt to close out this week, and more rain is expected next week. Weakness in the value of the U.S. dollar and further gains in crude oil have also been supportive.
The chart trend using Chicago May corn futures depicts a pretty solid up-trending market going all the way back to October, punctuated with short corrections of course. At this time, there is no immediate threat to the broader ongoing chart trend. Also positive from a technical perspective, the corn market has exhibited a steady and orderly trend higher as opposed to the absolutely wild volatile swings we have seen in soybeans and wheat over the winter months into the early part of spring. Corn as been rock solid steady in its trend, by comparison.
Fundamentally, the corn situation today looks the strongest of all the major commodities. That was again highlighted in the United States Department of Agriculture’s (USDA) supply and demand report, issued April 9, which showed a tighter than expected U.S. corn carryover estimate for the current marketing year. The report also reminded the market of the need to bid for 2008 corn acres.
--U.S corn supply and demand--
Now, does that mean corn prices must continue to appreciate in its efforts to draw acres back from soybeans and other commodities? I don’t know. Maybe if the price for other commodities decides to move lower, the same market task may be accomplished with a stable corn market that’s already at all-time record highs around the US$6 a bushel level.
Nonetheless, USDA saw fit to revise both old-crop U.S. and world corn ending stocks lower as demand strengthens. USDA lowered its estimate of 2007-08 U.S. ending stocks by 155 million bushels to a lower than expected 1.283 billion. This is largely due to a 200-million-bushel increase in feed and residual use, which more than offset a 100-million-bushel decrease in corn for ethanol production. USDA did suggest the reason for the reduction in corn use was because not as many new ethanol plants were coming on line as fast as predicted. Demand was further enhanced by an upward adjustment of 50 million bushels in 2007-08 exports.
In the final analysis, the data heightened concerns that stocks could be driven to disconcerting levels down the road.
So then, doing some new-crop forecasting, where we take the currently projected 86 million “seeded” acres for 2008 U.S. corn works out using traditional rates of abandonment to 80 million “harvested” acres. Our analysis, if one follows the 2008-09 new-crop column down to its end result, is U.S. corn carryout declining next year to only 500 million bushels. That’s critically tight and implies a stocks-to-use ratio of less than four per cent.
And note in this balance sheet, we are using aggressive near all-time record yield potential for the 2008 U.S. corn crop assuming no production problems whatsoever. Also, I believe we are being rather conservative on the usage categories. And still ending stocks get critically tight next year.
I suspect that bullish momentum suggests a push in corn futures to $6.50+ a bushel, particularly if the weather doesn't dramatically clear up and allow U.S. producers to begin widespread planting.
So then, market participants continue to watch the weather forecasts for indications that the current cool, wet pattern over the U.S. Midwest and Delta regions may break. The market is already dialing in last-minute shifts of more corn and lower soybean acres than USDA’s March intentions, which may be an erroneous assumption if the cold and wet tone to April Midwest weather persists into early May. Weather assumes centre stage as a key driving market force.
It is noteworthy that through much of the U.S. Midwest, yield potential of corn begins to be lost the later the crop is seeded past about the first or second week of May.
Developments in the corn market obviously have some spillover influence on our own barley, feed wheat and oat markets and definitely bears watching. More on those Prairie markets another time.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call
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