Tuesday December 06 2016

Agriline

Agriweek


Agriweek Canadian agribusiness authority since 1967

TRUMP DUMPS TRANS PACIFIC TRADE AGREEMENT

Not that anyone doubted him when the US president-to-be repeated hundreds of times during the campaign his intention to not proceed with the Trans Pacific Partnership trade agreement. But when he said “I am going to issue a notification of intent to withdraw from the Trans-Pacific Partnership, a potential disaster for our country. Rather, we will negotiate fair, bilateral trade deals that bring jobs and industry back onto American shores” on November 21 he showed just how casually he takes the probability that the US will lose as much or more than it gains from backing out of free trade arrangements. The US Congressional Research Service estimated that the TPP would raise US agricultural exports by $7.2 billion and imports by $2.7 billion and increase US agricultural production by $10 billion. The whole American economy is likely the ultimate loser. The US farm and commodity organizations (more or less all of them) which supported both the Trump candidacy and the TPP have been made to look like fools. The unions are, or think they are, the winners. Potential agricultural trade in the TPP zone worth billions per year now will not be realized. What Trump did was not the worst thing from the Canadian point of view. The worst was the out-of-hand rejection by the Japanese prime minister of the notion that the TPP could be reworked with 11 members excluding the US. Perhaps the idea will be revisited, but to abandon the TPP without even trying to salvage it is irresponsible in the extreme. (11/27/2016)

US RENEWABLE FUEL TARGET RAISED

The US Environmental Protection Agency last week announced final targets for biofuel use in motor fuels for 2017, at a total of 18.80 billion gallons of all renewable types. The target for ethanol was set at 15 billion gallons and for so-called advanced biofuels at 4.28 billion including 2.0 billion of biodiesel (up from 1.9 billion in 2016) and 310 million gallons of cellulosic ethanol from non-crop feedstocks such as wood waste. EPA also proposed a requirement of 2.1 billion gallons of biodiesel for 2018. It is the first time in four years that the agency has announced the mandatory requirements before the start of the calendar year to which they apply. The total is 6% higher than 18.11 billion gallons mandated for 2016. The 2015 volume was and 16.93 billion, when the Obama administration scaled back the targets from amounts written into the Renewable Fuel Standard with the claim that the limit has been reached in the quantity that can be blended without exceeding 10%. The ethanol mandate is an about-face for the EPA and a win for the industry. It will increase corn needs for ethanol to approximately 5.5 billion bushels for 2017-18 from 5.3 billion for the current crop year and 5.2 billion in the prior two years. (11/27/2016)

ANOTHER NEW TERMINAL FOR VANCOUVER

Parrish & Heimbecker and Paterson GlobalFoods have formed a joint venture called Fraser Grain Terminal to build a grain export facility on the Fraser River in Surrey, with an annual capacity of 4 million tonnes. The proposed project would have 34 steel bins with a travelling shiploader, a semi-loop track and container loading capability. The site is the Fraser Surrey Docks across the river from New Westminster. Plans have been submitted to the Vancouver Fraser Port Authority for development approvals and public comment is being received. This is the fourth proposed or completed Vancouver port development in three years as grain companies seek more load-out capacity of their own to support country origination. (11/27/2016)

THE 2016 PRAIRIE CROP QUALITY DISASTER

According to Grain Commission sampling up to October 26, hard red milling wheat and canola quality are not far out of line. About 20% of CWRS spring wheat is No 1, 40% No 2, 20% No 3 and 20% feed. The top two grades normally make up 75% or more of the harvest; this year it appears is about 60%. In practice the large majority of buyers accept No 2 and many prefer it. CWRS wheat protein content so far averages 13.7% compared to 15.9 to 17.1% last year but very close to the ten year average of 13.9%. There is no quality problem with canola. Approximately 97% of samples have graded No 1. Average l content is 44.6%, better than last year's 44.2 and the ten-year average of 44.3%. Protein averages 20.3% vs 20.7% in 2015 and 20.5% over ten years. Average chlorophyll (green seed) content is 11.2 parts per million compared to 12.0 last year. However it is a much different story with other crops sampled. Roughly 14% of durum samples have graded No 1 (compared to above 50% normally), 14% No 2 and 14% No 3. There is not much of a milling durum market for quality below No 3, which makes up two thirds of the 2016 harvest. Of projected production of 6.8 million tonnes, only around 3.5 million may be saleable for semolina. Protein content averages a very poor 12.8% with Saskatchewan at barely 12%, compared to 14.1% last year. Lentils show the worst of all quality profiles. According to Grain Commission sampling 28% of the 2016 crop is No 1, 35% No 2, 26% No 3 and 11% No 4. Practically all production in 2015 and most other years is No 1 or 2. Even These figures suggest a much better picture than is being seen by pulse crop dealers. (10/31/16)

CANOLA CRUSH REACHES NEW HIGHS

Domestic canola crush is setting new records. For the week ended October 25 a new weekly record was set at 198,859 tonnes, only the third week in history to exceed 190,000. The prior four-week average was 177,120. The Canadian Oilseed Processors Assn reported canola plants worked at 93% of capacity, which implies that crush could be as high as 214,000 tonnes per week. Cumulative crush for the crop year to date is 2.12 million tonnes, also a record, vs 1.85 million to the same point in 2015-16. Crush is up 13% from a year earlier, 18% from two years ago and 20% from three years ago. Crush accounted for 53% of total use in the crop year so far vs 44% a year ago. Crush is high because it is profitable. The implied value of canola products based on futures prices last week was $614 a tonne, $100 above the seed future. (10./31/2016)

CANOLA PRICES TAKE OFF

On October 17, for the first time since June, canola futures in Winnipeg traded above $500 a tonne. Though roughly $30 below the contract high on June 8, the January month closed $55 above the contract low on July 23, set after the abrupt midsummer fall in all futures markets. Up to October 19 the canola future closed higher every trading day in October, an unbroken string of 13 trading sessions. Between October 1 and 19 canola futures gained 7% compared to 2.5% for soybeans. Spot-month canola futures traded at approximately 106.5% of the equivalent soybean price per tonne in Canadian funds compared to 102.8% a week earlier and 98.3% a month earlier. Canola futures volume soared with over 400,000 contracts traded up to October 20, exceeding monthly totals for July and August. Some of this remarkable strength was due to the stalled canola harvest and the possibility of substantial lost production. Between 3 and 4 million tonnes of the crop were still in fields as of October 12. Some of these fields will not be harvested this year and some not at all. But the big push came from the surge in world vegetable oil prices, especially palm oil, which posted six-month highs. Short supplies and higher prices for palm oil had been predicted for months, but the Kuala Lumpur futures market only reacted strongly on October 10. Palm oil futures jumped by 7% in four sessions ended October 17 as slew of statistics confirmed declining production, shrinking stocks and steady exports from both Malaysia and Indonesia. Palm oil strength was telegraphed to all leading oils including soybean oil, and of course canola oil. Since the oil content of canola is around 43% and soybeans 22%, the increase in oil value naturally moved canola seed prices by more than soybeans. (10/23/2016)

THE 1%: CETA RUNS AGROUND

The Belgian government constitutionally cannot sign the CETA Canada-EU trade agreement unless all five of its provinces agree. As of last week the backward, rural, French-speaking province of Wallonia in southern Belgium (population 3.6 million) did not agree. The resistance came from farmers who fear grain and meat import competition, and that a CETA agreement will set the pattern for the much larger EU-US TTIP. The CETA deal requires unanimous consent of 28 European countries with a combined population of 350 million. For want of the Wallonian nail it is just conceivable that the whole CETA war could be lost. Panicky EU trade ministers and other officials met in Luxembourg, Paris and other places last week to try to resolve this almost unbelievable glitch, but no breakthrough was reported as of October 20. Elaborate concessions were offered, including a five-page declaration of principles to be added to the CETA text, some of which conflict with other parts of the agreement. The official signing ceremony was still on for October 27 but will be postponed if a settlement with the Wallonians is not reached. What happens after that is anyone's guess. To its credit the Trudeau government, which was between skeptical and openly hostile to the agreement during the election campaign of a year ago, is energetically trying to save it. However it is up to the EU to resolve what is an internal conflict. (10/23/2016)

2016: THE HARVEST FROM HELL

The 2016 growing season on the prairies could not have started in a much more promising way, and could not have deteriorated more dramatically, especially as the harvest began. Seeding started more or less on time with excellent moisture but cool weather. It turned dry in Alberta in mid-May, bringing back the spectre of another droughty year. The rains came in late June, maintaining moisture conditions while weather turned warmer, to raise optimism for what briefly appeared to be the possibility of a near-record crop. But the rains became unrelenting through the mid and late growth stages when dry, hot weather is usual and required. As the rain continued temperatures dropped below normals. Every wet-weather disease attacked every crop, and quality plummeted. Harvesting started late because of slow ripening and excess moisture, and continued slow because of rain interruptions. A pattern set in across the entire prairie grain belt in which showers and light rain fell every few days, just often enough to prevent proper drying. Some areas of Saskatchewan did not have more than three or four consecutive combining days through the entire harvest season. A possibly record-large proportion of cereals was harvested at high moisture and required heated drying or aeration in storage. As of last week harvesting in Manitoba was above 95% done but in Saskatchewan only at about 85% and in Alberta under 80%. Snow fell across all of Saskatchewan and northern and southern Alberta on October 5-6 and as of October 12 still had not entirely melted. Standing crops were flattened but the worst damage seemed to be in swaths, which were thoroughly soaked as the snow slowly melted. Further yield and quality loss occurred. Temperatures are seasonally and drying is slow. Only a spell of exceptionally warm and dry weather, which was not in forecasts, can prevent further yield and quality loss in crops that remain to be harvested. Some fields will be abandoned and others will be left for salvage in the spring. There have been late years before with harvesting into November, but losses get very high. The 2016 prairie harvest will go down as the one with the lowest overall quality in modern times, probably in over 30 years. Nobody remembers it being worse. Disease in the largest-ever lentil crop was so degrading that up to a million acres were not harvested. Fusarium and mildew in wheat and barley are at unprecedented levels and all canola diseases are rampant. (10/17/2016)

SLOW START FOR CANADIAN EXPORTS

Canadian grain exports are off to a slow start after week 9 of the crop year, compared to the two previous years. The total is 5.44 million tonnes, down 17% from a year ago and 25% from the same point in 2014-15. Off-farm deliveries and domestic use are similar. Commercial stocks are lower than a year ago but close to those of the same 2014-15 date. Shipments of all major crops are down from a year ago except peas, but most prominently non-durum wheat, which are only 2.25 million tonnes, less than two-thirds of the total reached by the same date in 2014-15. Canola exports are 25% lower than a year ago though domestic use is 3% higher. Commercial stocks are lower than a year ago but similar to week 9 of 2014-15. Country elevator stocks of the seven major western grains were 2.611 million tonnes, about 70% of capacity and low for this time of year, reflecting reduced farmer deliveries. Western terminal stocks were 2.472 million. also on the low side. Commercial canola stocks were 1.480 million, similar to 1.470 a year ago. Western crushers were well supplied with 177,000 tonnes vs 122,000 year-ago. (10/17/2016)

THE LIVESTOCK MARKET CRASH OF 2016

Agricultural economies work in cycles, in which periods of supply tightness alternate with shortages. Prices oscillate accordingly. In general, historically, times of strong crop prices tend to occur when livestock and meat prices are low and vice versa. During the last nine months cattle and hog markets erratically eroded along with most crops. As of last week prices of both were at multi-decade lows. Chicago hog futures dropped to $43.50 last week before a slight recovery, the lowest price for a spot month since October 2009. For the July-September quarter hog futures dropped roughly 40% for the worst three-month slide since late 1973. During September alone then nearby month lost 24%. Hog futures sold off ahead of USDA's September 1 quarterly hogs and pigs report (see page 3) which showed the US herd at its largest for any quarter since 1988 and 2% higher than a year earlier, also above all expectations. October live cattle futures fell to under a dollar a pound, to $98.90, the lowest on the continuous chart since November 2010. Live cattle futures dropped 17% during the quarter and 8% during the month, while feeder cattle lost 13% during the quarter, mostly during September with a drop of 11%. Cash markets did little better. US hog prices were under $40 per cwt live weight last week, prices last seen in 2008 and 2009. The cost of production in the US after accounting for all expenses including depreciation is in the low $60s. Cash cattle in the plains feedlot states were reported as low as $102 per cwt last week, a loss of $6 in seven days and over $20 in the past month. A year ago cash cattle were around $145. Canadian cattle and hog prices are American prices adjusted for the dollar exchange rate and transportation and transaction costs. Nothing that Canadian producers do affects continental prices noticeably. Canadian livestock numbers are about 10% of the North American total, so a change of a few per cent barely registers. Chicago futures prices are the basis for forward pricing programs offered by livestock organizations including the Western Livestock Price Insurance Program, available to hog and cattle producers in the four western provinces, and the Risk Management Program (RMP) in Ontario. Both programs currently pay off for producers because price guarantees are derived from hedges put in months ago when they were higher. These plans will not be able to lock in attractive prices if futures markets are in an extended decline. Fed and feeder cattle futures are currently inverted: nearby prices are higher than for later months. In the case of fed cattle the spot month was at around $102 last week and May 2017 at $96. Hog futures showed a more normal inter-month spread with spring contracts about $20 per cwt higher. These market disasters are the result of overproduction of meat and persistently slack domestic and export disappearance. They are also the latest instance of the peculiar tendency for livestock numbers to continue to rise for some time after it is amply evident that they are too high to sustain profitable prices. (10/10/2016)

ANOTHER WORLD GRAIN SURPLUS RECORD

The International Grains Council in its monthly world supply-demand report for September again raised its estimate of 2016-17 wheat carryover, by 2 million tonnes to 231 million, another new record. Carryover was 218 million a year earlier and will be 14% higher than at the end of 2014-15 according to this projection. The world wheat production figure was raised by 4 million tonnes to 747 million, up 11 million from 2015-16 with consumption expected top increase by 2 million. Larger wheat crops are expected in Australia, Canada, China and Kazakhstan than a month earlier. World coarse grain production was put at 1.326 billion tonnes, up 5% from the prior year with consumption of 1.314 billion up 4% and carryover of 263 million tonnes also 4% higher. Coarse grain trade in 2016-17 is expected to drop to 168 million tonnes from 178 the year before. World soybean production will rise to 325 million tonnes from 316 million but carryover will decline by 1 million to 32 million tonnes, the lowest since 2013-14. Consumption will rise to 327 million tonnes from 320 million in 2015-16. (10/10/2016)

STATSCAN'S SEPTEMBER CROP ESTIMATES

Statistics Canada on September 20 released the second of its three 2016 crop production reports, this one based on a computer model using satellite images and agro-climate data in conjunction with seeded acreage results from the last farmer survey. This is the second year that the September assessment has been done in this way. As in 2015 yield and production results for some crops exceeded the first 2016 estimates reported in July by wide margins. The model-based method covers Quebec, Ontario and the prairie provinces. The year's final crop report, derived from the traditional farmer survey, will be released December 6. According to the report, Canada is on the way to the second-largest harvest it has ever produced. Production of the principal cereal, oilseed and pulse crops was put at 87.90 million tonnes, up 13% from 78.06 in 2015 and second only to the all-time high of 93.59 million in 2013. The total for western Canada was 68.01 million compared to 52.80 last year and the 2013 mark of 72.63. The new total was 3% above the July estimate nationally and 8% higher for the west. The biggest change from July was in canola. The latest report put the harvest at 18.3 million tonnes, 8% or 1.30 million higher than reported in July. Average canola yield was projected at 41.1 bushes per acre, which would be a new record, a startling 26% higher than in 2015 and 8% above the July figure. Average yield was put at an amazing 45.7 bushels in Alberta (compared to 41.2 in the first report), 38.4 in Saskatchewan (36.3) and 41.9 in Manitoba (38.1). The average in the record-setting 2013 year was 40.0 bushels. Last year the July survey came up with canola production of 13.3 million tonnes. The model-based September report raised it to 14.4 million with average yield of 32.6 bushels. The final report in December increased it further to 17.23 million tonnes and 35.1 bushels per acre. That was raised a fourth time to 18.38 million tonnes when data for the July 31 grain stocks report revealed a huge discrepancy between prior production and stocks reports. Between the first and last estimates for the 2015 canola crop there was a difference of 5.1 million tonnes or 38%. While estimates for other crops were more consistent, in the case of canola the credibility of these critical reports is the lowest of any government statistical agency of any agriculturally advanced country. These massive changes over short time intervals literally make these figures valueless for logistics planning by the grain handling and transport system. Clearly something much better is urgently needed. (09/22/2016)

THE CANOLA MARKET IS REALLY THE SOY COMPLEX MARKET

Never has it been more clearly shown that the Winnipeg canola futures market is a follower without a life of its own. On September 20, the date the crop report indicated an increase in supply of over a million tonnes, canola futures rose an average of 5%, up to $10.90 a tonne for later months. It was the biggest daily gain since May 10. Soybean oil and palm oil futures rose by about 3% for the day. Canola traders thought it more important to stay aligned with the other markets than to react to a 7% increase in the canola harvest. Canola futures dropped the following day, but so did soybeans, soy products, European rapeseed and palm oil. Canola advanced last week because the size of the crop and other fundamentals are more or less irrelevant. Canola will always be priced in a fairly constant relationship to soybeans and products, especially soy oil, and to a small extent palm oil, adjusted for the exchange rate. The MATIF rapeseed futures market in Paris behaves similarly. Historically canola futures have traded at a slight premium to soybeans per tonne in US funds. Lately there has been a small discount. (09/22/2016)

THE AIRTIGHT CASE FOR JOINING THE TPP

An economic impact study by the federal Office of the Chief Economist into the Trans Pacific Partnership, ordered by the Trudeau government shortly after last year's election, was released last week. Concluding that TPP benefits dwarf its drawbacks, it is a repudiation of just about everything Trudeau and the Liberal party had to say about the accord during the 2015 election campaign and since. The key benefit to Canada: guaranteed preferential market access to seven countries with which Canada does not currently have trade agreements. The TPP would place Canada at an advantage relative to countries that do not have free trade agreements with this group and ensure a level playing field with respect to other TPP competitors in these markets. Since Canada already has trade agreements with the US and Mexico (NAFTA) and Chile and Peru, the big potential for increased exports is in Japan, Malaysia, Singapore and Vietnam. Canada has generally lower tariff protection compared to most other TPP countries. All else being equal, liberalization under the TPP should provide a net advantage for Canada. The agreement would provide tariff savings to Canadian exports to the seven new partner countries estimated at $428 million per year, mainly from Japan, Vietnam, and Australia. When fully in effect, the TPP would permanently raise the GDP of Canada by 0.13% or $4.3 billion a year. Canadian exports to the new FTA countries would increase by $2.2 billion (all figures in US dollars). The most significant new export opportunities would be in Japan, where Canadian exports would increase by $1.1 billion a year, primarily pork, beef, and wood products. As is already obvious, major benefits of TPP membership would accrue to crop and livestock agriculture, while new competition would be confined to supply-managed dairy. Canadian agricultural exports to the US could also increase even though there are no new market access commitment from the US. Canadian dairy imports from TPP countries are estimated at $350 million annually after factoring in a likely reduction in imports presently coming from outside the TPP area. The majority of additional dairy product imports from TPP countries would go into value-added processing. Any loss in Canadian dairy production would be offset by gains elsewhere. The net effect of lower consumer prices from cheaper imported dairy products and losses in the dairy sector would be a wash. The study said that not joining TPP would put Canada at a disadvantaged relative to exporter members of the TPP, which happen to be our toughest competition. Existing agricultural exports would be threatened or lost in Japan; the study estimates that beef exports would drop by two-thirds and pork by 13%. Canada's preferences under NAFTA in the US and Mexico would be reduced whether or not Canada is a TPP member. Walking away from the TPP would lead to a loss of $5.3 billion in annual GDP. (09/16/2016)

ALBERTA'S $15 MINIMUM WAGE: SCREW THE POOR

If the stupidity, incompetence, irresponsibility and ideological perversions of Alberta's NDP government were not already well known, it would be well nigh unbelievable that it is planning to raise the provincial minimum wage to $15 an hour within two years. Under the disastrous circumstances it is the expected thing. The hardest-pressed employers in Canada will soon be forced to pay the highest minimum wage, the radical-left's magic $15 an hour. Between 2015 and 2018 the lowest-paid will have to be paid 47% more for the same work. Alberta already has the second-highest minimum of any province. The NDP will soon learn that employers will not simply pay up, shut up and continue as if nothing happened. Minimum wage laws challenge ability, skill and resourcefulness of managements of businesses of all types and sizes in the same way that any other obstacle to viability and growth does. There are numerous solutions to the threat of higher labor costs without higher labor productivity. The most obvious is to make sure that if pay must be raised, the lowest-performing workers need to be weeded out and replaced with ones capable of earning their more expensive keep. Employment in the bottom class can only fall. Marginal lines of business depending on low-skilled help will be abandoned. Retail businesses will reduce hours of operation. More workers will be hired on a temporary basis, easier to discharge. Low-level employees will be laid off sooner, more often and for longer periods. Higher-performing workers will see fewer and smaller raises because some of their effort will go to subsidize the lowest least performing tier. To the extent that minimum-wage labor costs cannot be controlled, higher costs can come only out of higher prices for goods and services or the earnings of the business. Some businesses will be out of business before the statutory minimum reaches $15. These are inescapable, inevitable end results: fewer employment opportunities for those who need them most, economic slippage and reduced competitiveness of Alberta business. The lowest-performing workers will face the reality that if they can't earn $30,000 a year they earn nothing. People will be forced out of the province to places where entry-level work is easier to find. Some day, at some convention, the NDP nobodys running Alberta into the ground will heartily congratulate themselves. (09/16/2016)

YEAR-END CARRYOVER LOWEST IN FOUR YEARS

Statistics Canada reported July 31 grain and oilseed carryover on September 7, showing the lowest farm stocks of the seven major grains plus lentils since 2012. Farm inventory of all main crops was lower than a year earlier except for barley, oats and flax. The last time total year-end stocks were in these ranges was in 2011-12 and 2012-13. July 31 commercial stocks were also lower, the result of more effective inventory control by grain companies. Commercial wheat and barley stocks were among the lowest of modern times, especially compared to the Canadian Wheat Board era, when Board-owned stocks often spiked towards the end of the crop year as it attempted desperately to dress up its crop-year performance. The total of major crops in storage was 10.08 million tonnes, 20% less than a year earlier and 43% less than on July 31 2014. Farm-held inventory was 19% lower. Combined farm and commercial wheat inventory was 5.17 million tonnes, down 27% from a year earlier and down 51% from the 2014 date. Total wheat stocks were 21% of the previous year's production compared to 29% a year earlier and 40% on July 31 2014. The Canadian wheat stocks-to-use ratio was 17.5% at the end of 2015-16 compared to 47.5% in the US. Wheat stocks on farms were 25% less than a year earlier and 63% smaller than two years ago. Alberta farms had only 495,000 tonnes of all wheat on July 31 and Saskatchewan 1.5 million. Farm and commercial stocks of durum were slightly higher than at the end of 2014-15 but 39% under the 2013-14 level. Canola inventory totalled 2.02 million tonnes, 21% under a year earlier with decreases at both farm and commercial levels. Farm stocks were reported as 26% lower and commercial stocks 16% lower. The canola stocks-to-use ratio at July 31 was 10.9% compared to 8.2% for US soybeans. Farm-held canola stocks of 915,000 tonnes were 26% lower than 1.23 million a year earlier. However, Statistics Canada increased the official size of the 2015 canola harvest to 18.38 million tonnes from 17.23 million reported last December, or by 1.15 million tonnes. It does not make much difference now, but it is another instance of the gross unreliability of information it obtains from the farmer surveys. Barley and oat stocks were higher, especially on farms, where 89% of barley and 69% of oats were stored. Combined barley inventory was 19% larger and oats 38% larger. (09/09/2016)

MASS PRESS MESSES UP CANOLA STORY

When it comes to distorting and generally screwing up on agricultural issue reporting, especially when involving western Canada, nobody beats the Toronto Globe & Mail. In a recent centrefold feature about the Chinese canola dockage matter, dominated by a life-sized picture of a canola plant and a square foot of white space, it advised readers that China is second only to the United States in purchasing Canadian canola (China bought 4.03 million tonnes in 2015-16 while the US was not in the top five) and that 25% of farm cash receipts in Canada are generated by canola, a statistic it attributed to the Canola Council (it was actually 13.5% in 2015). Not that much better was the normally more sensible Macleans magazine, where a recent article asked “Has Canada become too reliant on [canola] as a source of income?” It worried that if other importers adopt Chinese dockage standards, canola production may go into decline for lack of buyers. Better for the mass press to stick to what it knows: promoting the interests of the Liberal and NDP parties.

FIRST OFFICIAL 2016 CROP REPORT

Statistics Canada's August preliminary crop production report does not have a history of high accuracy, especially in canola. The report in 2013, when records were set, put average canola yield at 33.7 bushels per acre, the Octiber report at 36.8 and the final release in December at 40.0. That was revised to 40.6 bushels after later grain inventory surveys showed production to have been even higher. In 2015, a more typical growing season, the canola yield estimate was 30.0 bushels per acre in August and 38.0 in December, a 27% error. Thus the 2016 yield estimate will be similarly increased probably closer to 40 bushels in the final report. Two other crop production reports are scheduled, to be issued for 2016, on September 20 and December 6. In its first 2016 assessment, the agency reported production of the seven traditional major grains plus lentils in western Canada at 63.05 million tonnes, 2% more than 61.92 million last year from a nearly identical seeded acreage. This was somewhat disappointing in light of conditions at the start of the growing season, but almost certainly will may be revised higher in future reports. In eastern Canada the first corn and soybean estimates could be on the high side because the unusual drought continued beyond the survey period and did its worst damage after mid-August. The national all-wheat crop was estimated at 30.48 million tonnes, a 10.5% gain over 2015 on a 4% smaller seeded area. It is only the second Canadian crop above 30 million tonnes, though 19% smaller than the 2013 record of 37.52 million. Average yield was reported at 48.9 bushels per acre, up 14% from last year's 42.8. The durum wheat harvest at 6.81 million tonnes is a record, topping the 2013 high of 6.50 million. Average durum yield of 41.6 bushels per acre was 85% of the non-durum spring wheat yield, whereas 70 to 75% is more usual historically. All-wheat production is projected to increase by 5% from 2015 in Saskatchewan, 15% in Alberta and 67% in Ontario, while declining by 3% in Manitoba. In the west barley production increased while oats declined, as barley yield rose 6.5% while oat acreage dropped 12%. The western canola crop was put at 16.97 million tonnes, short of 17.17 last year, whereas a sizable increase was expected. Yield was estimated at 38.0 bushels per acre, identical to that of 2015. Given the record of canola estimates, the final yield could be up to 39.9 bushels and production could be about 17.75 million tonnes. Even with a small carryover from 2015-16 and 2016-17 requirements of around 17 million, supply should be comfortable, with a normal relationship between canola and soybean prices. (08/29/2016)

CHINA, CANOLA & DOCKAGE: A FLYING CIRCUS

As anyone could have predicted, no settlement was reached after meetings in Beijing during the week of August 10 between Canadian and Chinese officials concerning the Chinese decision to lower maximum dockage in canola seed imports to 1% from the world standard of 2.5%. The breakdown led to alarmist reports warning of the imminent loss of the multi-billion canola seed market in China. More talks were supposedly planned but no amount of talk will change this situation. The reduced limit goes into effect September 1. Chinese officials said canola cargoes already on the way would be accepted but new orders must observe the new limit. canadian export terminals are capable of cleaning canola to 1% dockage, and in fact producer deliveries often enter the system with dockage between 1.5 and 2%. Substantial additional cleaning capacity has been added at west coast terminals in recent years. Where double passes are required, the additional cost will be significant but not prohibitive. The extra expense will be resolved in some combination of higher prices to Chinese buyers and a wider basis between futures and cash to growers. The Chinese logic is impossible to follow in a scientific sense and of course is not meant to be followed. It is possible that blackleg can be transmitted through seed or dockage, though the evidence is not strong. The Chinese claim that while their own crops are infected, Canadian blackleg is of a more virulent type. If the fungus actually can be transferred through dockage such transfer would occur at all concentrations, at 1% as easily as at 2.5%. Furthermore, and this point has not been well made by anyone, the only way that blackleg spores in imported canola seed could get into Chinese rapeseed fields is if some seed, meant to be processed, is used as seed for planting. That would be a flagrant but not unimaginable abuse of intellectual property rights, since virtually all Canadian canola is of GMO varieties. Moreover if seed were so pirated it would presumably be cleaned to seed standards with virtually all dockage removed. Finally, if the blackleg threat is urgent, why would Chinese authorities allow the 2.5% limit to continue to apply between March (when the matter was first raised) and September? Of course disease has nothing to do with it and this is the latest example of how Chinese authorities freely use arbitrary and irrational import regulations to regulate import volumes. The Chinese regulatory environment is just free enough that the government cannot place embargoes or quotas on imports (which would also be illegal under the WTO). So they use an assortment of phony pretexts. (08/22/2016)

FARM & OFF-FARM INCOME

It would be a sign of serious malaise in the Canadian farm economy if it were literally true, as Statistics Canada reported last week, that off-farm income accounted for 49.2% of the total income of farm operators in 2014 and 48.2% in 2013. It would mean that farming as a vocation and a business alone is not able to provide a living wage for farmers and that they need to have work outside the farm to make ends meet. It is a gross misinterpretation arising from StatsCan's archaic, outdated definition of what a farm is. Included in the tally are the large majority of farms that are too small to be intended or expected to support family. Most farms in Canada are basically part-time sidelines to some other form of primary livelihood. Farms with under $100,000 in annual gross receipts should be in some other classification than commercial farms. Also much off-farm employment and income is by family members who don't do much around the farm. The five-year farm census was carried out earlier this year and results will start to be available around mid-2017. They will include extensive data by size of farm, which will show that the bigger the farm the more of its owners' income comes from farming. Most farm types in last week's report had lower total income in 2014 than 2013, but the drop was not large and farmers on average across all farm sizes had substantially higher family incomes (from farm and non-farm sources) than the general population. Total income of the average farm operator was $95,331, a 30% gain over $73,445 in 2010. In Alberta it was $108,743 in 2014, Saskatchewan $105,292, Manitoba $94,538 and Ontario $89,124. In 2014 the median income of all census families was $78,870. (08/22/2016)

2015-16 CROP YEAR WRAP

The Canadian Grain Commission's final grain report for the 2015-16 crop year quantified a very good marketing season from all points of view. It was the third consecutive year of off-farm sales of western crops above 50 million tonnes. Including lentils, soybeans and special crops deliveries into the western grain handling system were 52.02 million tonnes, setting a new record, compared to 51.90 in 2014-15 and 50.62 million in 2013-14. (Actually they were slightly higher in all years because not all movement is reported to the Grain Commission). Exports of all crops under Commission jurisdiction also set a record of 40.39 million tonnes (although exports of the seven major western grains were second-highest). Total shipments were slightly above the previous high in 2013-14 of 40.12 million and 2% higher than 39.61 million in 2014-15. Shipments recorded by the Grain Commission of wheat, durum, oats, barley, canola, flax and peas (the traditional seven major crops) reached 35.55 million tonnes, less than 4% short of the record 37.11 million exported during 2014-15. Canola exports were a record by far at 10.19 million tonnes vs 8.90 million in 2014-15. Records were set for canola disappearance at 18.76 million tonnes, 15% above 16.30 in 2014-15. Use in the crop year was also 9% more than 2015 production as reported by Statistics Canada (which could be revised later). The five-year average for canola use is 15.05 million. Soybean and corn exports rose sharply, to 3.08 and 1.01 million tonnes respectively from 2.41 million and 271,000 tonnes in the prior year. Corn exports had dropped sharply in 2014-15 from a more usual 1.76 million in 2013-14. Domestic use of all crops was also the highest ever at 16.40 million tonnes compared to 15.63 and 13.78 million, because of booming canola crush. Year-end commercial stocks continued a declining trend that began with the termination of the Canadian Wheat Board monopoly four years ago. Commercial wheat stocks, including durum, were 2.35 million tonnes, a third less than a year earlier and the five-year average, which was 3.90 million. Low year-end inventory means that space is available for deliveries during the coming harvest, and also that grain companies continue to improve their inventory management practices. (08/08/2016)

RAILWAYS PERFORM OK IN 2015-16

The two major railways kept up more satisfactorily with demand for grain cars during the 2015-16 crop year than in any other recent season, considering that such demand was nearly record-high. Rail car unloads at ports were just 1.7% under the 2014-15 record. Total unloads were about 380,000 cars, 10% above the five-year average. For the crop year as a whole shippers ordered roughly 410,000 cars for movement to all destinations, of which the CNR supplied 98% and the CPR 97%. When routine over-ordering and cancellations are considered shippers received substantially all the cars they wanted. They also got them in a more timely way: for the crop year the CNR spotted 92% and the CPR 85% of cars in the week for which they were required. These ratios have been closer to 75% in previous recent years. For the 2015-16 crop year, 89% of car orders were filled in the week for which ordered, 8% were one week late and 1% two weeks late. Loaded cars were picked up within 24 hours of release by shippers 77% of the time by the CNR and 27% by the CPR, and within 48 hours by 94% and 49%. CPR pick-up service continued drastically inferior, with cars taken away later than 48 hours after loading 51% of the time, though still better overall than in the previous two years. (08/08/2016)

ILLEGAL GMO WHEAT, AGAIN

USDA confirmed on July 29 that 22 plants of an unregistered GMO wheat variety were found in a field in Washington state in early July. The plants survived burn-down by glyphosate in preparation for the next crop. The US Food & Drug Administration took control of all wheat on the subject farm and tested it but found no other GMO evidence. The incident was too similar to the first such discovery, of a dozen plants in a corner of a field in Oregon in 2013, to be anything but deliberate sabotage, either by a single individual or an anti-GMO group or organization. The trait found in Washington was not the same as in Oregon in 2013, but whether the Oregon and Washington incidents are connected or not, there is a high probability that sufficient seed is in the wrong hands to create more such incidents for some time to come. A handful of GMO wheat plants were also found in a University of Montana research plot in 2014 where they had not been grown in 15 years. In 2013 Japan, South Korea and other importers immediately blocked all incoming wheat cargoes and wheat prices briefly fell as a result. This time imports were embargoed only of US western white wheat for food uses and only until more thorough testing could be arranged; distribution of previously purchased US wheat was also stopped but there was no market impact. In the aftermath of the 2013 case a class action lawsuit was organized by percentage lawyers against Monsanto for allegedly not securing its dangerous GMO material properly and for causing wheat prices to decline. It was settled for $2.5 million to get rid of a nuisance. (08/08/2016)

IGC WORLD REPORT FOR JULY AGAIN BEARISH

The International Grains Council's monthly world market report for July again raised the 2016-17 world wheat production estimate, to 735 million tonnes from 729 last month (and 736 last year). Consumption was increased to 727 million from 720 but carryover at the end of 2016-17 will rise to 228 million tonnes from 226 (219 last year). Carryover by major exporters was put at 71 million vs 66 last year. Coarse grain production was estimated at 1.311 billion tonnes vs 1.297 last month and 1.264 last year with consumption of 1.302 vs 1.290 and 1.260. Carryover was put at 260 million tonnes vs 256 and 252 million respectively. World soybean production was put at 321 million tonnes vs 320 last month and 316 last year; consumption of 327 million will exceed production and but the carryover estimates was increased to 30 million tonnes from 28 million last month and 35 million last year. (08/01/2016)

CATTLE FEEDLOTS PLACE MORE HEIFERS

The latest feedlot placement statistics for both the US and Canada indicate reduced holding back of heifers to enlarge the breeding herds. US placements of cattle and calves during June were up 3% from the 2015 month at 1.53 million, below what was expected but the highest for the month in three years and the fifth consecutive month of higher placements than a year earlier. On-feed numbers on July 1 were 10.36 million head, up 1.2%, instead of 1.6% predicted. At 6.87 million, steers and steer calves on feed were 1% fewer while the 3.49 million heifers on feed were 5% higher. Placements in western Canadian feedlots during June were 61,600, up 4% from a year earlier, with steer placements 51% lower but heifers 39% higher, another signal that retention of heifers for herd enlargement has stalled. On-feed numbers at July 1 were 752,500, similar to year-earlier and two years earlier but the number of lightweight animals was sharply lower. Fed cattle marketings during June were 128,500, also comparable. (07/31/2016)

CHURCHILL TERMINAL TO CLOSE AFTER 85 YEARS

The Churchill export terminal has reached the end of its long and rocky road, 85 years after it opened. Most employees were laid off and it was conceded that no grain will be shipped this year. Contrary to the impression from a blizzard of press stories, only the grain terminal is being closed and general freight and northern supply service will continue. The purported sale of the port and rail line to some northern native bands either was never real or fell through. There was the inevitable and immediate fallout, from politicians, the union, Friends of the Canadian Wheat Board and others. The 1,300-km rail line to Churchill has deteriorated badly despite around $100 million in government and Omnitrax money spent over 30 years on rehabilitating, maintaining and repairing it, and the aluminum hopper cars bought specifically for the route and quickly scrapped. The permafrost under the railbed appears to be breaking down, ostensibly due to climate change, and if so there is no feasible way to shore it up. Since it is highly unlikely that the elevator will ever re-open, there is little incentive to spend money on security and maintenance, which is especially costly in the sub-arctic climate. There is no asset value and Omnitrax will probably just walk away, leaving the Churchill elevator to join dozens of once-busy terminals around North America now derelict. (07/31/2016)

EXCESSIVE RAIN THREATENS WESTERN CROPS

Across the western half of the prairie grain belt, April and May were so dry and warm that a re-run of the early-season drought of 2015 seemed at hand. By mid-July the entire prairie region had received 30 to 80% more rain than normal since then. Crop damage, especially low-lying field flooding, is significant and rising. Many areas have all the surplus moisture they can tolerate and any more rain will start to seriously reduce yield capacity. Unfortunately, more was predicted. Saskatchewan was worst-hit. The heaviest rain was across central and southern parts of the province with seven-day accumulations of 2 to 7 inches. During a heavy rainstorm in southeast Saskatchewan over five inches were recorded in four hours; in another instance 1.5 inches fell in less than an hour. Extreme rain with high winds literally blew off canola and lentil blossoms. Rainfall distribution is among the most erratic ever seen. The same general areas were hit repeatedly while others received only scattered showers and a few isolated districts were missed altogether. Another peculiar feature is the seeming regularity of rainfall. Southern Alberta had rain every day last week. In many areas rain and shower events occurred several times a week separated by only day or two, greatly complicating spraying for weeds and disease. High winds and hail also caused unusually high crop damage and hail claims are ahead of average. Insect infestations have not been a serious issue so far. The other anomaly is temperature. Highs in the 30s C were regularly recorded during May, but starting in early June daytime highs have been persistently below normal throughout the grain belt, often under 20C. Overnight lows fell to low single digits in southern Alberta on several nights since the beginning of July. Heat unit accumulation is too low to make best use of ample moisture, and as of last week a noticeable slowdown in crop development was noted. Pulse crops, including peas and lentils, which were seeded on a record-large area this year, are least tolerant of excess moisture, and the areas with the heaviest recent rains are in the brown-soil belt of Saskatchewan where pulse crop area is concentrated. Besides poor growth, surplus moisture promotes fungus diseases in all crops, pulses in particular. Fungicides suppress but do not actually control diseases. Many growers have sprayed promising crops three times. Root rot has also been reported in all crops. Canola and cereals can withstand excess water with less damage but no crop can survive field flooding for more than a few days. Crops in districts where rainfall has been more normal continue to show extraordinary yield potential. Cool temperatures are a handicap, but cool weather during the summer of 2013 did not prevent setting of numerous yield records. (07/16/2016)

USDA PREDICTS EVEN LARGER SUPPLY

The monthly USDA supply-demand report issued July 12 increased the US all-wheat production estimate was increased to 2.260 billion bushels from 2.080 in the June report, up slightly from 2.050 billion in 2015-16. Exports were projected at 925 million bushels from 900 last month and 19% above 777 last year. Wheat exports of this size would be a three-year high. But US carryover will be the highest in 28 years at 1.105 billion bushels, up from 1.050 last month and up 13% from 981 last year. USDA raised the soybean production estimate to 3.88 billion bushels from last month's 3.80 and 3.93 last year, with average yield 3% lower. Exports were projected at 1.93 billion vs 1.92 and 1.89. Carryover at the end of 2016-17 is expected to be 290 million bushels vs 260 last month and 350 last year. However that would put the ending stocks to use ratio at about 7%, similar to 2014-15 when prices were quite high. The corn production number was raised from 14.43 billion bushels in June to 14.54, a new record and up 7% from 13.60 last year. Average yield is projected only slightly lower but planted area is 7% higher at a record 94.1 million acres. Corn carryover was projected at 2.08 billion bushels vs 2.01 last month and 1.90 last year. Corn exports were expected to reach 2.05 billion bushels vs 1.95 in June and 1.90 last year. The Brazilian corn harvest was estimated at 70 million tonnes, 7.5 million less than a month ago; exports will be down 45% from 2014-15 to 18.5 million, opening the way for higher US exports. Corn use for ethanol is steady in the range of recent years. Chicago futures prices were mostly higher in sessions after the report's release, as most figures were near expectations. Soybeans rallied notwithstanding that the report had very few supportive features and some key supply-demand equations worsened. USDA lowered its projections for average farm prices for wheat and corn in 2016-17 and left them unchanged for soybeans. (07/15/2016)

WESTERN FARM STOCKS RUN LOW

Between March 31 when Statistics Canada surveyed grain stocks and July 3, western farmers delivered 4.46 million tonnes of non-durum wheat, 769,000 of durum, 4.80 million of canola, 86,000 of lentils, 200,000 of peas and 155,000 of flax. As of the 48th week of the crop year that should have left them with about 8.13 million tonnes of wheat except durum, 2.53 million of durum, 1.05 million of canola, 202,000 tonnes of lentils, 744,000 of peas and 505,000 of flax. Four weeks of delivery statistics remain before the end of the crop year and six to seven weeks before the first deliveries can be made off the combines. Practically all of these figures are inconsistent with recent farmer selling. Wheat and durum numbers seem very high in relation to fairly slack country movement, suggesting that many farmers were so deliberately slow to sell these crops in a period of low prices, in which case they were acting on very bad advice because the best prices of 2016 are behind them. Assuming March 31 figures were approximately correct, farmers still have 17% of 2015-crop non-durum and an astonishing 47% of durum in their bins. Other slow-selling crops were flax (54% still on farms) and peas (23%). On the other hand, unless Statistics Canada's stocks figures were wildly off, farmers appear nearly sold out of canola and lentils. According to the official production and stocks numbers, only a million tonnes of canola remain on farms, enough for three weeks' worth of sales at the average rate during the crop year to week 48. Growers do not appear to have enough seed to maintain weekly sales above about 175,000 tonnes. The average of the last five weeks, roughly since seeding finished, was about 360,000 tonnes a week. (07/16/2016)

2016 CROPPED AREA AS HIGH AS IT CAN BE

According to the June 29 Statistics Canada report of seeded acreage, 72.42 million acres are in the major crops this year, a record by a slight margin. Summerfallow in western Canada dropped below 2 million acres, a new low. Area in the major crops on the prairies was a record 63.55 million acres, slightly higher than in 2015 but 4% above 2014, when wet spring conditions limited acreage in some districts. The cropping system is running flat out. Trends in the allocation of area to the main crops were as indicated in the seeding intentions survey in March, except that pulse and special crop area was even higher at an all-time record 10.59 million acres, 17% of total cropped area in western Canada. As recently as 2013 it was 6.33 million or 10%. Lentil area soared to 5.84 million acres, a 48% jump over last year and 14% more than March intentions. Lentils are now the fourth-largest Canadian crop by seeded area, more than the total of corn and soybeans and similar to durum wheat and barley. The other big pulse crop is peas, which also set a new acreage record of 4.27 million, up 16% from last year's 3.68 million. Pea area was exceeded by lentils for the second year. Canola area in western Canada hit the crop-rotation wall at 20.02 million acres, very little changed. Over the last five years canola acreage ranged only from 19.84 to 20.60 million, pretty much establishing that 20 million is the upper limit because of crop rotation considerations. Even so, at 31% of cropped land in the west, the average rotation is 3.2 years, well under the four years recommended for disease management. Canola is the most profitable crop in 2015-16 and seeded area would undoubtedly have been higher if it were possible. It follows that the only path to higher production is increasing yield. Flax area dropped to a five-year low of 925,000 acres, 44% lower under the recent high last year. Wheat area continued its long, slow decline. National all-wheat acreage was about a million acres lower than in the last two years at 23.24 million. The entire drop was in western Canada. Wheat was seeded on 32% of cropped land; 15 years ago it was 39%. Total wheat area is the lowest since 2011 when it was 21.56 million; the recent high in 2000 was 27.36 million. Spring wheat area of 15.44 million is the lowest since 15.12 million in 2007 but durum area is the highest since 2012, rising for a third year to 6.10 million acres, 28% of total wheat area compared to 25% last year and 21% in 2014. Winter wheat in western Canada was a three-year low but rose in eastern Canada to 1.19 million acres. Barley acreage of 6.38 million was 2% smaller than in 2015 but recovered from the record low of 5.88 million in 2014. Area in oats was also down, at 2.86 million acres, compared to 3.34 and 2.82 million in the last two years. Corn area in Manitoba increased 30% to 325,000 acres. Ontario corn area was similar to 2015 at 2.05 million acres. In Quebec it was 890,000, down 1%. Soybean acreage in Manitoba set a new high mark of 1.63 million acres. Soybean area dropped in Saskatchewan, suggesting that beans are not as well adapted as was believed. Soybean acreage in Ontario was 6% lower at 2.77 million and 3% higher in Quebec at 803,000 acres. Summerfallow area dropped to an all-time low of 1.99 million acres, from 2.56 million in 2015 and 4.60 million in 2014. Less than 20 years ago idled land routinely exceeded 10 million. Summerfallowing has been obsoleted by low-tillage cropping methods, adding as much land under crops as there is in all of Ontario. (06/30/2016)

VALUE OF CANADIAN FARM ASSETS CONTINUES TO RISE

Statistics Canada last week released its annual balance sheet of Canadian agriculture, as at last December 31, showing similar 6% gains in farm assets and equity during 2015. Nationally the value of farm assets increased by $33 billion in 2015 to $561 billion, while liabilities were up $8 billion to $87 billion; equity was up $26 billion to $474 billion. Although the smallest annual percentage increase since 2009, equity rose as farm assets again appreciated by significantly larger amounts than liabilities. Farm land values also continued to increase, with farm real estate (including buildings) estimated at $417 billion, an 8% gain during 2015 and a 20% increase since the end of 2013. Current assets (which include crop and livestock inventory for sale) fell 2% to $40 billion but were 2% higher than two years earlier. The value of crop inventory declined by $352 million because of lower quantities as well as lower prices. Marketing board quota, the least tangible of any farm or any other asset class, was valued at $32.4 billion, little changed from a year earlier, but representing an amazing 7% of total Canadian farm assets. In Ontario and Quebec quota was valued at $21.3 billion, 11% of total assets. Gains in asset values and equity were remarkably consistent among provinces with assets rising between 5 and 8% during the year and equity mostly by 4 to 8%. The prairie region showed a slightly higher equity-to-asset percentage of 86% compared to 82% in Ontario and Quebec. Ontario and Alberta were nearly tied with the highest provincial asset value; 46% of Canada's total farm assets were in these provinces. Farm asset value in Alberta was half again as large as in Saskatchewan. Asset and equity growth with comparatively stable farm income lowered the rate of return on assets and equity. Nationally, return on assets was 2.0% and on equity 2.3%, slightly better than in 2014 but below corresponding figures for earlier years, which were 3.8 to 3.9%. (06/26/2016)




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