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Agrimarketing : July August 2008
20 AgriMarketing ¦ July/August 2008 Editor’s note: To get a feel on what’s new happening in the important Canadian agricultural market, we invited prominent ag communicators to provide the following updates. CAUTIOUS OPTIMISM AND CROSSED FINGERS by John Morriss, Editorial Director Manitoba Co-operator and Alberta Farmer Express Western Canadian farmers have often complained that agriculture is a forgotten industry for the rest of the Canadian public, but that has hardly been the case for the past few months. Food news of all kinds contin- ues to grab prominent space in Canadian media, and the business community has certainly noticed agriculture. The Potash Cor- poration of Saskatchewan , now one of the top five companies by market capitalization on the Toronto Stock Exchange , has produced a 169% return over the past year. National business publications frequently report on how investors are also smil- ing about returns from fertilizer man- ufacturer Agrium and grain handler Viterra , created last year through the merger of Saskatchewan Wheat Pool and Agricore United. Though the industrial heartland of Ontario is suffering the effects of the economic downturn in the U.S., Canada avoided the subprime loan debacle and the housing market has restrained stable or strong, especially in the West, which continues to ben- efit from a resource boom in petro- leum, minerals and agriculture. Saskatchewan, our largest grain- growing province, traditionally with “have not” status in the national eco- nomic picture, now has the hottest economy in the country, due in part to the boom in grain and oilseed prices. The numbers tell part of the story. The Canadian Wheat Board is expected to return $10.40 per bushel before handling fees for top grade wheat in the 2007-08 crop year, which ends July 31. That compares to $5.89 the previous year. Top-grade malting barley should reach $6.31 versus $4.40 last year. The political debate over the board’s single desk status for barley continues, but it remains in place for the new crop year. The board has calmed some of the crit- ics of its annual pooling system by offering a cash price option, which ironically did not pay off for those who used it early in the crop year, so the prices mentioned earlier will be actual returns for the majority of farm- ers who stayed in the pool. Canola returns mirror those for soybeans — in mid-July futures are running over $700 per tonne versus $380 a year ago, and prices for other crops such as flax, oats and pulses have shown similar strength. The other part of the story is that input costs have soared, especially for fertilizer, and farmers will only benefit from high prices if they hold — and if they can harvest a good crop. The potential rewards from grain farming have never been so high, but neither have the risks. As of mid-July the mood was one of cautious optimism. Conditions vary over such a large area as West- ern Canada, but overall the crop was off to an early but slow start with concerns about dryness. Recent rains have been better and some sustained heat will help things catch up. In short, cautious optimism and crossed fingers in Western Canada. CANADA’S BEEF HERD CONTINUES TO SHRINK by Gren Winslow, Editor Canadian Cattlemen The July 1 cattle inventory report released by Statistics Canada on August 17 will confirm another deep cut in the Canadian beef herd. Early guesses by market watch- ers had the beef cow herd slipping between 5% and 6% surpassing the 5% drop in 2007. CanFax, the mar- keting wing of the Canadian Cattlemen’s Association reports cow slaughter for the first six months of the 2008 up 4.4%, fueled by cull prices not seen since 2002, the year before Bovine Spongiform Encephalopathy (BSE) was detected. At the current pace domestic cow slaughter could hit a record 785,000 by year-end. But that’s only part of the story. Cow exports have been climbing steadily since USDA published its final rule on over-30-month old cattle last November. Through early July Canadians exported 78,000 cows to the U.S., and most of those went for slaughter. Add in domestic slaughter and cow marketings to date top 440,000, 27% ahead of last year’s pace. Many of these cows won’t be missed, and won’t be replaced. Although Canadian steer and heifer slaughter is down 3% this year, pro- ducers are shipping 77% as many heifers as steers to slaughter. That’s up from the 72% heifer-to-steer ratio set last year and well ahead of the 15-year average of 66%. At the same time feeder cattle exports to the U.S. were up a whopping 69% at 365,736 head. The flood of feeder exports will probably slow after July 15, the last day Canadian cattle could be listed as U.S. livestock under the new American country of origin labeling (COOL) legislation set to come into force at the end of September. COOL is just one of the many uncertainties that have sent Cana- dian producers rushing for the exits on the beef merry-go-round in the past couple years. Five years of liv- ing under a growing number of restrictions to deal with BSE, a soar- ing Canadian dollar that remains stubbornly near par with the U.S. dollar, and sky rocketing feed costs have battered producer confidence. Add to that a sudden upturn in mar- ket prices for cull cows and fed cattle and you have a recipe for falling inventories. WHAT’S NEW IN THE CANADIAN MARKET (more on page 22) Morriss CAMA UPDATE Winslow
CAMA 2008 Canada