Agronomist Notes

Greetings from Bendigo, Victoria! We’ve arrived for the night in a small mining town northwest of Melbourne. I apologize for the tardiness of the newsletter as the hectic 18-hour days and poor internet connections have kept me behind. I ask for your grace and patience as I foresee delays in the future as well.

I’m four days into my Nuffield trip and it’s been an action packed agenda from day one. We’ve had a two-day conference discussing the role of Australian crop research, emissions trading, bio-technology and trade barrier issues with representatives from Australia, Europe, USA and New Zealand. There are 46 people at this week long conference from all over the world including Ireland, England, Scotland, Australia, New Zealand, Canada and Brazil. A fine compilation of people in-deed! The business interests of these 46 individuals range from poultry to herbs, diary to flowers, garden markets to GMO’s and many points in between. It’s been a very fun and exciting experience so far and I wish you all had the opportunity to do the same. In this productive environment I’ve already spawned an idea worth a million dollars and will likely hatch several more for my agronomy clients— I still have 45 days to go! So, enjoy the read and have a great week.

Agronomy

Nuffield International Conference Opening Day – World Trade Barriers
The day had finally come, the start of the International Nuffield Scholar conference in Melbourne, Australia on Sunday, February 24th. I was met by 46 international scholars from around the world to begin our one-week tour through southeast Australia. After one day of “get to know your neighbor”, we dove right into talking about trade barriers between countries. We had representatives from the EU, US, New Zealand and Australia. Talk about a heated discussion about subsidies when you’re sitting in a room with 26 Europeans and a handful of New Zealanders without subsidies!

The issue of subsidies in Europe was presented by an EU Ag policy advisor. He stated that subsidies are paid to farmers as an incentive to keep them farming the land. The dense urban populations in many countries of the EU place a high value on pristine farm landscapes in their backyard. They want to enjoy lovely weekend getaways out of the city and are more than willing to pay for it. So, the government provides huge subsidies to farmers and regulates the heck out of farming practices to ensure no-one is jeopardizing that resource. Secondly, the Europeans have gone hungry in the past and never wish to risk that again. Consequently, they encourage food production with production subsidies whether it distorts the market or not. 

My former perspective led me to believe that farmers in the EU are well-off because they receive huge amounts of money from the government. The truth is they are wealth in equity, but the values of those subsidies have been placed into the price of land and producers continue to eek out a living, with most working off the farm. Most work off the farm because they can’t afford to expand and government regulations prevent them from becoming more efficient and more competitive on the open market. The subsidies in place today only serve to prop up the inefficient farmers, stifle innovation and create over supplies in the domestic market. They are trying to reduce subsidies in Europe if you can believe it, but don’t expect it to happen overnight, especially after you see how complex the entire system is. SL

Innovative Pork Production Idea
The big buzz words in Australia are “superannuation funds” and “corporate farms”, which are both designed as agricultural investment vehicles. You don’t hear those buzz words in Canada very often because the opportunities aren’t as lucrative. For example, our many supply management boards that aim to protect products like poultry and dairy create huge barriers to entry by elevating the price of quota. Crop production is another venture that takes a great deal of initial capital and provides relatively low returns on investment. The first really creative idea I’ve heard so far came from the manager of Western Plains Pork, a superannuation fund that was investing (and profiting) in free range hogs.

The mission of the free range hog scheme is to provide a value added product by employing production systems that are simple, ethical, humane and environmentally sound. Western Plains Pork markets their branded product as the healthiest finished hogs in Australia. So far, the investors in this business have received an annual 11% return on their investment and have been paid 7% in dividends each of the last two years. Up until recently they had been turning a handsome profit; only now they’ve felt the effects of poor pork prices. The losses today are roughly $2 per head per week at 700 finished hogs per week. They actually decided to ramp up production at this time to hit the ground running when the markets turn around.

The breeds of hogs they use are Landrace and Duroc which are well adapted to open sky systems. This area of Australia near Melbourne has a cooler climate and temperate grasslands. The sows live outside where they graze in a free range environment with the boars. They’re contained in small fields with ample shelter, water and wallows. They give birth in insulated huts and the piglets are weaned into special straw-based open huts.

Every two years the entire piggery is relocated to fresh land in an adjacent location. The old site, having been enriched with hog manure, is cropped and allowed to renew itself to its natural balance. They say this method helps to reduce the incidence of disease in the pigs and virtually eliminates environmental pollution.

The idea of free range hogs in Canada has merit provided our cool climate can be managed. The returns on investment are very attractive. It’s a breath of fresh air to see something new and how one group has added value to their product at the farm gate. SL

Market News

Are $9 Corn Futures Attainable?
The March 11 World Agricultural Supply and Demand Estimates (WASDE) report could swing corn markets either up or down, depending on grain stocks and use data. This will be the one report that people are going to be watching very closely to look at carryover ahead of planting. Wheat is already at a 60-year carryover low, soybeans are close to the minimal carryover needed for the year and the carryover for corn is getting worrisome as well.
Source: http://cornandsoybeandigest.com/ag-issues/news/0221-world-grain-demand-straining/

Is There A Sub-Prime Bubble in Agriculture
That is the million-dollar question. With land selling for $8,000+/acre in Iowa, there appears to be a feverish pitch in acquiring land assets. Of course, the alternative energy boom, compounded with volatility in equity markets and Wall Street with large paper wealth gains in farm balance sheets allowing individuals to financially leverage for more appreciation, sets a stage similar to the late 1970s.

Full story: http://cornandsoybeandigest.com/ag-issues/sub-prime-agriculture/?cid=mostpopular

World Crop Production Still Shaky for 2008
My weather source Ray Garnett has rated many key crop producing areas around the world as fair to poor. The average rainfalls across many parts of the wheat growing areas in India and the southeast USA have been well below average. In fact, many regions in India’s wheat belt have received 50% of seasonal rainfall. Couple that with below average rains throughout Brazil’s corn and soybean region and a predicted cool and dry season in the US corn and soybean belt with a developing La Nina and you have an ongoing bull market. April should be an interesting month as the seeded acre race comes to a close. I’m still incredibly bullish on all grains at this time regardless of what the rest are saying—there’s too many dry weather realities lining up on the world production front that could throw this market much higher. SL     

World Grain Price Commentary
Wheat- Wheat fundamentals for the 2008-09 marketing year are expected to remain strongly price supportive. World wheat carry-in stocks are projected to be at their lowest levels in 30 years. The market focus will now shift to 2008-09 production levels. Winter wheat plantings in the northern hemisphere have increased in exporting countries and prospects in the region are generally good. There are some concerns about dryness in the Mediterranean basin and the southern plains of the United States. The dryness in the hard red winter wheat area, combined with steady-to-lower spring wheat area in the U.S. and Canada, should help support Hard Wheat prices through the year. In the southern hemisphere, production is expected to increase due to improved conditions in Australia. Despite the increased production expectations, ending stocks are expected to remain at low levels in 2008-09, which will continue to support prices.

Feed Barley- Feed barley prices are expected to remain strong in the 2008-09 year as supplies of feed grain are projected to decrease from 2007-08. A reduction in U.S. corn production, caused by a drop in area and continuing strong global demand, is expected to support barley prices. Conversely, world barley production is expected to increase due to improved conditions in the Black Sea region and Australia. Exports from Europe and the Black Sea are expected to pressure global prices early in the year.

Malt Barley- Malting barley prices are expected to improve for 2008-09 due to tight global supplies of old crop malting barley and strong demand projected for new crop supplies. The area devoted to barley is expected to decrease in the major exporting regions due to competition from other grains and oilseed crops. Overall, however, global production is expected to increase from the previous year, due to expected improved conditions in Australia.
Source: CWB

CWB Introduces Online Contract Sign-up for Farmers
As of Monday, February 25th, Prairie farmers who choose to take advantage of the CWB’s Fixed Price Contract (FPC) or Basis Price Contract (BPC) can sign up online and receive instant confirmation of their transaction. Electronic Producer Payment Options (e-PPOs) are the latest addition to CWB e-Services, which also offer farmers online sign-up for delivery contracts made through the CWB pool accounts (Series A, B and C), plus immediate access to information about their delivery permits, delivery contracts, cash advance information and podcasts.

Full story: http://www.cwb.ca/public/en/newsroom/releases/2008/022508.jsp

The US to Plant Two Million More Acres
U.S. crop area to eight major field crops is forecast to rise 6.8 million acres in 2008 to reach 252.3 million acres, according to USDA acting Chief Economist Joe Glauber. Those eight crops are corn, other feedgrains, wheat, rice, upland cotton and soybeans. Glauber said the increase is coming from some 2 million acres coming out of the Conservation Reserve Program (CRP) and another 1.6 million acres of soft red winter wheat which will increase the level of double cropping.

Full story: http://www.agweb.com/get_article.aspx?src=gennews&pageid=141349