Agronomist Notes
Five weeks gone and week number two of my Nuffield travel and four more weeks to go! I’m starting to adjust to life in transit although the glamour of it all disappeared about five weeks ago. There’s very little time to ourselves with action packed day trips, restaurant food, hotel rooms and a different bed every night. I’m on a flight from San Francisco to Mexico City as I write this issue and am happy to have a travel day to collect my thoughts, even on this uncomfortable American Airlines bus!
We just finished five days in the San Joaquin Valley near Fresno, California, including Sacramento and the Napa Valley. During our California tour we visited several progressive farmers, the California Department of Food and Agriculture, the California Farm Bureau Federation lobby group, and the Department of Pesticide Regulations. In this newsletter I've touched on a few topics we've discussed this week plus I've included a couple more thoughts from Australia. There's so much to talk about!
Agronomy
The US Farm Bill is Not Just About Farming
With each visit to a farm, government agency or agribusiness, we wanted to gain prospective on the upcoming US Farm Bill and whether it will pass anytime soon. The bill is reviewed every five years; the last one in 2002. The government is hoping to have the 2007 Farm Bill finalized in the next few months but industry isn’t that optimistic. To summarize the process, both Republicans and Democrats put together a wish list of what their needs are, and then go back and forth in the Senate house until all have come to an agreement. Once in agreement, the bill is put forward to the President, who has the opportunity to veto the bill or pass it.
The most interesting part of the Farm Bill is that it includes many things that have nothing to do with agriculture. The annual $100 million budget for the US Farm Bill covers four specific areas: agriculture, energy, food stamps and nutrition. If you can believe it, 75% of the farm bill’s budget goes towards nutrition, food stamps and energy policies! Each year $50 million goes towards nutrition and food stamps, which includes breakfast and lunch programs in primary schools across the US.
The reason behind the coupling of agriculture to energy policies and nutrition programs was to secure domestic food production and protect agricultural policies into the future. When the Farm Bill was developed in the 1940’s, someone had the foresight to know that society would become increasingly detached from agriculture, and urban influences may eventually give way to poor agricultural policies. Indeed, today we’ve gone down the road of regulating ourselves out of food production because the urbanite powers that be force agriculture to jump through unreasonable hoops. Ironically, we have strict guidelines towards food safety and how we produce food yet we import cheap, unregulated and unsafe food from countries such as China.
By including important issues such as food for the poor, child nutrition and energy security in the Farm Bill, the ag policy advocates can leverage their votes by not agreeing with food and energy lobbyists until the ag advocates include the bills they want. I think the US Farm Bill was a very clever and insightful plan built with great insight, especially from a 1940’s perspective looking into the future. SL
Californian Agriculture – Acres of Diversity
Flying into San Francisco, you’ll see miles of rolling hills and flat bottom valleys. The words “economies of scale” and “diversity” come to mind when describing Californian agriculture. For example, there are dairy barns that host over 14,000 head in one yard. If you were to separate California from the US, you would have the sixth largest economy in the world! California is also the world’s fifth largest supplier of food and agricultural commodities, producing everything from almonds to zucchinis on 76,500 farms. Out of the top ten agricultural producing counties nationwide, nine are located in California. They are the largest producers of dairy, lettuce, almonds, artichokes and about a dozen other commodities in the US. The numbers are staggering- all this time I thought California was a place to see Mickey Mouse and go surfing! I don’t think that way anymore.
The enormous scale of agriculture brings many challenges as you can imagine. The biggest challenges are labour, water, urbanization, pollution, environmental regulations and, in my eyes, succession planning. I think this state has taken capitalism to the next level and decided to ignore issues that could bring their economy to a halt. To start, California’s agricultural industry was built with cheap Mexican labour. Roughly 30% of all immigrants are illegal and more than willing to work for less than $8 an hour. Their labour problem arises from an oversupply of labourers! If the Federal government decided to get tougher on immigration laws (which it has since 911), the Californian fruit and vegetable industry would fall to pieces and would lose their biggest competitive advantage.
The vast majority of agriculture crops are irrigated with ground water. Many areas only receive 7 to 12 inches of rainfall per year, which usually comes in short-lived downpours that run off. The three biggest issues with water are sea water intrusion into fresh water aquifers, soil salinization and the collapse of fresh water aquifers. Parts of the San Joaquin valley floor have sunk 60 feet in 60 years because they’ve been sucking more water out of the ground than what is replenished by rain. The problem with sea water encroachment into the fresh water aquifers will be devastating for everyone, not just agriculture. There are a few affected communities that are seeking measures to fix the problem, but I got the impression that the rest of the folks will sit and wait for the problem to occur before they decide to do anything about it. In the mean time, there are commodities to grow and margin to make. SL
Organic Food Not Always Pesticide-Free
We had a visit with a grape, vegetable, oilseed and cereal crop grower near Fresno, California who farmed conventionally and was also certified organic. It was very interesting to see how his fields of organic production were butted up against conventionally farmed fields with very narrow buffer strips. We all know that pesticides can drift a long ways away from the target zone, yet when we asked, no one seemed to be concerned with potential for drift. After a visit to a major organic wholesale operation, the representative didn’t seem all that concerned either. I guess the bottom line is that the label may say organic but don’t think for a second that it’s purely pesticide-free. Organic by label only is the way I read it. SL
Aggregated Pheromone Trapping Method
I stumbled across a successful trapping and control method for the codling moth in Australia, a damaging insect effecting apple production. The county had set up small boxes in each field which were filled with super concentrated pheromones to attract the moths into a small area. At the appropriate time, the small area would be given an insecticide application and the male moths would be controlled to prevent further breeding. This method was successful by eliminating application costs across the entire field, reducing insecticide costs and virtually eliminating the need to spray insecticides on the crop. The idea sounds like it might be a fit for insects like bertha armyworms, diamondback moths, possibly cutworms and any other moth-type pest. I’ll be sure to pass this along to Scott Meers of Alberta Agriculture to see if anything like this is possible for us. SL
A Family With a Plan
You may remember the Corboy Orchard in Victoria, Australia in last week’s photo album, a 1,000 acre family orchard owned by brothers John and Kerry Corboy. The Corboy’s started from humble beginnings with a 10 acre plot in 1969. Today the Corboy’s and their two sons have 1,000 acres of fresh fruit orchards with 51 different varieties and a full sorting, packing and branded export distribution centre. John and Kerry, in their early 60’s, look to retire soon and transfer the business over their sons. We asked John what their family succession plan was and he had a good answer for this question that is often left unsettled.
As part of their succession plan John and Kerry sold 10% of their assets to the two sons, giving them an opportunity to build equity early on. From the day they sold their 10% share in the business, every land and capital investment going forward was then share purchased by the boys and their parents. The sons would purchase 80% of any new land and capital improvements and the parents would purchase the remaining 20%. The entire family would be involved in the future direction and operation of the family business. John said the business model is working well and looks forward to retiring soon and leaving things in the hands of the next generation. What a breath of fresh air to hear a success story like the Corboy’s. SL
Market News
World Crop Weather
It looks like the strong La Nina that has developed over the last few months may impact the Prairies with low rainfall events in the June-July period of 2008. As it stands we have very little topsoil moisture and will desperately need some snow melt to recharge the soil.
The US continues to be dry throughout most of the southeast wheat belt, although small parts of Kansas and Colorado have seen needed moisture. Wheat in India is now at the heading stage and has received below average rainfall throughout the growing season and looks like the overall trend yields will be down 10%. Argentina and Brazil have received adequate moisture and look to set average to above average yields of corn and soybeans through the majority of their soybean and corn belt. SL
India to Fight Food Inflation
The majority of the population in India lives below the poverty line and rising food costs are a significant concern. Escalating levels of food costs are political suicide for governments who do nothing and eventually lead to some type of revolt. When you have no money and no food, you have nothing to lose. The current situation with rising food costs has India looking to place a price cap on commodities like wheat. Putting a price cap on any commodity does nothing to ration demand and may lead to more strain on world wheat ending stocks. SL
A Dysfunctional Grain Market
Commodity exchanges were originally designed to provide price protection for farmers, merchandisers, processors and exporters. Today, the commodity exchanges are being used as a speculative tool by the multi-billion dollar Exchange Traded Funds and Index Funds to hedge against inflation. The results have been wide daily price swings that distort the true value of each commodity. The ETF’s and Index Funds are here to stay until commodities no longer provide the return they are looking for. It looks like a rough road ahead for grain producers despite high grain prices. Distorted prices are absorbed into higher costs for land, crop inputs and machinery. If the Funds decide to leave eventually, we’ll be left with low commodity prices and an aftermath of high land prices, crop inputs and machinery. SL
Canola to Run Higher Again
After a stellar run over the past few months and a massive surge higher over the past fortnight, the Chinese jawboned the oilseed market lower last week by unloading stocks and trapping trend following speculators. Although prices are in free-fall at the moment, market sentiment can change fairly quickly (as the events of the past week illustrate). While Chinese tactics have prevailed on this occasion, the Chinese can’t hide the fact that we are using more oilseed than we are producing. With such fundamentals it is only a matter of time before sellers assume control of this market again.
Poor crops and strong internal demand in India and China suggest they will again be significant buyers (to help curb inflation). Indonesia is still toying with palm oil export restrictions, it is very dry in canola growing areas of Canada and cereals are providing firm competition for spring plantings. The message here is that there are plenty of reasons to think oilseeds will make another run higher before the year is out.
Source: Richard Koch, ProFarmer Australia
Corn and Soybean Futures
Soybean futures charts posted a bearish outside week by trading higher than the previous week's high, then closing lower than the previous week's low. This is considered by technical traders to be a key reversal of the long-term higher trend. The noncommercial (speculative) sentiment toward the corn market has not changed from its bullish bent, as witnessed by the intact higher trend of futures prices.
Source: dtn daily futures
Saudi Policy Change Boosts Barley Price Prospect
One of the ramifications of the wild grain market is that governments are meddling more in import and export policy. The latest example comes from Saudi Arabia, the world’s top importer of feed barley. On March 5, the Saudi government increased its import subsidy for barley by 71 per cent. They want to increase barley usage and conserve wheat-flour supplies. The Canadian Wheat Board says Saudi consumers had been using wheat flour and other grains as substitutes for feed barley, but the government's subsidy increase should restore the demand for feed barley and increase the price in global markets. Back on February 28, the CWB dropped the Pool B feed barley Pool Return Outlook for the current crop year by $7 a tonne. Now, due to the move by Saudi Arabia, the CWB has taken the rare action of a mid-month PRO increase of $23 a tonne. After deducting average Saskatchewan freight and handling, the expected price is now $4.60 a bushel. A Guaranteed Delivery Contract is available on feed barley with guaranteed 100 per cent acceptance and delivery call by May 2. The sign-up deadline is May 2 or until sufficient tonnage is committed. The PRO is only an estimate of the total return and producers with feed barley to sell will have to weigh that against prices that are available on domestic sales.
Source: Kevin Hursh
