October 2001 Newsletter - Ontario Corn Producer

Index

Ag Canada Releases Negative 2003 Farm Income Forecast

In early February, Agriculture and Agri-Food Canada (AAFC), in collaboration with provincial governments and Statistics Canada forecast farm income for 2003. AAFC forecast a sharp drop in farm income for 2003 because of the combined impact of Bovine Spongiform Encephalopathy (BSE), the increase of the Canadian dollar, and droughts in western Canada in 2002 and 2003. Realized Net Income (RNI) at the national level is forecasted at -$13.4 million for 2003, a decline of 100% which will result in negative income at the national level for the first time in history, despite record high federal and provincial program payments of nearly $5.0 billion! AAFC says "RNI is expected to decline in all provinces except Newfoundland and Quebec where the beef industry represents a smaller portion of the agricultural economy. RNI is expected to be negative in New Brunswick, Ontario, Saskatchewan and Alberta, with RNI in the latter two provinces being extremely negative."
AAFC makes an interesting comment about the impact of the Canadian dollar. "The Canadian dollar that appreciated by 17% against the weaker U.S. dollar has resulted in significant commodity price pressures. Farmers faced high priced inputs (from the low dollar in the Spring) and low priced outputs (from the high dollar with Fall marketings) - a large part of Canadian production is closely tied to the U.S. market situation. Prices for hogs, cattle and most crops are heavily affected." "Since most agricultural commodities are valued in U.S. dollars, this appreciation of our currency adversely affects farm gate prices. All other factors held constant, this increase in the value of the Canadian dollar would tend to result in a 17% decline in Canadian agricultural commodity prices over the course of 2003."
In Ontario, crop receipts were up 3% from 2002, livestock receipts down 4%, program payments down 2%, so that total farm cash receipts were down 1%.
Operating expenses were up 1%, so that net cash income was down 14%, realized net income down 138%, and total net income down 44%!
The record level of nearly $4.95 billion in federal and provincial program payments across Canada includes the following:

Crop Insurance $1.8 billion
BSE Recovery Program $426 million
NISA (Fund 2 withdrawls) $759 million
Federal Transition Funds $446 million
CAISP interim payment $22 million
CFIP $402 million

Amendments To APF Implementation Agreement

When Minister Peters and Minister Vanclief signed the Canada-Ontario Agricultural Policy Framework Implementation Agreement (APF/IA) December 11, 2003, they also signed three Amendments to the Agreement proposing changes to the legal text of the Business Risk Management chapter of the APF These Amendments must be signed by 2/3 of APF provincial signatories representing 50% of the national Production Margin as calculated by the Canadian Agriculture Income Stabilization Program (CAISP) in order to be incorporated in the APF/IA. At present, this requirement has not been accomplished for all Amendments.
The first Amendment changes the definition of farm revenue to include payments made under the federal-provincial BSE recovery program and payments made under legislation administered by the Canadian Food Inspection Agency. These payments will be included as eligible income under the CAISP in the program year for the calculation ol Production Margin.
The second Amendment identified payments that will be deemed as interim payments for the 2003 CAISP. These interim or advance BSE payments include provincial-only payments such as the 2003 Advanced Ontario Agricultural Payment announced in September 2003. Producers who received an advance payment, upon applying to the CAISP, will have their advance payment deducted from their eligible CAISP payment.
The third Amendment has three components:

Minimum producer deposits for the 2003 and 2004 program years, and the development of alternative deposit options;
Provision for the coverage of negative margins under the CAISP;
Increase in the cap on maximum payment producers can receive.

The original legal text provided for a transition period during which time producers who have experienced a margin decline of at least 30% in the preceding program year and triggered a CAISP payment, new participants, and producers who are rejoining CAISP, are allowed to participate with one-third of the required fund balance. Producers in this situation would have two years to make the additional contributions into their CAISP account to bring the deposit up to 100% as required for their chosen level of reference margin coverage. If the producer triggered a payment and their one-third deposit was not sufficient to cover their portion of the total payment, producers had 45 days to make the required deposit. The proposed amendment waives this requirement for the 2003 CAISP year. Federal and provincial governments will develop alternative deposit options during 2004 as part of the annual review of the CAISP. The government will use the following key principles when developing new options: o Deposit options are affordable, administratively feasible, and simple; o Producers are actively engaged in managing their risks; o New options contribute to the evolutions of the CAISP towards more insurance/risk based models. The original CAISP design did not provide additional coverage in the event a producer's program year production margin was less than zero. Under the proposed changes governments would provide additional payments equal to 60% of the negative margin. Producers are not required to deposit additional funds into their account and no additional producer funds would be triggered from their account as a result of a negative margin payment. Negative margin coverage is not intended to cover situations or perils that would be covered by Crop Insurance (Production Insurance). Relevant criteria will be developed and used to determine the eligibility for negative margin coverage. The criteria, which will be defined in the program guidelines, will cover areas such as linkages with Crop Insurance, frequency of negative margins, adoption and use of sound management practices and the identification of the perils that would be covered. The third amendment increases the maximum CAISP payment from $975,000 to $3 million per year.

Market Revenue Insurance (MRI)

As outlined above, the 3-year transition period incorporated into the APF Implementation Agreement is designed to ease out of "companion" program commitments such as SDRM, MRI, 2% NISA horticulture top-up, 1% general NISA top-up, and other minor programs specific to Ontario. Total allocated funding over the 3 years is $172 million or about $57 million annually (if the province is allowed to offset declining annual federal contributions by increasing provincial annual contributions to make available funds equal each year). The problem is that $57 million is not enough to cover the total cost of annual companion program expenditures in Ontario. MRI is a residually funded program meaning whatever is left over after all other safety net programs have been funded is deposited into the MRI account. This arrangement worked well for the decade covered by the old safety net agreement. However now, since $57 million is insufficient to fund all existing companion programs, very little if anything will be left over to be deposited into the MRI account. Without additional federal and provincial deposits (which neither level of government is willing to make because they are eliminating the MRI program), there is not enough funding to keep the program going. The MRI "pot" holds $92 million after 2002 MRI payments totaling $12.6 million. This is enough to cover perhaps 1 1/2 years of normal MRI payouts leaving nothing for the remaining 1 1/2 years of the 3-year transition period. Thus the need to develop and fund a replacement program for MRI. No commitment has been made yet for 2003 MRI and beyond but IF MRI is extended for the 2003 crop-year, support prices at 90% coverage would be:
Corn
$3.725/bushel or $146.66/mt
Soybeans
$8.97/bushel or $329.46/mt
Winter Wheat
$4.16/bushel or $152.78/mt

Prime Minister Martin Doubts Timetable for FTAA

Meeting in Mexico on January 12, Prime Minister Martin said he was not optimistic the 34 nations in the proposed Free Trade Area of the Americas (FTAA) can achieve agreement by the 2005 deadline. The FTAA proposal envisions a free-trade zone for the entire western hemisphere encompassing 800 million people and economic activity of US$11 trillion. Meant as a counterbalance to the emerging trading blocs of Asia (China, Japan, Taiwan, S. Korea, Singapore, Malaysia, Indonesia, Australia, New Zealand, India, etc.) and Europe (primarily the expanding European Union, but including Russia, Ukraine, etc.), the FTAA would be the world's largest free-trade zone. With the apparent curtailment of progress toward meaningful reform at WTO talks, the 34 nations had agreed to explore the FTAA idea at the 2001 summit in Quebec City. But a hemispheric trade deal now seems out of the question after Brazil encouraged other Latin American nations to refuse to sign unless the U.S. included farm subsidies and steel protectionism in the talks. With U.S. presidential elections looming this November, President Bush is highly unlikely to compromise. Agriculture is obviously an important issue in these FTAA discussions, but is proving just as big a hurdle as in WTO discussions. As Prime Minister Martin said "if you take a look at the position that Brazil has taken, clearly there would have to be a settlement on the whole agriculture issue." Nations are also incensed over the U.S. backing of Canada's initiative to kick corrupt nations out of the 34-mernber Organization of American States. Both the U.S. and Canada have stated that they will pursue bilateral and multilateral trade agreements.

U.S.- Central American FTA

Before Christmas 2003, the U.S. and four Central American countries (El Salvador, Guatemala, Honduras, and Nicaragua) announced a Free Trade Agreement in sugar had been reached. It now appears the announcement was premature as negotiations between the five nations are still on-going and a sixth (Costa Rica) has yet to sign on. Regardless, any deal will still have to be ratified by the U.S. Senate where opposition by the U.S. sugar industry could de-rail everything. The powerful U.S. sugar lobby is opposed because the deal would increase the sugar quota for these nations by 75% and then a further 2% per year each year for the next 15. Sounds more aggressive that it really is because the amount of the U.S. market supplied by the countries would total about 1% in the first year and rise to only 1.4% at the end of 15 years. The U.S. sugar industry is worried about the precedent established for a multitude of similar free-trade arrangements. The significance for OCPA is that corn sweetener is a major component of the U.S. sweetener industry which includes sugar. All sweetener prices are depressed because of the continuing debate between the U.S. and Mexico about sweetener market access commitments under the North American Free Trade Agreement. The precedent that this Central American FTA would set, and any subsequent FTAs negotiated with 23 other sugar-exporting nations, is that the North American sweetener market would likely come under continued long-term pressure and translate into continued depression on corn pricing into the wet corn milling sector.

Suncor Energy Products Announces Ethanol Plant Consultations

In a press release January 8, 2004, Suncor Energy Products Inc. announced public consultations over the next few months on its proposed $120 million Sarnia ethanol plant. The plant would be "more than 200 million litres" (most assessments pencil in 240 million) and, if it proceeds, "construction would begin by mid-2004 and be complete by mid-2006." The series of "open house meetings" are intended "to involve the Sarnia community in project planning, and will help to identify any isues that could be addressed before Suncor makes its final decision." There has been some vocal opposition to the plant from First Nations in the region (land disputes) and environmental groups (odour concerns based on the early experiences of the Chatham ethanol plant). There has also been support from many other groups such as unions (construction and operational jobs), municipal government (expanded tax base and property values), and economic development groups.
The Suncor press release also said that Suncor applied to the Natural Resources Canada Ethanol Expansion Program (EEP) for funding for the proposed facility and that a decision in response to that application is expected later in January. Application deadline for the EEP was November 19 and award announcements were originally scheduled for December 17, 2003. However, awards of funding assistance were caught up in the Martin government review of all spending and projects. There are perhaps three other Ontario corn-based ethanol projects awaiting EEP announcements as well as a project in Quebec (Varrennes). There are also two or three wheat-based ethanol project applications in western Canada. Rumours abound that individual awards have been reduced so as to spread available assistance further and to more projects across more of Canada.

Economic Impact of Ethanol Development

The Clear Fuels and Electric Vehicles Report cites two Montana State University professors as having developed a free Internet tool (the Ethanol Plant Analyzer) that assesses potential price impacts of a new ethanol production plant. The program is able to run scenarios on how the size and location of an ethanol plant might impact local corn prices. Users input plant size and a potential location, and the program then identifies the effects on corn prices according to the distance between farms and the production facility. The Analyzer reflects data from analyses from 316 grain markets surrounding 12 U.S. ethanol plants that opened in 2001 and 2002. The opening of all 12 ethanol plants in the study had a positive impact on corn prices. The report claims that price increase average US$0.12 per bushel, ranging from $0.05 to $0.19 per bushel. On average, some price impact was felt 30 to 100 miles from the 12 plant sites. Markets downstream from a plant that are closer to terminal markets tended to have high prices and therefore experienced a smaller price impact from a new ethanol plant. More impact was seen in upstream markets that are far removed from terminal markets and generally have lower prices. ' Plant size relative to local corn supplies had some effect on the price impact. If local corn supplies were low, a large capacity plant caused the price impact to be larger.
Similar studies done for Ontario projects have identified benefits ranging from Cdn $0.10 to $0.25 per bushel again depending on the relationship between the plant's grind and corn supplies available in the supply area. Other studies have projected $1 in economic development benefit within 75 - 80 kilometers of a new ethanol plant for every 1 litre of ethanol production.

Cargill Commissions North America's First Erythritol Plant

Erythritol is a biochemical produced from corn that is used in diet drinks, non-caloric tabletop sweeteners, bakery products, and confectionery products. Cargill Food and Pharma Specialties commissioned North America's first erythritol manufacturing plant in Blair, Nebraska in early January, 2004. After a year of test processing and construction, the US$60 million facility is now fully operational. The Blair, Nebraska facility was originally a Cargill corn wet milling plant producing dextrose. Because of pressure in sweetener and other traditional corn wet milling markets, Cargill has now entered into four joint ventures at this large facility producing alternative corn-based products. In addition to this erythritol plant, there are also a lysine production facility, a lactic acid plant, and of course the major joint venture with Dow-Cargill that produces polylactic acid. This Blair Nebraska complex is the model for future corn-based "bio-refinery" projects.

Notification Sought on U.S. Farm Bill Programs

Canada, Australia, Brazil, and Argentina asked the U.S. in November to quickly notify the World Trade Organization of how it intends to classify subsidy programs laid down in the Food Security and Rural Investment Act (FSRIA; the U.S. Farm Bill) signed in May 2002. International opponents of the Farm Bills $180 billion spending need to get the U.S. to formally notify WTO of its farm subsidy legislation, classifying all programs into the green, amber or blue boxes of domestic support before they can launch official complaints. Notification of program classification is important because the different boxes impose different spending reduction requirements. The most recent U.S. notification (August 2002) covered the 1999 marketing year.
How the Bush Administration classifies its domestic farm subsidies has proven controversial. Under WTO rules, there is a limit on amber box subsidies which the U.S. as a member of the WTO has committed to stay within. Classifying some farm programs under the farm bill as amber brings the U.S. closer to or beyond that spending limit. Subsidy and program spending under the FSRIA has brought the U.S. very close to its maximum allowable limit (according to the U.S.) or exceeded that limit (according to most other nations in the world). If spending is beyond the WTO limit, the U.S. would be open to a challenge under the WTO's dispute settlement process. In its most recent notification, the U.S. claimed its doubling of 1999 AMTA payments were green (thus avoiding being counted as spending subject to limits) whereas the original AMTA payment was amber (thus subject to spending limits). How the doubling of a payment can be counted two different ways is mind-boggling.

AG Canada Abandons GM Wheat

Grassroots resistance, at least on the part of some western wheat producers and the Canadian Wheat Board, seems to have been partly behind a recent decision by Agriculture & Agri-Food Canada (AAFC) to abandon a long-running project involving genetically engineered wheat developed in partnership with Monsanto. While regulatory authorities continue to assess the risk/benefit balance of Roundup Ready wheat in particular, this AAFC decision to withdraw signals that perhaps scientific hopes for this first biotech wheat are not as bright as they once were. AAFC said that the department will make no further investment in the development of the new wheat it has been working on since 1997.

Bt Corn Produces Healthier Corn

A November 2003 report from the International Service for the Acquisition of Agri-biotech Applications (ISAAA) says "there is now clear evidence that food and feed products from Bt corn are often safer than the corresponding products from conventional corn because of lower levels of the mycotoxin fumonisin." The report cites studies that show biotech corn is less susceptible to harmful molds because it has built-in protection against insect pests that burrow into corn kernels, creating conditions for a mold to develop that can be harmful to both humans and animals. Fumonisin is produced when insects burrow into corn stalks and kernels, allowing fungi to enter and produce harmful mold. While mycotoxin levels are closely monitored in the industrial world, they are not monitored in many developing countries in the tropics where the threat from fungal infection is greatest. Corn is a human staple food in many of these same tropical countries.

Supreme Court Hears Monsanto Canola Patent Case

On January 20, 2004, the Supreme Court of Canada heard the appeal of Saskatchewan farmer Percy Schmeiser against a Federal Court of Appeal decision that he violated Monsanto's patent pertaining to Roundup Ready canola. The Federal Court of Appeal upheld the original decision against Mr. Schmeiser citing evidence that:

Monsanto has a valid patent for plant genes and cells in canola plants (Roundup Ready canola) which have been genetically modified to be tolerant to Roundup herbicide
Mr. Schmeiser planted canola seed saved from his 1997 crop which he knew, or ought to have known, was Roundup tolerant and that his infringement did not arise from limited or accidental presence of Roundup Ready canola in his fields
The original Trial Judge, Justice Andrew MacKay of the Federal Court of Canada, found that the shear quantity and commercial quality of Roundup Ready canola found in Mr. Schmeiser's crops in 1997 could not be reasonably explained by any of the possible sources suggested by Mr. Schmeiser. During the trial, independent tests showed that 1,030 acres of Mr. Schmeiser's canola were 95% to 98% tolerant to Roundup herbicide. Justice MacKay ruled that at these rates and purity, the seed could only be of commercial quality and could not have arrived in Mr. Schmeiser's field by accident.

Poncho 600 Receives Final Regulatory Approval

As of December 23, 2003, Gustafson Partnership is happy to announce the final approval of its new seed protectant for corn. Poncho 600 contains the active ingredient "clothianidin" which is a new generation of systemic insecticide seed treatments. It is registered for use in sweet corn, field corn and popcorn.
Gustafson will market two treatment rates under the Poncho 600 name. The low rate delivers early season protection against wireworm, seed corn maggot, black cutworm, corn flea beetle and white grub (larvae of May/June beetle, European chafer, Japanese beetle). The high rate provides longer term protection against corn rootworm, wireworm, seed corn maggot, black cutworm, corn flea beetle and white grub (larvae of May/June beetle, European chafer, Japanese beetle). It is expected that seed companies will offer both rates to corn producers for the 2004 planting season.
Poncho 600 is only available for commercial use and will not be offered as a hopper-box product for on-farm use. Corn producers who are interested in this product should contact their respective seed companies well in advance of seed delivery, in order to discuss low and high rate availability.
Gustafson also received recent approval for its Gaucho 480 FL product for early season control of wireworm in field corn.

New Formulation To Replace Roundup Transorb Herbicide

Monsanto Canada announced a new registered Roundup formulation called Roundup WeatherMAX with Transorb 2 Technology. It is a next generation formulation of Roundup Transorb that was developed to address the one factor which farmers cannot control - the weather. Since historical data shows that 84 percent of the time conditions for spraying are not good, this product addresses this reality.
Transorb 2 Technology drives the active ingredient in Roundup WeatherMAX into the leaf in minutes. This ensures the required dosage of herbicide gets past the leaf surface before the weather conditions can affect it and reduce its potency. It is because of this rapid uptake that Roundup WeatherMAX will be backed by a 30 minute rainfast guarantee.
In addition to increased weed control in tough conditions and a 30-minute rainfast guarantee, Roundup WeatherMAX is also a more concentrated product. Growers can expect to handle, store and ultimately apply 33 percent less product. It also has proven crop safety for use on Roundup Ready crops.
Growers in Ontario can expect to see this product hit the market in the Fall of 2004 in limited quantities. Be sure to keep your eyes open for spring and summer tours for more information.

DuPont FarmCare Rewards For This Season

When growers in Ontario choose DuPont corn herbicides, they will receive high-performing products as well as benefits through their DuPont FarmCare membership which includes financial rewards, the Risk Protection Benefit and Growth Stage cropping reports. In this way, DuPont is sharing some of the risks of farming.
The DuPont FarmCare financial rewards component occurs at the counter with their Early Pay bonus and with year end rebates through quantity savings. The Risk Protection Benefit occurs when growers can get a portion of their DuPont product back if their yield is negatively affected by environmental perils. The Growth Stage Reports help application of corn products with more precision. Members are also invited to a customer appreciation event at an IMAX theatre in their area.
For more information and qualifying dates regarding DuPont FarmCare, contact your local crop protection retailer or DuPont representative.

Workshops Help Ontario Farmers Succeed

Farm and agribusiness operators in Ontario will have a chance this winter to build their management skills at a series of workshops. The program is called AgriSuccess and is sponsored by Farm Credit Canada. It is a one day workshop that teaches producers how to set goals, analyze their operation and start to build their own strategic business plan. These workshops will be held in 10 communities across Ontario between February 4 and March 3. The size of each workshop is limited, so early registration is encouraged. The cost is $100 plus applicable taxes per individual and $150 plus applicable taxes per family. More information about 'Building Your Business Plan' is available on-line at www.agrisuccess.ca, phoning 1-888-332-3301, or by contacting your local Farm Credit Canada office.

Corn Prices - January 14, 2004
Period: to Nov.30	Approximate Tonnes Marketed	Average Weighted Price
2003-04	567,100	$133.99/tonne
2002-03	1,150,000	$155.78/tonne
2001-02	1,000,900	$135.56/tonne
The above figures are based on levies received by OCPA for commercial sales

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