October 2001 Newsletter - Ontario Corn Producer

Index

Pre-Budget Consultations

OCPA presented the following two briefs at the provincial government's Pre-Budget Consultation session in Kingston on January 13, 2005.

OCPA's Farm Income Safety Net Briefing Points

Ontario grain and oilseed producers (25,000 producers generating $2 billion in farm gate receipts annually) are plagued by prices, artificially depressed for years on end by the negative impact of U.S. agricultural subsidies. We had a program that offset that damage to some extent, but the Market Revenue Insurance (MRI) program was terminated in December 2004. We need a replacement program.

The World Trade Organization (WTO) Court recently ruled in favour of a Brazilian complaint against U.S. subsidy programs. The WTO found that U.S. Loan Deficiency Payments and Counter-Cyclical Program payments caused "significant price suppression" and "serious prejudice" resulting in loss of market share and loss of investment. The same is true in Ontario where, for example, corn acreage has been declining since the turn of the century, while corn acreage has expanded in both the U.S. and Quebec. Another U.S. study found that U.S. subsidy programs permit U.S. soybeans, corn and wheat to be exported at anywhere from 24% to 48% below their cost of production, thus depressing price in the receiving country. The United States Department of Agriculture (USDA) quotes the current cost of production for corn in Michigan at U.S.$2.56/bushel or Cdn$3.1 I/bushel. Exports of U.S. corn into Ontario are currently more than 4 times their long-term annual average volume. U.S. corn is currently being sold in Ontario for about Cdn$2.64/bushel, far less than the USDAs own quoted cost of production. The difference is made up through subsidy payments in which U.S. corn producers are essentially guaranteed U.S.$2.63/bushel or Cdn$3.20/bushel. Agriculture and Agri-Food Canada's own research states that at least 29% of the decline in prices for Canadian grains and oilseeds between 1995 and 2000 was caused by foreign subsidies. That represents an artificial depression of income costing Canadian grain and oilseed producers about $1.3 billion annually, of which about S454 million is out of the pockets of Ontario producers. And we think AAFC's estimate is low.

In 2005, prices have once again plummeted for Ontario corn, soybeans, and wheat with current price offers for delivery in the fall of 2005 far below the cost of production. Corn acreage will once again decline this spring.

Government assistance is essential to stave off a complete financial meltdown of the grain and oilseed sector in Ontario. In 2004/05, a typical Ontario corn producer would have received Cdn$126.55/acre under U.S. programs, Cdn$130.77/acre under Quebec programs, but will receive about Cdn$26/acre under the only two current Ontario programs: final Market Revenue Insurance (MRI) payment, and Canadian Agricultural Income Stabilization Program (CAISP).

The CAIS program is incapable of offsetting this long-term artificial depression of grain and oilseed income, because it merely stabilizes a production margin at the average of the previous 5 years. Only the MRI program acted to offset artificial price depression, but this program has been terminated. A replacement program for MRI is urgently required.

Adequate funding is essential for an MRI replacement program; but we are advised no new funding is available. Moreover, Ontario government-imposed criteria make the design of a replacement program virtually impossible: no new funding; cannot be triggered by price decline; cannot be commodity specific; must be national. It is important to note that none of this criteria applies to either U.S. support programs or programs offered to Quebec corn producers. It is also important to note that corn is imported into Ontario from both the U.S. and Quebec.

Alberta offers a program (Revenue Assurance) that might be reworked to serve the needs of Ontario grain and oilseed producers, but the Alberta government funds its program itself without Federal assistance. A similar program in Ontario would currently cost perhaps $300 million.

OCPA's Ethanol Briefing Points

On September 27, 2003, at a farm near Embro, Dalton McGuinty promised that 5% of gasoline sold in Ontario by 2007 would contain ethanol and said,

"It means at least five ethanol plants, it means at least $500 million in investment, and it means 3,000 direct and indirect jobs. This is a huge boost to rural Ontario. You make ethanol from corn, so we are going to be asking Ontario farmers to grow a lot more corn, so we can put that stuff in our cars and clean up our air."

Premier McGuinty's promise very clearly was to get ethanol plants built in Ontario as a boost to rural Ontario and to Ontario corn producers.
Introducing a Renewable Fuel Standard (RFS, a type of flexible mandate) makes it a requirement of law that ethanol be sold in Ontario, but does not ensure the ethanol will be produced here or be produced using Ontario corn, which are the two key components of Premier McGuinty's promise.
Introducing a RFS, and at the same time eliminating the 14.7 cent/litre provincial road tax exemption on the sale of ethanol, saves the government of Ontario $44 million a year currently, and will save the government $110 million a year by 2007 when the target of 5% ethanol in the gasoline pool is met.
The demand for ethanol in Ontario has grown from 0 in 1996 to 310 million litres in 2004, all without a RFS or mandate. To meet that demand, we already import more ethanol from the U.S. than we produce (current provincial fuel ethanol production is 150 m litres). A RFS forces retailers to sell more ethanol and to secure supplies. Without more production in Ontario, refiners and retailers will simply import more ethanol from the U.S. and Brazil. That is not what Premier McGuinty promised.
Premier McGuinty promised more corn-based ethanol production in rural Ontario using Ontario corn, not merely more sales of ethanol.
To keep his promise, Premier McGuinty should ensure ethanol plants are built in Ontario and use Ontario corn. The savings generated by the elimination of the tax exemption for ethanol allow Premier McGuinty to do that. The OCPA developed a plan to help keep the promise. It is time to implement our plan.
The OCPA's plan provides assistance directly to new ethanol production projects, based on their purchases of source-verified Ontario corn thus maximizing the benefit to rural Ontario. Government assistance for new Ontario corn-based ethanol production is capped (maximum $8 million per project per year) and the program terminates after 4 years of participation for each project.

Ethanol Update

The provincial government contracted IBM Business Consulting Services in early January, to conduct a series of discussions with ethanol industry participants and provide a report before the end of January on options for the incentive package, that would ensure construction of ethanol plants in Ontario. OCPA expects details of the incentive package to be included in the government's March budget. OCPA remains very concerned that time is slipping away and the January 1, 2007 deadline for achieving the 5% RFS target is fast approaching. A recent spate of questions from municipalities interested in attracting an ethanol plant has prompted OCPA to reissue the following document outlining benefits for rural Ontario.

Economic Benefits of Domestic Ethanol Production

Studies confirm $0.10-$0.15/bushel improvement in corn price to Ontario corn producers generated by a corn ethanol plant in Ontario (if all corn comes from local Ontario corn producers)

150 million litre plant (i.e., CAI in Chatham)
Uses 15 million bushels of grain corn annually
Generates $1.5 million in improved corn price if the corn is purchased by the ethanol plant from local producers If the plant uses all Ontario corn and purchases its own corn needs locally
Long-term average Ontario corn price is $3.32/bushel
15 million bushels generates $50 million in grain purchases
Generates $50 million in new corn buying Studies confirm $1 in total economic benefit for every litre of ethanol produced from locally produced Ontario grain corn purchased by the ethanol plant
Includes plant construction and operation
Includes corn and supply purchases
Includes spin-off benefits of sales, taxes, etc
Generates $ I/litre in total economic benefit Studies confirm benefits accrue largely within 75 km of the ethanol plant
Generating $1/litre, or $150 million in total rural economic benefit annually
(If all corn comes from Ontario within 75 km of plant)

Background:
1 bushel of grain corn (costing $3.32) produces (OCPA estimates)

10 litres of ethanol = $6.25 o plus, 8.38 kg DDGS = $1.47
plus, CO2 = $0.25 = $7.97 revenue
150 million litre plant creates about 100 construction jobs for 18 month build period in rural Ontario
about 38 full-time operational jobs in rural Ontario
plus transportation, supply, retail, and related jobs.

Market Revenue Insurance Update

OCPA was expecting details to be announced in early January on the distribution of the balance remaining in the MRI "pot" after payments of about $9 million for 2003 crops (payments triggered only for white beans, coloured beans, spring wheat). Unfortunately, as of today (January 16), we have no further details to report concerning actual payment/bushel for 2004 crops or when cheques will flow. OCPA is adamant that as much money as possible flow to producers as quickly as possible. Our preferred, and suggested, option is for one cheque in March based on Agriculture and Agri-Food Canada's current price projections, MRI program historic individual yields, 2004 individual acreages, based on 90% of support price and yields, pro-rated for the available funding left in the "pot." That is why OCPA was aggressively encouraging all producers to ensure their 2004 acreages and yields were reported to Agricorp before the end of January.

Replacement Program for MRI

Minister Peters asked OMAF to prepare a report on options for a replacement program for Market Revenue Insurance to be on his desk late in February. Unfortunately, the criteria listed make development of a meaningful replacement program virtually impossible:

no new funding
cannot be triggered by price
cannot be commodity specific
must be adopted nationally before Ontario will participate.

It is interesting to note that such criteria apparently do not apply in Quebec or Alberta, where funding was found by each province to provide support through programs that are triggered by decline in price per commodity and are not nationally available.

Biosafety Protocol Update

On January 10, 2005, the International Food & Agricultural Trade Policy Council issued a press release outlining that "upcoming decisions concerning the Biosafety Protocol could sharply increase food and feed costs." The IPC urged governments to weigh costs before making decisions. Canada is currently contemplating ratification of the Protocol. The IPC said that in 2005, signatories to the Protocol will make critical decisions about how to regulate trade in Living Modified Organisms (LMOs or seeds) destined for use in food, feed and processing. Depending on the decisions governments make - about labeling, testing, thresholds and unapproved events - in the coming months, the additional costs of shipping corn, soybeans, canola could significantly increase the cost of food and feed to the world's consumers. While most of these additional costs would be borne by a handful of large countries that import the largest volume of food and feed grains, a disproportionate share of the costs would fall on consumers in smaller developing and least developed countries, who are least able to afford higher food and feed bills. A study by Professor Nicholas Kalaitzandonakes released by IPC found that:

If all 3,575 export cargoes of corn from the U.S. and Argentina were sampled and tested only once at loading, the total cost to indicate a cargo "may contain" LMOs (as required by a lenient treatment of the Protocol) would be U.S.$1 million. If, on the other hand, exporters are required to identify and quantify individual varieties, as some countries and non-governmental agencies have proposed, the labeling and testing costs for corn alone, from only these two countries of origin, could quadruple to U.S.$4.4 million annually. If more extensive sampling is required, annual testing costs for corn alone could balloon to U.S.$18-U.S.$87 million annually.
If laboratory tests at the export origin must be confirmed at the import destination, testing costs alone would double. There would be additional costs to cover delays, demurrage, etc. Laboratory tests for LMOs generally require a five to seven day turnaround. Each day a ship waits to unload in port costs approximately U.S.$30,000. Delays would be shorter in developed countries, with nearby laboratories that can expedite test results. But, these delays would be longer for developing countries, which do not have laboratories able to perform these tests and would need to send samples overseas for testing. These delays would add millions in demurrage costs.
Because testing is a statistical procedure, it is practically certain that tests performed at the point of export will not be confirmed by tests at the point of import, even if the same sampling procedures are used. It is, therefore, likely that shipments could be rejected, after arriving at their destination. If cargoes have to be re-directed because test results differ, there would be additional costs in terms of port delays, travel, and insurance costs. These costs can add up to millions of dollars for a single vessel.
At present, the additional annual cost to consumers in Japan and Europe of acquiring non-LMO soybeans and corn approaches U.S.$100 million. If, under the Protocol, the market for non-LMO commodities expands and/or if the thresholds for adventitious presence are reduced, these costs would likely increase substantially.

These cost estimates were based on case studies of two commodities (corn and soybeans), from two major exporters (the U.S. and Argentina) with fairly sophisticated marketing systems. But, the Biosafety Protocol will directly affect trade in four (canola, cottonseed, corn, and soybeans) of the eight crops that dominate world commodity trade. It will affect trade among the over 100 countries that have ratified the Protocol, as well as exports from four of the major exporters that dominate world commodity trade (Argentina, Australia, Canada, and the U.S.), none of whom have ratified the Protocol. To date, only 19 countries have established regulatory systems and have approved LMOs for import, and even then, LMO varieties approved in major exporting countries are not necessarily approved in major importing markets. Depending upon the decisions the parties to the Protocol make in the coming months, the implementation of the Protocol could require vast and costly changes in the way commodities are produced, harvested, transported and shipped.
Based on its analysis of this study, the IPC believes that it is premature for governments to make such important and far-reaching decisions without evaluating the costs of different options, without understanding the magnitude of these costs, and without knowing who will bear those costs. But, it is equally important, before such costs and disruptions are imposed on the world's consumers and farmers and the world trading system, to determine whether these additional costs are, in fact, necessary to achieve the objectives of the Biosafety Protcol.

Biotech Corn In Fields For 10 Years

The U.S. National Corn Growers' Association points out that it has been 10 years since just 4% of U.S. corn acreage was first planted to biotech corn in 1996. 45% of U.S. corn acreage was planted to biotech corn in 2004, and almost 50% is likely to be planted to biotech corn hybrids in 2005. (OCPA estimates for Ontario in 2004 and 2005 are about 5% less respectively.) According to a study by the U.S. National Center for Food and Agriculture Policy, biotech corn increased yields in 2003 by an estimated 87.5 million bushels and significantly reduced pesticide and herbicide usage. The result, according to the NCFAP, was an additional U.S.$258.4 million in U.S. farm income. The NCGA says that biotech crops have been subjected to closer regulatory scrutiny than any other agriculture products, and that obviously, the system is working well because there have been no proven health incidents related to the use of biotechnology.

Chinese Corn Usage Less Than Output

In a significant observation, a senior Chinese analyst told a Chinese grain conference in early January that China's corn consumption is expected to hit 126 million metric tonnes in the October 2004-September 2005 marketing year. This is below the nation's output of 132 million metric tonnes for the first time in 5 years. The projected output is up 14% from the year prior and the second-largest production in the last 50 years. As a result, China will not import corn in 2004/05. In an interesting twist, the Chinese analyst also said that the projected 6 million metric tonnes increase in surplus corn will simply be added to domestic stocks and that Chinese corn exports will drop 34% to 5 million metric tonnes.

What Is Your Marketing Goal?

During the first week of January a series of Market Awareness seminars, sponsored by OCPA, OSG, OWPMB and SouthWest Ag Conference were held across Ontario featuring Roy Smith. Roy is a farmer, experienced educator, market researcher, writer and farm broadcaster based in Plattsmouth, Nebraska. It is estimated that approximately 1,200 producers attended these sessions. One of the take home messages from the North Woodslee, Kemptville, Stratford and Brantford sessions is to:
1) create a plan
2) write it down
3) share it with someone who is close to you
4) start small and learn gradually.
Roy does not recommend speculating in the futures market if you do not have experience in it. Marketing strategies he does recommend is working with the frost scare, the "dead cat bounce" and the day before the USDA releases its crop report. Refer to another article in this issue which talks about using seasonal trends. If you don't already have a marketing plan, understanding your personality type may help in understanding where your strengths and weaknesses are in creating a plan and sticking to it. There are four key areas in studying personalities;
1) Do you gain your source of strength from people (extravert) or solitude (introvert)? About 60% of farmers fall into the introvert category, where they tend to keep decisions to themselves, take advice and hire experts vs. discussing options, sharing ideas and doing it themselves.
2) Do you take information in intuitively (insight) or through sensing (experience)? It is not surprising that 84% of farmers take information in through experiences. This group is typically very practical, prefer to work on a cash basis and sell from storage vs. being innovative, work with futures and options and sells ahead.
3) Do you make decisions based on feeling (from conviction) or thinking (from logic)? About 59% of farmers make decisions based on logic through objective and rational thinking vs. those who make decisions based on subjective thoughts and emotions. 4) What is your orientation to the world? There are those who are perceiving and flexible or those who are classified as judging where they are organized and structured. About 77% of farmers are classified as judging which means they need closure, will accept low risk, need to know all the data, are results oriented vs. the perceiving type who are open ended, can work without knowing all the data and are willing to accept higher risk. If you are interested in checking out your personality type, check the website, www.humanmetrics.com and take the Jung Typology Test.

Callisto™ Herbicide Arrives For '05 Corn Crop

Early in December, a new broadleaf herbicide for corn was granted its first Canadian registration by the Pest Management Regulatory Agency (PMRA). Kristine Savage, Eastern Canada corn and bean crop manager for Syngenta Crop Protection Canada Inc., was quoted as saying "...this is welcome news for growers of field corn, seed corn and sweet corn." Derived from nature, Callisto is a unique new Group 28 class of chemistry for Canada. The product's active ingredient, mesotrione, is the country's first triket one herbicide. Over the past two years, it has been field tested by close to 200 Ontario and Quebec corn growers. It offers advantages which include: excellent broadleaf weed control, outstanding crop safety, low use rate, flexible pre- and post-emergent application timing and one pass season long control when tank mixed with an annual grass partner. Savage went on to explain that Canadian growers consistently rated their Callisto plots superior to their existing programs. Growers are being told that the combination of benefits which include weed control, crop safety and flexibility give them the operational confidence and freedom that they have been looking for. Callisto is registered in 23 countries around the world. It was registered by the Environmental Protection Agency (EPA) as a reduced risk herbicide in 2001 and has since become the leading corn broadleaf herbicide in the United States.

New Fujitsu Notebook PC Made From Corn

A news story coming out of Tokyo says that Fujitsu Ltd. will launch what it claims to be the world's first notebook personal computer, with a body made from partly biodegradable plastic derived from corn starch. When comparing this notebook to a conventional notebook PC, whose body is molded of plastics derived from petroleum, Fujitsu was able to cut petroleum consumption by one litre by using 65% polylactic acid plastic in the body. This new model is expected to be sold in Japan by mid January. Polylactic acid is made from plant sugar and is biodegradable. It is drawing a lot of attention as a next-generation environmentally friendly material to replace petroleum resins.

Investigation Identifies Glyphosate-Resistant Ragweed in Missouri

A University of Missouri weed scientist by the name of Dr. Reid Smeda, along with Monsanto, have identified common ragweed in a central Missouri field which is resistant to glyphosate, the active ingredient in Monsanto's Roundup agricultural herbicides. Preliminary results have concluded that resistant plants from a 20 acre section of the field can survive an application up to 10 times that of a susceptible population. While early results of the investigation have concluded that resistance has occurred in this field, there have been no other complaints locally, and Roundup is still providing excellent common ragweed control in other parts of the state. Smeda is continuing to examine characteristics relative to this particular bio type. Common Ragweed is the third biotype in the United States to develop resistance to glyphosate in its 30 years of commercial use. Some biotypes of marestail and ryegrass have also shown isolated resistance and these cases have been managed with tank mixes. As part of Monsanto's ongoing stewardship program, they are recommending that growers follow sound agronomic principles and report any instances of unsatisfactory weed control. Growers need to use the correct rate of glyphosate for the right size weed at the right time, as well as additional weed control tools that may be necessary for the weed spectrum on their farm. Many of the weed performance inquiries that Monsanto experiences are due to improper application or environmental conditions.

Study Urges Water Conservation on Farms

A Professor from Cornell University named David Pimentel (author of a study published in the October issue of the journal BioScience) was cited as saying that a growing population coupled with diminishing fresh water supplies, should force major changes in the way the world's farmers water their crops in the coming decades. Since agriculture uses about 70% of the world's fresh water every year, farming should be the focus of intense conservation efforts. He added the U.S. waste a lot of water in contrast to other people, and agriculture is going to have to give up water as the population grows. States such as California, Colorado, Texas and Nebraska are going to have to make some major changes. His study also stated that farmers should be using water conserving irrigation methods, combined with water and soil conservation practices to minimize run-off. If governments eliminated water subsidies to farmers, it would encourage more efficient water use, work to reduce water pollution and protect forests and wetlands. There are parts of Arizona where water from major aquifers are now being withdrawn more than 10 times faster than it can be recharged by rainfall. In California, agriculture accounts for about 3% of the states economic production but consumes 85% of the fresh water.

Illegal Seed Industry Gains Market Share in Brazil

In December, the Seed Producers' Association (Abrasem) was cited as saying Brazilian soybean, cotton and corn seed producers are being swamped by a rapidly growing black market of illegal seeds. Virtually the entire soybean crop in the number 3 producing state of Rio Grande do Sul is grown from illegal GMO seeds. Ivo Carraro, research director of Abrasem, stated that they have obtained healthy growth in terms of grain output, but the seed industry is being destroyed. The spread of smuggled, pirated or illegal conventional and genetically modified seeds has jumped to 12.5 million hectares of the country's planted area in 2003/04. That is up from 7.5 million acres the previous year and it continues to increase. The main driver behind this phenomenon is the cost; pirated seed costs are roughly 30% lower. Carraro also noted that the yield from this pirated seed is 10% less.

Corn Prices - December 15, 2004
Period: to October 31	Approximate Tonnes Marketed	Average Weighted Price
2004-05	640,400	$132.69/tonne
2003-04	705,100	$131.86/tonne
2002-03	1,150,000	$155.78/tonne
The above figures are based on levies received by OCPA for commercial sales

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