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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:

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: 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: 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.


CAISP Linkage To Crop Insurance

The current proposed linkage between CAISP and Crop Insurance (CI) states that a CI claim payment will count as eligible revenue and CI premiums will count as an eligible expense under the CAISR However, inclusion of a CI claim as revenue obviously increases the revenue reported by the farm in the claim year and therefore reduces any payment triggered from the CAISR In effect, the CI payment saves the CAISP money. The proposed linkage is to rebate these savings to the producer up to the limit of the CI premium paid by the producer. However, in years where no CI claim payment is received, inclusion of the CI premium as an expense reduces the CAISP production margin and hence reduces the reference margin. In effect, participation in both CI and CAISP penalizes a producer in those years when no CI claim is made.
It is argued that this proposed linkage is not sufficiently positive and is in fact counter to government's stated policy objective that those producers who participate in CI should not be made worse off than those who do not participate in CI. Those who make the risk management decision to participate in both CI and CAISP should be better off than those who participate in only one program or neither. The OCPA and Grain Growers of Canada have suggested that a more positive linkage is simply to not count CI premiums as eligible expenses in the calculation of a producer's CAISP reference margin (therefore making the reference margin larger) thus having no detrimental impact on the CAISP reference margin. This would provide a positive incentive for producers to participate in both CI and the CAISP.

CAISP Information Sessions And Deadlines

Producers are strongly urged to register and attend free CAISP information sessions conducted by OMAF across the province in late February and early March. Dates and locations for the sessions are posted on the OMAF web site at www.omaf.gov.on.ca. To register for sessions, producers can call toll-free 1-877-838-5144. Producers should have received their Deposit Option Notice (DON) form by that time and should bring the form with them to the meetings. The DON details each producer's: Producers are reminded that the deadline to apply for participation in 2003 and 2004 CAISP, open a CAISP account, make a CAISP deposit, submit Schedule 1 and Schedule 2 (detailing accounts receivable, payable, and inventories) is April 30, 2004. It is important that Ontario producers understand that OMAF is administering the CAISP program in Ontario, and that OMAF deadline dates (April 30, 2004) are different than dates listed on the Ag Canada web site where AAFC is administering the CAISP program in some other provinces.

Canadian Farm Business Advisory Service

A new national single entry point professional business planning service was announced by Federal Agriculture Minister Speller and Provincial Agricultural Minister Peters January 30, 2004. The Canadian Farm Business Advisory Service (CFBAS) is part of the "Renewal" pillar of the APF/IA signed by the two levels of government December 11, 2003. The federal government will provide up to $10.19 million in Ontario over five years to help fund the CFBAS. All farmers with gross sales of at least $10,000 may access the CFBAS and can select their advisor from a list of qualified consultants. Participating producers will receive up to five days of consultation with a business planning professional and a one day follow up for a fee of $100. Producers can access this initial consultation and a farm business assessment which includes farm financial assessment and an action plan. As a pre-assessment, producers can evaluate their current financial situation using an electronic benchmark tool available at www.agr.gc.ca/compare. Producers can apply and obtain more information on the CFBAS by calling the regional AAFC office at 1-866-452-5558 or the AAFC web-site at www.agr.gc.ca/ renewal/cfbas. Producers can also obtain information from the OMAF Agricultural Information Contact Centre at 1-877-424-1300, or the OMAF web-site at www.omaf.gov.on.ca. or by email at ag.info@omaf.gov.on.ca.

Market Revenue For 2003 Crop Year

At time of writing, a decision on extending Market Revenue Insurance (MR!) for the 2003 crop year (the crop harvested in the fall of 2003) and beyond has still not been made by OMAE The old safety net agreement extended MRI to cover the 2002 crop year (ended August 31, 2003) with fiscal termination March 31, 2004 to provide time for all final payments to be made and accounting to be completed. After deducting 2002 payments, the MRI "pot" contains about $95 million including receipt of interest, earned more than enough to cover 2003 MRI payments at 90% of support price and 90% of yield. IF MRI is extended for the 2003 crop year, support prices at 90% coverage would be:

Ethanol Expansion Program Announcements

At time of writing, no announcements had been made by the federal government concerning first phase Ethanol Expansion Program (EEP) awards to selected ethanol construction projects. Project proposals had to be submitted by November 19, 2003 with an original announcement date of December 17, 2003. However, EEP awards were caught up in the Martin government's review of all expenditures and announcements were delayed with no new date given. Currently, we expect announcements to be made commencing Friday, February 13. We understand 17 projects from across Canada submitted proposals for assistance from the $60 million available in the first phase of the EEP. Information suggests that 7 projects were selected for assistance, that these 7 projects required an additional $10 million in order for all to be awarded at their maximum request, and that this additional funding was drawn forward from the second phase of the EEP (originally $40 m) scheduled for award in 2005. There is a concern that the balance of the second phase of the EEP has been withdrawn as part of the Martin government's expenditure reduction process.

U.S. May Change Ethanol Tax Plan

With the Energy Bill stalled in Congress, the U.S. Senate is considering overhauling tax treatment for ethanol in the U.S. Currently, ethanol blended gasoline in the U.S. has a partial excise tax exemption where only 13.1 cents rather than the 18.4 cents per gallon gasoline tax is transferred to the highway trust fund. The plan under consideration would replace the current 5.2 cents per gallon tax break for ethanol with a tax credit for ethanol producers. The plan would funnel an extra US$2 billion into the U.S. Highway Trust Fund. It does this by taxing ethanol-blended gasoline at the same 18.4 cents a gallon as all other gasoline, which then will be transferred to the highway trust fund. Ethanol producers would receive a direct tax credit of 5.2 cents per gallon. The proposal does not, however, contain the renewable fuel standard in the Energy Bill designed to double ethanol production during the next decade.


Brazil And China Negotiate Barter Agreement

Reports in early February suggested Brazil and China are negotiating an agreement under which China would barter railway and other infrastructure in Brazil for soybeans and other agricultural commodities. Such an arrangement would be the first such barter agreement on this scale, although other barter agreements between other smaller nations involve infrastructure for oil or food or electricity. Such an arrangement would have a large impact on commodity markets such as Chicago Board of Trade, soybean futures contracts because large volumes of soybeans would be shipped from Brazil unpriced and remove a segment of the Chinese marketplace from the price discovery system.

U.S. And Australia Sign Free Trade Agreement

On Monday, February 9, the United States and Australia announced the conclusion of a free trade agreement that covers a large array of exports including agricultural, manufactured, pharmaceutical, cultural and media programming. The agreement greatly increases the ease with which Australian dairy, sheep, horticultural and beef products can enter the U.S. The agreement does not, however, alter Australian quarantine laws as U.S. farm groups had demanded, nor does it alter the workings of the Australian Wheat Board (AWB) (an Australian wheat export monopoly similar to the Canadian Wheat Board). The U.S. considers the AWB more "transparent and open" than the CWB. One notable exception in the agreement was the absence of any agreement on sugar trade which was left out of the agreement. The agreement requires approval of both the U.S. Congress and the Australian Parliament in order to come into effect.

President Bush's Budget Cuts Agriculture

On Monday, February 2, President Bush sent Congress an election-year budget that contained significant increases in expenditures for defense and homeland security, but also a record $521 billion deficit. The budget contained spending reductions in 7 out of the 16 Cabinet-level agencies. The USDA and Environmental Protection Agency (EPA) were the target of the largest reductions in spending. The USDAs budget for 2005 fiscal year (begins October 1, 2004) was sliced 8.1% while EPAs was cut by 7.2%. However, a significant proportion of the reduction in USDA spending will come from support program payments previously budgeted that will not have to be made because of increased cash market prices. For example, current cash price offers for grain corn in Indiana and Michigan are all above the US$2.60/bushel Target Price established under the new Counter-Cyclical Payment Program (CCPP) introduced in the 2002 Farm Bill. This means in reality that there is expected to be no CCPP payment nor Loan Deficiency Payment for corn, or soybeans, or wheat, or many other commodities. The only payment most U.S. grain and oilseed producers are likely to receive is the fixed per acre payment received early last fall. The savings realized by the USDA, thanks to higher market prices, will be returned to Treasury and count as part of the USDAs reduction in spending.

U.S. Conservation Security Program Problems

The Conservation Security Program (CSP) was introduced with the 2002 U.S. Farm Bill (Food Security and Rural Investment Act). It was heralded as a "green" alternative to commodity payments which emphasized production, and was hailed as the first program to pay producers who have historically been good stewards of the land. The CSP rewards producers who implement conservation practices that protect natural resources like water, air, wildlife habitat and soil. The CSP was written as an uncapped entitlement program rewarding producers based on a three-tier system including payments for basic participation, cost-share programs, and enhanced "bonus" payments to those producers doing the best conservation work. But the CSP has been hampered by limits on the number of producers who could enroll because CSP's funding was restricted. As a consequence, whereas the program theoretically should be open to nearly 1.9 million eligible producers, rules limit signup to only several thousand producers living near specific, still unnamed, priority watersheds. In mid-January Congress approved the omnibus appropriations bill that set funding for CSP at US$41 million for 2004 and restored an estimated US$3.1 billion to the program, for a total of at least US$7 billion during the next 10 years. However, rules will have to be altered through a supplemental rule to expand the number of eligible participants and that process has been dragging. Moreover, President Bush's cuts to the Agriculture Department contained in the fiscal 2005 budget recently sent to Congress cloud the future of the CSP even further.

Double-Digit Growth Continues For Biotech Crops Worldwide

For the seventh consecutive year, farmers around the world continue to plant crops produced from biotechnology at a double-digit pace. The 2003 total is up 15 percent to 167.2 million acres or 67.7 million hectares, according to a report released by the International Service for the Acquisition of Agri-Biotech Applications (ISAAA). This increase includes a provisional estimate of 7.41 million acres or 3 million hectares of biotech soybeans in Brazil, which were approved for planting for the first time in 2003.
It is also reported that 7 million farmers in 18 countries now plant genetically modified crops. This number is up from 6 million farmers in 16 countries in 2002. Almost one-third of the global biotech crop area was grown in developing countries; this is up from one-quarter from the previous year.
The number of countries responsible for 99 percent of the global biotech crop area is up from 4 in 2002, to 6. Brazil and South Africa joined the United States, China, Canada and Argentina as leading growers in biotech crops. China and South Africa reportedly experienced the greatest annual increase with each of the countries planting one-third more biotech hectares. The remaining top 10 countries planting more than 50,000 hectares are Australia, India, Romania and Uruguay. In the U.S., biotech crop acreage grew 10 percent. As a result, there were significant gains in genetically modified corn and continued growth in genetically modified soybeans. A total of 105.7 million acres of soybeans, corn and cotton were grown.
Genetically modified soybeans continue to lead all acres with an increase of nearly 13 percent to 102.2 million acres, which is 55 percent of soybeans globally. New varieties and country approvals spurred the greatest growth in the area planted to genetically modified corn, with an increase of 25 percent to a total of 38.3 million acres worldwide (this is 11 percent of the global corn area).
Within the next five years, ISAAA predicts 10 million farmers in 25 or more countries will plant 100 million hectares or 247 million acres of genetically modified crops. The global market value of biotech crops is expected to increase from approximately $4.5 billion this year to more than $5 billion by 2005.

Ontario Farmers Continue To Increase Their Use Of Biotechnology

Ontario farmers continue to make use of crops created through biotechnology at increasing rates. This trend appears to be global, according to the International Service for the Acquisition of Agri-Biotech Applications (ISAAA). It is estimated that 50 percent of the soybeans, 50 percent of the corn and over 90 percent of the canola crops in Ontario were grown from genetically modified varieties. These proportions are up slightly from 2002.
Ontario farmers have steadily increased their use of biotechnology since the first genetically modified crops were approved for planting in the mid 1990's. The technology has been found to offer effective ways to help control pests and adopt environmentally sound cropping practices. It is estimated that biotechnology has assisted farmers in reducing their pesticide use by over 40 percent since 1983.

Latest Bt Refuge Compliance Study Indicates Technology Well Protected

The University of Guelph recently reported that more than 80 percent of Canada's corn growers follow a comprehensive Insect Resistant Management strategy designed to protect the valuable Bt technology. Those are the findings of the recently released 2003 Bt corn refuge compliance study conducted on behalf of the Canadian Corn Pest Coalition (CCPC). The results are based on 762 grower interviews conducted during the summer of 2003 in Ontario, Quebec and Manitoba. The study is a sequel to the first study done in 2001 (as part of a request by the Canadian Food Inspection Agency) and will be repeated to monitor compliance and implement further educational efforts as required to protect the technology. Combined results from all three provinces show compliance levels to both key requirements at 82 percent in 2003 verses 79 percent in 2001. These high levels are important as they should keep resistance from developing for a very long time. For more information on protecting Bt technology, visit www.cornpest.ca.

Corn's Cold Tolerance Improved

Biologists report that a tobacco gene can improve corn's poor frost tolerance. An Iowa State agronomist and her colleagues inserted a tobacco gene (NPK1) into corn plants and found that the transgenic plants survived temperatures 2 degrees Celsius colder than plants without the gene. Although small, the difference could help corn survive late spring and early fall frosts. It could also permit planting of the crop in more northerly regions or on high plateaus. Corn, is a tropical plant that originated in southern Mexico. It is a crop that requires extended warm periods to ripen. It is an important food staple that has been continuously bred and planted in colder climates on all continents. The tobacco gene (NPK1) activates a cellular pathway that stimulates production of certain proteins that stabilize and protect cells in times of stress from heat, cold or water loss.

EU Commission Backs GM Maize, Ministers To Decide

According to this story the European Union took another step on January 28, 2004 towards lifting its five-year unofficial ban on new biotech crops and products, when the EU executive backed a proposal to allow imports of a gene-spliced sweet maize. The story explains that EU ministers now have three months to consider the proposal to allow imports of the maize, known as Bt-11 and marketed by Swiss agrochemicals giant Syngenta. If they cannot agree by then, the European Commission may rubberstamp its own proposal. If allowed into the EU, the maize would be for eating straight from the can, not for planting. Most industry observers say the authorization is just a matter of time, as ministers are unlikely to agree, making the lifting of the ban almost certain.
Corn Prices - February 12, 2004
Period: to Dec.31
Approximate Tonnes Marketed
Average Weighted Price
2003-04
1,105,600
$131.99/tonne
2002-03
1,407,600
$155.51/tonne
2001-02
1,274,100
$134.87/tonne
The above figures are based on levies received by OCPA for commercial sales

 

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