Hursh Consulting & Communications Inc.

Forecasting the economy is a lot like forecasting the weather. Both are reliably unreliable.

For predictions of the agricultural economy, you need to forecast both the weather and the general economy, not only at home, but also in key importing and exporting regions around the world. Needless to say, there are poor odds of getting it right, particularly if you try to forecast an entire year.

But here’s what we know.

Most of the Western Canada has a sizable moisture deficit. Average rainfall this spring and summer will not be enough to produce an average crop, especially in southern regions.

In many years of the past decade, too much moisture has been an overriding concern. Other times, it has started out dry in the spring and everything has turned out just fine. So there’s no use panicking, but soil moisture levels are a concern nonetheless.

(Interestingly, the mainstream media gives about the same credence to The Farmers’ Almanac as it does to The Weather Network or Environment Canada when it comes to long-range forecasts.)

We also know that lentil and pea prices have fallen dramatically and show few signs of a timely recovery. Lentils have been a big money-maker, the go-to crop for many farmers in the southern and central grain belt of Saskatchewan. Lentils look far less attractive for 2018 and there will be a significant switch to other crops.

Canola will likely capture much of the acreage switching out of peas and lentils. While canola prices continue to grind lower, the crop still looks favourable compared to competing options.

Crop insurance coverage will be good for most crops. Since the prices used for crop insurance are based off estimates made in December, any further decline in canola prices won’t be captured. However, producers have a tendency to misinterpret their crop insurance protection.

Let’s say your average canola yield is 40 bushels per acre. At 80 per cent coverage, your crop insurance yield guarantee is 32 bushels an acre. Let’s assume the crop insurance price for canola is set at $10 a bushel providing coverage of $320 an acre.

Too many producers look at this number as the worst-case scenario. No matter what happens in the growing season, be it drought, hail or flood, they think they’ll have $320 for each acre of canola to work with.

But of course, crop insurance is production insurance, not price insurance. What if you grow a 32 bushel per acre crop and the market price is only $8.50 a bushel? There’s no crop insurance payout and your gross return is only $272 an acre.

While weather and economic forecasts are fraught with inaccuracy, one forecast that’s true eight or nine years out of 10 is that nitrogen fertilizer prices will rise in the months leading up to seeding.

True to form, the market is showing signs of marching higher. Alberta Agriculture’s farm input price survey shows a substantial rise in urea prices from October to November. It’ll be interesting to see the numbers posted for December.

Forecasting interest rates has been a pretty safe bet for a lot of years. Even if they do edge upwards in 2018, the impact on farm income shouldn’t be significant.

The value of the Canadian dollar is another matter. A Canadian dollar that rises about 80 cents would significantly curtail grain prices and farm income levels.

Moisture, crop prices, Trump, Trudeau. Overall, there are many good reasons for caution as we head into 2018.

Despite all the emphasis on climate change, it isn’t at all clear what it will mean for Prairie agriculture.

Yes, the frost free period appears to be increasing in many parts of the Prairies, but there’s huge variability. According to Paul Bullock, a soil scientist at the University of Manitoba, the frost free period can vary by a month from one year to the next.

Bullock gave a presentation at the recent Prairie Grain Development Committee meeting in Winnipeg. PGDC is where new lines of many types of crops are assessed for whether they will be supported for registration. Like farmers, plant breeders would love to know the implications of climate change.

I was especially interested in hearing Bullock’s presentation because we were ag college classmates. With his farm background and continuing ties to a farm in northwestern Saskatchewan, he has a practicality often lacking by those trying to make sense of climate change and agriculture.

But Bullock isn’t a climate change denier by any means. He believes the extensive global measurements showing 2016 was the warmest year on record. In fact, most of the warmest years have been in the last decade.

He says southern Canada has seen a one to two degree temperature rise over the last 100 years. The change is most notable in higher minimum temperatures and since 1950 the main effect has been in the winter.

But when it comes to characterizing the weather tendencies for growing crops in Western Canada, the picture is not at all clear.

Since Canadian agriculture is at the northern extreme of crop production with a short frost free period and limited heat unit accumulation, a warming climate might mean we can grow bigger crops and a wider range of crops including soybeans and corn.

Bullock’s work and the work of other scientists shows any increase in frost free period is spatially inconsistent, meaning it’s longer at some reporting locations and actually shorter at others. Crop heat units have increased only sporadically and some have actually decreased. Overall, there is actually little change over the past 10 years.

What about precipitation? Bullock says this isn’t monitored well and it’s even tougher to draw conclusions.

In general, there has been an increase in spring rain. While snowfall is difficult to measure accurately, it has gone down.

Following the widespread Prairie drought in 2002, many big projects geared up to research drought. By the time those projects were up and running in 2005, the wet years had started. Bullock remembers 2011 in Manitoba when there were a record number of unseeded acres due to flooding and this was followed by a lack of rain that hurt the crops which had been seeded.

Will increased levels of carbon dioxide in the atmosphere actually aid plant growth? More uncertainty. And then there are the indirect effects of changing weed, disease and insect pressure. It’s reasonable to expect a broader range of pests.

An increase in severe weather seems likely. More global heat should mean more low-level moisture and the greater potential for storm energy.

In the end, even someone with Paul Bullock’s credentials can’t provide much practical guidance for farmers and plant breeders. The potential exists for increased floods as well as droughts in addition to more severe weather.

“Can we push coping mechanisms wider?” asks Bullock. Increasing crop production resilience to weather extremes may sound like a strategy, but it won’t be easy to accomplish.

It doesn’t really even have a name yet. Next Policy Framework or NPF is just a temporary moniker. The previous five-year program frameworks for agriculture were Growing Forward 1 and then Growing Forward 2. The new Liberal government has resisted the urge to refer to the next federal-provincial deal as Growing Forward 3, so at some point a new handle will be coined.

To their credit, governments started work on the NPF long before the expiration of Growing Forward 2. The wheels of government move very slowly, but there seems to be a concerted effort to have programs in place and move from one framework to another without big gaps.

At this point it’s difficult to know what changes will be in store when the NPF begins in April of 2018, but a few clues are emerging. Much of the work revolves around funding for agricultural research, but farmers will be watching for the programs that affect them more directly.

Whether you think it’s noble or misguided, we have a federal government committed to reductions in greenhouse gas emissions. That will have an impact on agriculture both within and outside of the NPF.

Within the NPF, don’t be surprised to see a renewed emphasis on Environmental Farm Plans. Most Prairie farmers who went through the Environmental Farm Plan process many years ago were motivated by government support for Best Management Practices (BMPs).

Attend a workshop for a couple of days, fill in the blanks on the forms and presto. You could get government cost sharing for narrow openers on your seed drill and/or a GPS guidance system.

The Environmental Farm Plan was not a living document. The thick binders have collected thick layers of dust. While there’s still funding for a few BMPs, very few producers have updated their plans.

In the NPF, it wouldn’t be surprising to see a resurrection of the Environmental Farm Plan approach with a much greater emphasis on emission reductions.

Outside of the NPF, biofuel policy will have a great impact on agriculture and at this point there are mixed expectations of how the federal government will proceed. Some are hopeful that ethanol and biodiesel will be viewed as part of the solution to reducing carbon emissions thereby increasing the biofuel demand for corn, wheat and canola.

Others say a full lifecycle assessment shows ethanol and biodiesel as poor choices for overall emission reduction. If the government adopts that view, expect new demand to be minimal.

What happens south of the border might be even more important. Donald Trump appears to be an ethanol supporter, although at this point everyone is still trying to guess what approach he will take on a large number of issues.

The lion’s share of funding for the NPF will likely remain Business Risk Management – in other words the farm safety net programs of AgriInvest, AgriStability and AgriInsurance.

Will government contributions under AgriInvest remain at 1.0 per cent of eligible net sales? Will there be some sort of tax abatement to encourage producers to withdraw the money as long as it’s used for specific types of on-farm investments?

And what’s the fate of AgriStability? Enrollment continues to drop and its shortcomings have been widely discussed. Can it be fixed or should it be replaced and if so, with what?

If you have views, let both levels of government know. Whatever the NPF is ultimately named, five years is a long time to harbor regrets.

It might have been the end of the line for the old tractor. Instead, with advice from near and far and a single flat washer, the tractor has a shot at another seeding season.

The problem was evident as soon as we hooked to the new-to-us seed drill. The drill lifted just fine, but it wouldn’t fold. The hydraulics on the 875 Versatile built in 1980 didn’t have enough lift for the wings of a K-Hart drill from 2012.

Another tractor was used to fold the wings and we pulled the drill home to ponder the problem.

As I talked with the guys on coffee row, I learned that you could easily measure hydraulic pressure with a gauge inserted in the tractor coupling. A neighbour lent us a gauge and we soon found the tractor was putting out only 2000 psi.

The instruction book says the tractor is rated at 2300 psi, so what was the problem – filter issues or maybe a weak hydraulic pump? I posed the question on Twitter and suggestions came pouring back.

One response suggested the solution was to buy a new tractor for $600,000. Another said that new hydraulic pumps are about $10,000 installed. Yet another said that he didn’t think hydraulic gear pumps were still available for such an old Versatile.

Well, maybe it was just a filter issue. No probably not said another Tweet. A filter restriction would reduce the flow, but in most cases it shouldn’t reduce the pressure.

As you can probably tell by now, equipment repair is not my strong suit. A mechanic I am not.

But a young mechanic called my cell phone. He had seen my Tweet and had fixed a hydraulic pressure issue on our Apache sprayer. The tractor is probably twice as old as this mechanic, but he went back and forth with us trying to locate a pressure relief valve. He even talked about using shims in the valve to boost the pressure.

No valve on or around the hydraulic pump. Despite what the instruction book says, no relief valve at the front of the oil reservoir. The neighbour who lent us the pressure gauge used to run a similar old Versatile and he remembered a relief valve on the hydraulic spools behind the cab.

We had removed a panel and closely examined this cluster, even getting schematics emailed from a couple of dealerships. The schematics were a different orientation and with all the parts fitting into other parts, the diagram wasn’t that useful. And it didn’t really list anything described as a pressure relief valve. We unscrewed some big plugs, but no relief value.

We pondered the problem with our neighbour and he suggested the valve might be located between the spools and the back of the cab. We might be able to get to it by removing another panel.

He was right. When we got it out, we discovered “2300” stamped on the end. We took the valve apart and added a couple of small washers on top of the spring. That shot the pressure up to 3000 psi. Impressive, but way above system specifications.

We went with just one flat washer, about the size of a dime, giving us 2500 psi and just enough pressure to fold the drill. An amazingly simple and cheap fix, but we’d have never figured it out without neighbours, both close-by and on Twitter.

Sometimes a market goes bonkers and that’s what has happened with lentils. Whenever craziness ensues, there are inevitably negative consequences and it will be no different with this bit of insanity.

Sky-high record price levels are certainly a good news story for producers lucky enough to sell into this rapidly rising market, but observers are actively speculating on the potential downside in the months and years ahead.

First, for areas where lentils are not normally part of the crop rotation, let’s recap price performance. Red lentils were a good price at harvest time, selling off the combine for around 35 cents a pound. Now, they are 55 or more. That 20 cent a pound price increase is an extra $12 a bushel.

Top quality large green lentils were selling for around 40 cents a pound off the combine. Now some buyers are reportedly paying 70 cents, an $18 a bushel increase in about four months.

If you grew a really good crop of lentils and had the foresight/luck to hold them until recently you could have grossed $1,000 or maybe even $1,500 an acre.

Of course, very few will have reached those lofty returns. Stories abound of could have, should have, would have, from producers who wish they could have grown a bigger crop and wouldn’t have sold it so soon.

Analysts attribute most of the price strength to dry conditions in India which have stoked the demand for lentil imports. A chunk of the price strength also comes from the weakening Canadian dollar.

New crop contract prices were available in the early fall, months ahead of the normal time and those prices have also ratcheted up to record levels. Prices of 40 cents a pound on the first 10 bushels per acre have been available with an act of God clause in the contract.

This makes lentils the stand-out winner in 2016 cropping options. Some producers who have never grown lentils want to try their luck and price contracts are being signed with farms in such unlikely locations as Prince Albert and Winnipeg.

Lately, new crop red lentil prices have retraced a bit. Some buyers have withdrawn from the market. They’ve filled their contracting needs even before the time when new crop contracts are usually just being initiated.

This overheated market will produce winners as well as losers.

There’s a reason why lentils aren’t grown in higher moisture regions. If those regions have drier and warmer weather than normal in 2016, they might grow a decent crop. Otherwise, there could be huge crop failures.

In areas where lentils are normally grown, many producers will be pushing their rotation to seed as many as possible and that could result in disease issues. In some cases, producers are rolling the dice and seeding their entire farm to lentils.

If you don’t have a contract, will you be able to sell 2016 lentils and what will the price be if acreage and production is as high as anticipated? Producers in many other locations around the world are also excited to cash in, so international competition will likely increase.

What will happen with negotiated sales with buyers in far-away countries when the price inevitably falls? Lentils marketers would seem to be facing a lot of risk.

Analysts say the cure for high prices is high prices. Overproduction typically leads to a number of years of depressed returns.

Lentils are hot and that probably means someone is going to get burned.