Wednesday October 01, 2014

QUESTION OF THE WEEK

  • What type of housing development would you like to see replace the East View Lodge building?
  • Assisted living
  • 52%
  • Personal care home
  • 6%
  • Low-income housing/apartments
  • 42%
  • Other
  • 0%
  • Total Votes: 31





Hedging growth risk

Comments

Not to beat a dead horse, but the movement of oats via rail is currently limited by oil tankers on the tracks.

As such, this has really ignited the debate for the proposed Keystone XL oil pipeline that would send oil from Hardisty, Alb. to Steele City, Nebraska and potentially open up the railroads again for grain movement.

After receiving some serious negative publicity for months, it looks like C.P. and C.N. railroads are going to start stepping their game up and start providing more grain railcars on a weekly basis (up to 5,500 cars a week for C.N.). Federal Ag Minister Gerry Ritz said he’d ideally like 13,000 more cars per week (which is actually more than 2.5 times the current 5,000 cars or so that C.P. and C.N. provide combined).

Ritz continued to say that it’s not the railroads’ role to make arbitrary decisions like whether or not railcars will be going into the U.S..
Further, Ritz also mentioned that the government is looking at grain companies paying farmers compensation if they do not take delivery within a reasonable amount of time (which would, intuitively, force the grain companies to put more pressure on the railroads).

The reality is, some change will be needed in order to help facilitate growth of Western Canadian agriculture.

Heading to the Oriental, new data coming out of China suggests that beef consumption is on the rise in the People’s Republic.

While pork is still the number one go-to on the protein side of the menu (56.3 million tonnes estimated to be consumed in 2013-14!) beef consumption is seen growing 5.1 per cent year-over-year to a record 6.26M tonnes this year.

While the Chinese eat more than half of the world’s pigmeat production, they fall third behind Brazil and America’s level of demand for beef. Canada’s beef exports to China rose six-fold year-over-year this year but Australia still is the number one supplier.

China’s increase in beef consumption will also have an effect on feed as cattle require about 50 per cent more feed per kilo of weight grain than a pig would. Thus, we would expect the demand for feed grains in China to also increase further.

Back to the Old World, Macquarie is forecasting a pullback in the growth of the Ukrainian agriculture industry due to the increasing geopolitical risk the country is facing.

Most importantly (in my opinion), Macquarie says “the access to loans for the Ukrainian agri sector will be tougher as the squeeze in the financial market in Ukraine makes loans more expensive”.

Undermining this expectation is the fact that the bank expects grain production in the former Soviet nation to fall nearly 16 per cent to 44.5 million tonnes in 2014/15 (51.4 million tonnes produced in 2013/14).

When you try to grow your business (farm or otherwise), you can either funnel profits back into said business or leverage assets by taking on financing. When both of these options become limited, it will intuitively stall the growth that one was hoping for.

That being said though, growth has many forms and bottom-line growth is only one of them. New growth in agronomic practices and/or other farm strategies (i.e. marketing) can be established.

That’s why I’m optimistic that there’s always areas to improve one’s operations.

Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, Mr. Turner spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and now mobile grain marketplace (app available for iOS & Android). His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief.
He can be reached via email (b.turner@farmlead.com) or phone (1-855-332-7653).


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