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Machinery sales outlook flat for 2009

The Association of Equipment Manufacturers (AEM) released its annual forecast for U. S. and Canadian agricultural machinery sales. The 2009 forecast, which is based on a survey that asked agricultural machinery manufacturers for their sales predictions, calls for basically no increase in sales for big tractors and combines in Canada compared to 2008.

Combine sales are forecast to rise one per cent, 2WD tractors over 100 hp will rise 0.3 per cent, and 4WD sales will have no increase at all.

U. S. sales forecasts are considerably more buoyant, with sales predicted to rise 4.4 per cent for 4WD tractors, 3.3 per cent for 2WD tractors over 100 hp, and 9.3 per cent for combines.

Why the difference? Because 60 per cent of U. S. manufacturers polled expect seeded acres and exports to rise in the U. S. for 2009 versus 2008. Yet in Canada, only 34 per cent expect seeded acres to go up and 43 per cent expect a rise in exports.

Manufacturers were also asked for their thoughts on credit availability and interest rates for 2009. Canadian manufacturers had slightly better outlooks for buyers. As for credit availability, 79 per cent forecast no change, while 13 per cent forecast modest decreases. For interest rates, 58 per cent expect them to stay the same, while 33 per cent expect modest increases.

In the U. S., 50 per cent expect credit availability to stay the same, while 34 per cent expect it to decline. And 52 per cent expect interest rates to stay the same, while 35 per cent expect them to rise slightly.

Editor Jay Whetter attached the whole report to his blog entry for November 17. To read the blog, go to www.grainews.caand click on “Editor’s blog.”

Prepare for the “liquidity lag”

David Kohl was the first speaker of the season for the Canadian Farm Business Management Council’s Agriwebinar series. Kohl is a prof at Virginia Tech and a regular speaker on the farm conference circuit. You can watch an archived version of his “Outlook for 2009” at www.agriwebinar.com.One highlight was his comment on tight credit availability, which is mentioned on page 2. Here are the other highlights:

1. China, India, Brazil and other emerging markets have been growing so fast over the past decade, that we had come to rely on this demand underpinning the market. But growth has slowed, particularly in China now that the Olympics are over and the government-sponsored rebuilding of Beijing is winding down. “Should growth in these countries drop below five per cent, we could see a major global recession. Grain prices and input prices will drop further,” he says.

2. Prepare for the “liquidity lag.” In a global recession, prices that farmers get paid for their commodities fall faster and earlier than prices farmers have to shell out for their inputs. In other words, while prices for wheat and canola have already fallen, it could take months for nitrogen fertilizer and diesel fuel to fall an equivalent amount. Kohl recommends that farmers build up some cash reserves for 2009.

3. That said, Kohl reports that urea prices in the U. S. are down to around $500 per ton in places, down from $1,100 not that long ago.

4. Is land a good investment? That depends. Kohl says land is a good wealth accumulator, but a poor cash flow provider — unless you sell it. And he says you don’t want to be forced to sell land to meet your cash flow needs. He says that scenario is starting to play out for some U. S. farmers. Land now accounts for 87 per cent of the equity on U. S. farms, with machinery, livestock and cash making up the balance. So what if you get into a cash flow bind? These farmers are forced to sell land, and if the market is in a downturn, these forced land sales often don’t fetch the prices one expects.

AgriInvest helps with cash flow

As noted above, David Kohl recommends farmers have a cash reserve to cover the liquidity lag. AgriInvest, which is like a new version of NISA, will help you build up an emergency fund. Each year, farmers can deposit up to 1.5 per cent of their allowable net sales (ANS) into an AgriInvest account and receive a matching government contribution.

You can access these funds at anytime to pay for inputs or for other investments. For more information about AgriInvest, call 1-866-367-8506, or visit www.agr.gc.ca/agriinvest.

Some of you may also qualify for an AgriStability interim payment. AgriStability provides protection against large margin declines that may be caused by increased production costs. AgriStability payments are triggered when a producer’s program year margin falls below 85 per cent of their reference margin — which is their average margin from previous years. Input costs such as fuel, feed, and fertilizer are allowable expenses under AgriStability. This means an increase in program year expenses as a result of high input costs could trigger an AgriStability payment.

If you expect your farming income to decline in 2008 as a result of high input costs, you can apply for a 2008 AgriStability interim payment. Interim payments allow early access to a portion of your 2008 AgriStability final payments.

And you can use the Advance Payments Program

The federal government’s Advance Payment Program (APP) is also designed to help with cash flow. The APP gives you a cash advance on the value of your grain or livestock. You have to pay the advance back within 18 months or so, but the first $100,000 is interest free. You can get up to $400,000 in total.

The program is designed so you can pay bills or buy inputs without having to sell grain or livestock when the market timing isn’t right for you.

For more information about Advance Payment Program, call 1-866-367-8506, or visit www.agr.gc.ca/app.This website has a list of the producer organizations that administer the program. For example, the Canadian Wheat Board handles advances for wheat, durum and malt barley.

Don’t like your grade? Act immediately

Alberta Agriculture and Rural Development, in its Agri-News bulletin from November 10, explained how farmers can use the Canadian Grain Commission’s (CGC) Subject to Inspector’s Grade and Dockage service to settle a grade dispute with a licensed primary elevator.

Doon Pauly, crop specialist with Alberta Agriculture in Stettler, says that when differences of opinion occur on the grade of delivered grain, farmers have the right to ask for a binding decision from the CGC on both grade and dockage. The producer is then paid according to the CGC’s grading of the sample.

The following rules must be fully met to qualify for Subject to Inspector’s Grade and Dockage:

— An interim elevator receipt must be issued for the delivered grain.

—A portion (at least 750 g) of delivered grain taken from a representative subsample is placed in a container that will maintain the integrity of the grain.

—The container is labelled Subject to Inspector’s Grade and Dockage.

—The CGC form, Request for Grain Inspection Certification, is completed in full.

—The CGC will invoice the elevator for the costs of this service with either the elevator or the producer paying the fees.

“Realistically, to use Subject to Inspector’s Grade and Dockage to resolve grading disagreements, the process has to be initiated when grain is delivered,” says Pauly. “It will be virtually impossible to meet the CGC’s requirements after the fact.”

When a third party is hauling grain it is important to have an arrangement with the elevator so the producer is informed at the time of delivery if grade and dockage vary from agreed standards.

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