No one can predict what China will do next when it comes to Canadian canola.
There are certain things that you can do on your farm, but producers face some tough decisions when it comes to deciding what to spend on inputs, when to pull the trigger on sales, and whether to take a large cash advance.
What can you do to lower costs?
If you haven’t seeded canola yet, you can tweak seeding rates but don’t skimp on nitrogen, said Autumn Barnes, agronomy specialist with the Canola Council of Canada in Lethbridge.
“If you start cutting inputs, you will cut your stability in yield as well,” she said. “We wouldn’t advise people to really cut back their nitrogen rates because we know the crop needs nitrogen to grow.”
However, there may be some wiggle room on seeding rates. The council recommends a plant density of five to eight plants per square foot. If a field has a good history of weed control, and is not seeded too early (which can slow establishment), then a producer could go at the low end of that range, said Barnes.
“Anything lower than that is a bit scary to me and I would not advocate anyone to do that,” she said. “But if they are planting at eight or nine per square foot, they could play around with five or six. That’s an acceptable agronomic practice.”
And so is being more precise.
“If you’re just throwing seed in the ground at five pounds an acre no matter how big the seed is or what the conditions are, I think that’s a missed opportunity,” said Barnes. “It’s not always about saving money, but being more efficient in general.”
And while it’s a bad idea to restrict nutrients and practices that provide an economic return, that’s not the case for every input.
“There’s not a lot of great data showing a yield benefit to applying boron to canola on our soils in Western Canada,” she said, adding if you want to try products without a lot of data behind them, try them on a small portion of a field.
As well, there’s no need to put an insecticide in with a herbicide and apply it on first pass, unless you have flea beetles at or above economic thresholds, she said.
“It’s always a scary thing to tell people not to spray — it’s a lot of risk. But for flea beetles, if there’s decent moisture, if the crop is growing aggressively, and we’ve got warm weather and maybe a leaf or two coming, and you’re getting near threshold, the crop can outgrow it if it’s around three or four leaf. Just be cognizant of all those inputs.”
Finally, make sure equipment is calibrated and working effectively.
“The difficult years aren’t going to be about cutting inputs,” she said. “They’re going to be about finding efficiencies.”
Will alternative markets be found to replace China?
Efforts are underway to do just that, but there’s a record amount that’s available for sale.
Earlier this month, StatsCan estimated stocks at the end of March were 10.019 million tonnes. That’s up by 10.5 per cent from the previous year, and way above the five-year average of 8.680 million tonnes. In fact, the amount of canola on farms — 8.838 million tonnes — is above that five-year average.
Ottawa and the Canola Council of Canada have set up the Canola Working Group, which is trying to find new markets, sell more canola seed to existing ones (China hasn’t restricted canola meal and oil), and eliminate non-tariff trade barriers.
“We do have, in the canola sector, a considerable reliance on large markets, including China, and the working group is studying and looking at a range of different issues including targeted promotion in those markets with an opportunity for more processing of canola,” Jim Everson, the president of the canola council, said in a recent webinar.
During that webinar, Jim Carr, the minister of international trade diversification, said he will be leading a trade mission to Japan and South Korea, and efforts are also underway to persuade Mexico, Pakistan, Bangladesh, and the United Arab Emirates to buy more canola.
“We have to play chess here, not checkers,” said Carr. “So you should be assured to know that we are thinking thoroughly through every possible scenario and we will leave no option on the table. Everything will be looked at very carefully.”
While China’s canola ban is believed to have been sparked by the arrest of Huawei executive Meng Wanzhou at the request of the U.S. government, there may be market forces at play, too.
In its latest monthly report, the USDA estimated that China will cut its total oilseed imports by nearly 10 per cent this year (and even more next year) because African swine fever has decimated its pig herd, and therefore its need for oilseed meal.
“African swine fever in China will be a game changer for the global oilseed complex, and soybeans in particular, in the coming years,” USDA analysts said in their commentary.
“This is a far cry from the market dynamics producers experienced since the mid-2000s and will require adjustments by producers to remain profitable in a lower-priced market.”
Should I take a big cash advance?
The better question might be: ‘If I do, how will I pay back the loan?’
In response to the canola situation, Ottawa has upped the amounts available under the Advanced Payments Program to $1 million in total and up to $500,000 interest free if you have that much canola in the bin. Cash advances issued in 2019 have to be repaid by Sept. 30, 2020.
A cash advance is useful, but there are a few steps a producer should take beforehand, said Merle Good of GRS Consulting in Cremona.
“If you get an operating loan at the bank and then you’re getting a cash advance, you have to make sure all your creditors know about your liabilities,” he said.
You should also get a good handle on your finances.
“Look at your operating loan at the end of the year and your accounts payable. Add that number up and compare that number to inventory to be sold (and) any accounts receivable that you have,” he said adding most farmers don’t have much of the latter.
“The last one would be your pre-purchased inputs. I call this my ‘liquidity position ratio,’ which is more useful than the current position ratio.”
This ratio allows you to estimate cash flow into next year.
If the drop in canola prices is going to put you in a financial squeeze, then talk to your lender about cash flow and whether you need to get longer-term loans against land equity, Good said.
“This (drop in canola prices) is going to be a significant hit and you cannot come out of it on operating loans,” said Good. “(If) you need to restructure, you’re paying back this market loss of revenue over 10 to 15 years.
“If you’re in a tough situation, it’s better to talk to your lenders now.”
– With staff files