CGE121015 by Farm Business Communications

EASTERN EDITION

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October 2012 $3.50

Money Management

TIME TO EXPAND? HIGH LAND PRICES MAY BE A BARGAIN

Jeff Simpson looks farther, crunches numbers harder, but still buys

+PLUS Publications Mail Agreement Number 40069240

THE BIG SIX PROFIT ROBBERS: ARE YOU REALLY SURE YOU’RE SAFE? OFF-FARM SUCCESSION: NEW BUSINESSES FOR THE NEXT GEN COST OF PRODUCTION: YES, IT’S EVEN MORE CRUCIAL NOW

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OCTOBER 2012 MONEY MANAGEMENT 2012 High crop prices don’t actually make the job any easier. In fact, every decision takes on more weight, from tax management through to buying land or machinery. To help, we bring you experts and farm perspectives from across the country. It’s your guide.

OFF-FARM SUCCESSION Creating off-farm businesses may help bring the next generation onto the farm. It's working in Pilot Mound.

THE COST OF SUCCESS The irony is that knowing your cost of production is even more important when crop prices are high.

WILL THE GOOD TIMES GET BETTER? Our Errol Anderson tackles the tough question. How much more upside can this market have?

Our commitment to your privacy At Farm Business Communications we have a firm commitment to protecting your privacy and security as our customer. Farm Business Communications will only collect personal information if it is required for the proper functioning of our business. As part of our commitment to enhance customer service, we may share this personal information with other strategic business partners. For more information regarding our Customer Information Privacy Policy, write to: Information Protection Officer, Farm Business Communications, 1666 Dublin Avenue, Winnipeg, MB R3H 0H1. Occasionally we make our list of subscribers available to other reputable firms whose products and services might be of interest to you. If you would prefer not to receive such offers, please contact us at the address in the preceding paragraph, or call 1-800-665-1362.

OCTOBER 2012

WAY BEYOND HORSEPOWER The battle for horsepower is over. Now it’s for electronic bragging rights, and it will change everything.

GUIDE HR — WHAT IS REALLY IMPORTANT TO YOU? The good news is, you can have your cake and eat it too. These ideas will help.

GUIDE LIFE — RETIRE EASY Divorce is surging for 58- to 65-year olds, and the experts blame a lack of retirement planning.

SIX PROFIT KILLERS Your financial statements are your best defence for plugging the loss of cash from your operation.

THE RENTAL PARADOX You can blame offshore investors for high land prices, but Gary Schnitkey says to buy a mirror instead.

TAX PLANNING 2012 It’s going to take even more planning to keep the tax man at bay this year.

THE LAND QUESTION It’s a case of damned if you expand at these prices, and maybe more damned if you don’t.

CHEQUE THOSE GRANTS Farms that get more grant money tend to be farms that have a process for going after it.

THE BASICS OF LEGAL TRUSTS A trust may be exactly the right tool for you. Or exactly the wrong one. Here’s how to know.

BOOMS AND BUSTS Grant Devine was Saskatchewn premier when the last boom went bust. We ask him, will it happen again?

EVERY ISSUE 5

MACHINERY GUIDE Small tractors are getting more capable, and harder to choose.

HANSON ACRES Next time, Donna is going to figure out how to turn off the two-way radio before she heads to town.

GUIDE HEALTH With our Marie Berry’s help, there’s a better chance your vision will last a lifetime.

PETUNIA VALLEY The feathers are flying on the Sideroad when the local abattoir gets shut by CFIA rules.

CONTENTS

BUSINESS

country-guide.ca 3

desk EDITORIAL STAFF Editor: Tom Button 12827 Klondyke Line, Ridgetown, ON N0P 2C0 (519) 674-1449 Fax (519) 674-5229 Email: tom.button@fbcpublishing.com Associate Editors: Maggie Van Camp Fax (905) 986-9991 (905) 986-5342 Email: bmvancamp@fbcpublishing.com Gord Gilmour (204) 294-9195 Fax (204) 942-8463 Email: gord.gilmour@fbcpublishing.com Production Editor: Ralph Pearce (226) 448-4351 Email: ralph.pearce@fbcpublishing.com ADVERTISING SALES Lillie Ann Morris (905) 838-2826 Email: lamorris@xplornet.com Cory Bourdeaud’hui Cell (204) 227-5274 (204) 954-1414 Email: cory@fbcpublishing.com Head Office: 1666 Dublin Ave., Winnipeg, MB R3H 0H1 (204) 944-5765 Fax (204) 944-5562

Tom Button is editor of Country Guide magazine

Who’s going to win? Lets tackle the question head on. Is 2012 slowing down the evolution of Canada’s farm sector, or speeding it up? I hear a lot of votes for slowing it down. The argument goes basically like this: Crop prices are great, land prices will be even higher next year, so no one will sell an acre. Everyone is signing on to ride this wave as long as they can. It’s easy enough to create some doubts about this. Start by taking a minute to read Gerald Pilger’s interview with University of Illinois ag economist Gary Schnitkey (The rental paradox, page 23). Schnitkey’s analysis shows today’s land prices aren’t a bubble. Instead, they’re entirely justified by this year’s combination of commodity and financial conditions. If anything, Schnitkey’s research says, our land prices are too low. In other words, today’s young and midcareer farmers have to face the question. Do they really have the opportunity at these prices to build a life-long career. Fewer young farmers will answer yes. I don’t know how we’re going to resolve this in future. Who will buy our land if young farmers don’t? But at these prices, my sense is we’ll see even more of the “doughnut” phenomenon in agriculture, which means farms will either be very small and consumer directed, or very large and commodity based. Don’t forget too that with today’s high land price, many Moms and Dads are thinking twice about gambling that much wealth on the next generation, especially 4 country-guide.ca

when it looks like the job of farming will get even more complex and demanding. Here are two more considerations. First, different farms are getting different levels of benefit out of current crop prices. That can be because of local weather or because of past soil management. Sometimes it’s down to marketing too, but increasingly we suspect it’s because the spread in per-bushel production costs between farms is rapidly swelling. As well, different farms are investing differently. Some are eliminating debt, some are building cash reserves, some are expanding. Without hindsight, we can’t know what mix will prove to be best, but we can be sure that in 10 years we’ll look back and see that 2012 made the difference for some farms, but not others. So my vote is with the side that thinks the evolution of our farms is speeding up. Except… I’ve just received an email from a Saskatchewan farmer. He’s near retirement but no one in the family wants to take over. He wrote asking for leads to find a young person he could mentor, someone who could eventually take over the farm he has given his life to building. It’s that kind of faith in the future, and that kind of belief that there’s something more important than taking the cash and running, that can make nonsense of much of what I’ve written above. How many of these farmers are there? Let me know what you think at tom. button@fbcpublishing.com or give me a call at 519 674-1449.

Advertising Services Co-ordinator: Sharon Komoski (204) 944-5758 Fax (204) 944-5562 Email: ads@fbcpublishing.com Publisher: Bob Willcox Email: bob.willcox@fbcpublishing.com Associate Publisher/Editorial Director: John Morriss Email: john.morriss@fbcpublishing.com Production Director: Shawna Gibson Email: shawna@fbcpublishing.com Director of Sales and Circulation: Lynda Tityk Email: lynda.tityk@fbcpublishing.com Circulation Manager: Heather Anderson Email: heather@fbcpublishing.com Designer: Jenelle Jensen Contents of this publication are copyrighted and may be reproduced only with the permission of the editor. Country Guide, incorporating the Nor’West Farmer and Farm & Home, is published by Farm Business Communications. Head office: Winnipeg, Manitoba. Printed by Transcontinental LGMC. Country Guide is published 12 times per year by Farm Business Communications. Subscription rates in Canada — $33.60 for one year, $51.45 for 2 years (prices include GST). U.S. subscription rate — $35 (U.S. funds). Subscription rate outside Canada and U.S. — $50 per year. Single copies: $3.50. Publications Mail Agreement Number 40069240. We acknowledge the financial support of the Government of Canada through the Canada Periodical Fund of the Department of Canadian Heritage.

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Call toll-free 1-800-665-1362 or email: subscription@fbcpublishing.com U.S. subscribers call 1-204-944-5766 Country Guide is printed with linseed oil-based inks PRINTED IN CANADA Vol. 131 No. 11 Internet address: www.agcanada.com

ISSN 1915-8491 The editors and journalists who write, contribute and provide opinions to Country Guide and Farm Business Communications attempt to provide accurate and useful opinions, information and analysis. However, the editors, journalists, Country Guide and Farm Business Communications, cannot and do not guarantee the accuracy of the information contained in this publication and the editors as well as Country Guide and Farm Business Communications assume no responsibility for any actions or decisions taken by any reader for this publication based on any and all information provided.

October 2012

Machinery

By Ralph Pearce, CG Production Editor

It has always been true on the farm. The little guy who works smart will get a lot more done in a day that the bigger, stronger guy who tries to solve every problem with brute force. Increasingly, the same goes for tractors. Today’s small tractors in the 120- to 220-hp range are amazingly sophisticated. They’re able to take on a growing list of farm jobs, and not only do they do them more cost effectively, they do them faster than a bigger tractor and better too. But be forewarned. What you see below is just a taste. This is a complex category, with overlapping series from multiple manufacturers, and with long lists of tech options. It takes time, effort and an open mind to find your best fit.

John Deere 6D/6R/6030/7030 Series 

different models from 120 to 220 engine horsepower, including the

new 6D series for 2013. Whether you’re heading to the field or making hay for your livestock operation, Deere’s goal is to match your workload with higher efficiency, a quieter ride, a clearer view and a control panel that really is on the right side for getting things done. www.deere.com

Fendt 300, 400 and 700 Series 

Massey Ferguson 6400/7400/7600 Series 

Fendt may be one of the latest arrivals on the North American farming scene, but its designs are attracting more attention. The key word in Fendt’s vocabulary is Vario — as in the manufacturer’s innovative “stepless” technology. It can be found standard across the entire power range, from the 312 Vario (125 engine hp) through the 412 to 415 series (125 to 155 hp) and all the way to the 712 through the 722 (from 130 to 220 hp). As an added bonus with the 700 series, there is the first generation of Fendt’s Varioterminal, an all-in-one control terminal designed for operating efficiency and comfort. www.fendt.com/us

Massey’s 6400 and 7400 series tractors combine power, weight and balance with improved comfort and productivity. Now, Massey has added the 7600 series to provide more choice and more power, from 170 to 225 engine hp. All three series offer the Dyna-6 or one-of-a-kind Dyna-VT transmissions and are designed for clean, economical power, quiet comfortable ride and more torque from more speeds. www.masseyferguson.com

John Deere tractors builds a wide selection of hard-working designs, offering rugged and reliable performance in a range of 15

October 2012

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Challenger MT400B and MT500D Series  The twin goals that Challenger says it is setting for its small tractors are top reliability, and exceeding farmers’ expectations. With the MT400B and MT500D series, the company believes it is achieving those goals. The key to Challenger’s reliability in two series and across five models can be summed up in one word, Caterpillar, with a record of reliability and power. The MT475B is actually the latest addition to the 400 series, providing energy efficiency and decreased noise levels. www.challenger-ag.us

New Holland T6000, T6, TS6, T7 Series  Flexibility and value are the buzzwords at New Holland, with its T6000, T6, TS6 and T7 series tractors in the 120 to 220 engine horsepower range. New Holland’s engineers are aiming for power, control and flexibility, no matter which model you choose. The T7 series tractors for example combine efficiency with reduced engine emissions to curb your operating costs, supported by the the Sidewinder II control armrest for fingertip management of all crucial functions. www.newholland.na

Versatile 190 and 220  When it comes to finding performance in the field, Versatile simplifies the process with two models and a brand name that’s hard to beat in engine designs. The 190 and 220 Versatile tractors boast the long-standing Cummins QSB 6.7-litre engine, providing top-rated performance and dependability and excellent fuel efficiency. The 190 and 220 also offer ease of operation including a transmission featuring push-button powershift capacity in every range. www.versatile-ag.com

Case IH Maxxum, Puma and Magnum Series

Valtra N and T Series

Case IH fills our 120- to 220-hp class with three different series. The Maxxum series with 120, 125 and 140 hp leads the way, with the Puma series 130-, 145- and 160-hp models next, and finally the Magnum series, boasting solid power in 180-, 190- and 210-hp models. They may have different logos, but all are engineered to meet tough quality and performance standards, combining innovation with operator comfort, efficiency and engine performance. www.caseih.com

It’s one thing for a company to sell you a tractor. It’s another when they’ll even let you see yours being built. That openness is one of the many hallmarks of Valtra, and what happens in the factory translates very nicely to the field, with tractors designed to be balanced and exceptionally functional. The new T series tractors offer a range of three transmission options, from Classic to HiTech to Advance, plus a wide array of power enhancements and operator comfort. The N series provides excellent weight distribution, a tight turning radius and common rail engines for higher torque, low emissions and solid fuel efficiency. www.valtra.us

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October 2012

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opinion

Big Idea

Booms and busts Saskatchewan's former premier Grant Devine is an optimist, but he also believes now is the time to prepare for trouble that may be hiding inside the commodity boom Nobody in Canada may understand farm cycles better than Grant Devine, former Saskatchewan premier. With a PhD from Ohio State, the Saskatchewan native taught ag economics at the University of Saskatchewan in the late 1970s. It was a time when prices soared, and farm pundits predicted the boom would never end. Sound familiar? Then Devine was elected premier in 1982 just as that boom went flat, and instead of rolling in the good times, it was his job simply to help agriculture survive. Devine recently took time to talk to Country Guide about the opportunities and perils of resource-based economies, and

Country Guide: You and I both lived in Saskatchewan during the 1980s, a time of real hardships and challenges. For our readers across the country, can you tell us what things looked like when you took office? Grant Devine: It was a terrible time for agriculture and the economy generally. We were seeing interest rates anywhere from 18 to 23 per cent. To put it in context, imagine the current drought in the U.S. accompanied by 21 per cent interest rates and you can get the feel for what it was like. The governments that had held power at the time, for whatever reason, were preoccupied with things like repatriating the constitution, whereas we thought, as they say, “It’s the economy, stupid.” We struggled with that right through the 1980s — relatively high interest rates, low grain prices and of course drought through much of the middle decade. When we were elected, people were saying to us, “look, we know you’re not the federal government, but you’ve got to step in and help us. You’ve got to get between us and the banks.” And we did. We said, “A farmer is not going to pay more than 8.5 per cent, and homeowners no more than 13 per cent. We’ve got your back for the difference.” I’m very proud of that. It was a policy that made a difference, that saved thousands of farms from failure. I still often get a phone call from someone to say “Thanks, you saved my farm in the ’80s and today we’re doing well,” which is quite a feeling. 8 country-guide.ca

what can be done now to prepare for the future. CG: We’ve seen quite a run-up in the agricultural economy in recent years — in fact a real bull run in commodities generally. That’s been a real benefit to Canada generally, and Saskatchewan particularly. Do you see any risk of a repeat of the same pattern reasserting itself — the boom being followed by a bust? GD: Well, that really is the $64,000 question, isn’t it? We’ve certainly seen a lot of activity in the economy of the region over the past 10 years or so, and some real growth in the agriculture sector — better grain prices and beef prices and potash and fertilizer prices. That has definitely been capitalized into things like land prices to some degree. As to how that will look in the future, there are really a couple of things you have to consider. Here’s what’s going on on the demand side of the equation, where I think we are looking at some quite encouraging things underpinning the industry overall. We’ve definitely seen growth in demand from new markets like China and India, primarily in the form of greater demand for animal protein, which of course requires grain to produce it. I don’t think that once people have had that in their diets and developed a taste for it, they’ll readily go back to a diet that’s primarily starches for their families, so I actually view that demand as quite stable. I don’t think that demand is going anywhere. Ethanol is a bit more complex. It’s more political, and while the mandates remain the subsidies are gradually disappearing. october 2012

Photo credit: Leader Post

By Gord Gilmour, CG Associate Editor

opinion

I think probably what will happen is that ethanol will gradually be reduced as the U.S. pursues energy independence through things like the use of much more natural gas for transportation. They view energy independence as very important and it’s something I fully expect them to pursue regardless who wins the presidential election this fall. In terms of what it means for corn demand and therefore grain prices generally, I expect little effect because the withdrawal will be so gradual and the strong demand for food remains. On the other side of the equation are some of the elements that can put production at risk — drought for example. This is a very important point that’s often overlooked. Even with crop insurance and other income programs, it doesn’t take more than a couple of production failures and you can be in trouble, especially after a prolonged period where those investments have been made and the higher prices have been capitalized into things like land values. There’s also the issue of trade irritants, especially as the Wheat Board has been deregulated and market opportunities open up. Be aware of the design of the U.S. political system, where every state gets two federal senators regardless population So you can have a senator like Max Baucus, a Democrat from Montana, who can play a lot of jiggerypokery with agriculture trade with Canada, as we’ve seen with beef for example. CG: It sounds like you’re fairly optimistic — not surprising, since your government was noted for its optimism — but I don’t hear you saying it's going to be unending wine and roses either. Is that a fair summary? GD: I think so, and I also think that the questions we’re considering here are important ones, and now is the time to think about them. I think now is the time that government, universities, industry and others can do the work that will help farmers in the future. To me one of the most important things we could be doing is lowering our cost of production and transportation. We export things for a living here in Western Canada, and to me the use of october 2012

natural gas in transportation is the way to do that. It’s very cheap right now, it’s plentiful throughout North America and it has very clear environmental benefits. The whole country should be doing this, because it’s going to determine if we’re competitive or not in the future, especially if the U.S. does do this. We’re at a real chicken-and-egg stage right now — do we build the fuelling infrastructure now or do we wait until we have the trucks on the road? We’ve been here before, when we converted a lot of our commercial transportation to diesel fuel in the 1960s and ’70s. We can do it again, and I think we’re about to see a concerted push. Are we going to see natural-gas-powered tractors? I think probably, and I think we’re certainly going to see our crops moving on trucks and trains powered by natural gas. We see this transition already with SaskEnergy’s partnership with CanElson Drilling in Weyburn, Sask., replacing diesel with natural gas in their industrial operations. I also think we need to be doing what we can to give producers the tools they need to protect themselves from rising costs, such as the price of nitrogen. That might mean better tools to manage those risks, or even just a better understanding of how investing in some of these companies might enable both the protection from rising input prices and better diversification of their family financial portfolios. We may also want to do more to encourage more production of nitrogen here in Saskatchewan. CG: You’re talking about the plant at Belle Plaine, Sask. that your government was instrumental in building. It was very controversial at the time, but now I think even most of your critics concede it was a good thing. Do you see the need for more of this? GD: I do see the need for more nitrogen production, but I’m not sure I see as much need for government involvement in funding it. I think it’s more a case of encouraging the companies. I’ve told them, they’re likely never to see an opportunity like this again for a long time. There are also basic production ques-

tions that can pay tremendous dividends. Look at our dryland agriculture systems here in Saskatchewan and how they’ve changed as we’ve moved to continuous cropping and conservation tillage. That alone has eliminated 30 million or so acres of summerfallow a year, and conserves both soil and moisture. I think we could do other basic research into things like drought-tolerant crops and grazing systems that would help farmers avoid production losses and make them more competitive. For example, there should be more research into higher-yielding wheat varieties. We’ve seen corn go from 50 bushels an acre to over 200, while wheat has remained relatively stagnant in yield. Yield research isn’t just about higher yields when conditions are right. The corn yield during this season's drought averaged 125 bushels an acre and without those improvements it’s estimated yields would have been around 88 bushels. We are beginning to see more focus on this, as illustrated by recent funding decisions by the federal and provincial governments and the university to improve wheat yields. CG: So what do good decisions look like when it comes to preparing for the future in a booming resource and agricultural economy? GD: It comes down to doing the research and education now that can make farmers more competitive and resilient in the future. We need to ensure that we remain competitive no matter what other jurisdictions do, and we need to make the judicious investments to ensure that happens. We also need to do everything we can to ensure the free and open flow of trade in agricultural products. One of our fundamental challenges, as the late Peter Lougheed noted, is going to be balancing energy security and production with managing environmental emissions and concerns. To me a logical step in that direction is greater deployment of natural gas, which is both economically and environmentally beneficial. This isn’t just a Prairie issue either, our industrial heartland in Central Canada could benefit as well and should look at the long term benefits of it. CG country-guide.ca 9

doIng moRE. usIng lEss.

A series on being ready for the farming challenges ahead

Efficiency — producing more food from the same land base A UK Government report says dramatic improvements are possible using existing technology

problem clear. “Without change, the global food system will continue to degrade the environment and compromise the world’s capacity to produce food in the future, as well as contributing to climate change and the destruction of biodiversity. There are widespread problems with soil loss due to erosion, loss of soil fertility, salination and other forms of degradation; rates of water extraction for irrigation are exceeding rates of replenishment in many places; over-fishing is a widespread concern; and there is heavy reliance on fossil fuel-derived energy for synthesis of nitrogen fertilizers and pesticides,” they say in the introduction. However, the report’s authors do not only lay out problems — they also lay out solutions for increasing the efficiency of production on the current land base. While the report makes a strong case for research, including into appropriate use of new variety-development

t’s said so often that it’s a cliché, but that doesn’t make it any less valid. When it comes to land, “They just aren’t making any more.” In other words, to feed an evergrowing demand for food and fuel, we need to become more efficient, growing more food on the same land base. But to simply say “They aren’t making any more” understates the problem, which is that much of the land used for crop production should never have been opened to cultivation, at least of the conventional type, or should have been left in its natural state or used for livestock production. In 2011, the UK Government Office For Science issued a major report titled “The Future of Food and Farming: Challenges and choices for global sustainability.” While preventing a blueprint for solutions to the challenge, the report’s authors make the

Percentage change (of total agricultural and forest/wood area) in forest/wood and agricultural areas from 1990 to 2007, globally and in different world regions Global Nor th America Latin America & Caribbean Europe Africa Asia Oceania European Union Former Soviet Union Northw estern Europe UK sub-Saharan Africa Nile catchment China India Brazil -20

-10

Forest and wood %

Agricultural land %

Since 1990, world area for food production has increased by only three per cent, with some of that coming from forest that should have been left intact. Source: DR7B. Data sourced from FAOSTAT (2010)

caseih.com

technologies, it points out that significant improvements are possible by applying existing knowledge and technology. It says this could double or triple yields in many parts of Africa and double them in the former Soviet Union. That’s simple in principle, but less so in practice. The report suggests these steps: • Revitalizing extension services to increase the skills and knowledge base of food producers (often women). • Improving the functioning of markets and providing market access, particularly in low-income countries. • Strengthening rights to land and natural resources such as water, fisheries and forests. • Improved infrastructure, such as roads, railways, ports, storage and communication.

Reducing waste Another way of improving efficiency in agriculture is simply to make better use of what is already being produced. In low-income countries, waste is greatest before it reaches the consumer due to insect and mould damage from inadequate harvest and storage methods, as well as poor marketing systems. In developed economies, waste results from rejection of “nonpremium” but otherwise nutritious produce, and because large amounts are simply thrown away in homes and restaurants. The Science Office report says estimates of the amount of food wasted before or after it reaches the consumer range from 30 per cent to as high as 50 per cent. It says that halving waste of 30 per cent by 2050 would increase food availability by the equivalent of 25 per cent of today’s production. In summary, increasing agricultural efficiency is a big challenge, but the good news is that if applied properly, we already have the means to meet it.

Case IH Advanced Farming Systems is dedicated to helping producers be ready. AFS delivers an integrated, less complex precision farming solution, built right in to our equipment using a single display across machines. Built on open architecture, AFS can interface with your existing equipment, no matter what color it is. And our specialists in the field, AFS Support Center engineers and AFS Academy trainers, are there to help you maximize your operationâ&#x20AC;&#x2122;s potential and keep you rolling 24/7/365. Visit an AFS Certified Dealer or go to caseih.com/AFS to learn more.

be ready.

Management

Cheque those grants It isn’t blind luck. Farms that get more grant money tend to be farms that work hard (and smart) at going after it

t’s ridiculous how much time this stuff takes,” dairy farmer Dawn Wynand tells me. “I’ve probably got 50 to 70 hours wrapped up in that [application], easy.” In other words, if you think that farmers like Dawn and John Wynand are lucky people who have a knack for walking into free money, it’s time to think again. For the Wynands, being aware of the government grants that are out there and then learning how to increase their odds of getting their slice of that money are core business strategies. Having started with a small operation, the Wynands have transformed their dairy farm at Cardinal, Ont. into a state-of-the-art rotary facility where they now milk roughly 230 cows, up from their original 40. To make that growth possible, the Wynands had to ask for some help along the way. Dawn denies they’re experts, but admits she’s learned a few things after successfully acquiring funding for a new barn through Ontario’s Environmental Farm Plan in 2003 and then $25,000 from Ontario’s Food Safety and Traceability Initiative more recently. One of the big learnings is that the 12 country-guide.ca

learning process itself isn’t a quick one. It takes patience and perseverance to be successful. To explain, Dawn gives me a breakdown of all the time-consuming jobs that go into their grant applications. First came the research into program eligibility, and then the time required to enrol. Dawn also spent at least one day attending a workshop for each program, traveling nearly 200 km in one case. Completing the applications took several additional hours and then she delivered her application in person, waiting almost three and a half hours to do so.

Her efforts may have seemed excessive at the time, but she’d been warned that the last batch of funding was about to run out and made sure she was the first one waiting in the parking lot the morning the office opened to accept applications. “It’s all about being at the right place at the right time,” says Dawn. “It’s amazing how much you have to just keep your eyes and ears open.” Dawn also can’t over-emphasize the value of networking when it comes to Continued on page 14 october 2012

Photo credit: Jacqueline Milner, Image-ine Photography

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Management

Continued from page 12

funding programs. She talks to a lot of neighbours and keeps in touch with provincial specialists to stay up to date. With four kids actively involved in the farm and each working through post-secondary school, Dawn says she feels they have an advantage over farms where labour is stretched even tighter. If you’re responsible for so much of the daily farm operation, the cost of sitting in front of a computer or attending a workshop for a day can get too high. With so many hands available on their farm, Dawn says there’s more opportunity for someone to be spared sometimes. Plus, with all the extra eyes and ears, they’re bound to catch and retain more

14 country-guide.ca

information than a single person can ever hope to hold on their own. Dwayne Rogness, a rural extension specialist, says he sees a clear advantage on farms where there are more people involved. But Rogness isn’t working in Ontario. He’s based in Lethbridge, Alta., where he sees part of his job as being an excellent source of information on federal and provincial funding programs, especially those dealing with environmental farm plans and applications for improved nutrientmanagement tools, since Lethbridge boasts some of the highest concentrations of livestock operations in the country. Rogness says it’s always the progressive farmers who come to him first, and they get the most advantage out of any program. Otherwise, says Rogness, “they’re not going to

october 2012

Management

be getting the funding because they want to sit half on the fence and see if it’s working. You want to be on the leading edge, not the bleeding edge.” Rogness is a big believer in sitting at a farmer’s kitchen table in order to offer the best help, but acknowleges that many of the federal and provincial administrators with these programs aren’t able to dedicate the same face time to farmers — and even he has a tough time keeping everyone in his jurisdiction current. Rogness puts out four newsletters a year to 1,100 producers, runs workshops and tours, sits on six different agriculture committees, and is part of a watershed council that puts out even more messaging. Even with all of that, he says, he’s still challenged to keep farmers advised of program modifications. “All these programs, they all change and we’re evolving always,” says Rogness. “You really have to find somebody who has the energy that can stay up to date with that stuff, and you can’t get discouraged.” Dawn Wynyard agrees with Rogness that when it comes to searching for suitable grant programming, perseverance pays. No one gets the full amount they ask for every time they apply to a program. However, that doesn’t mean the time spent on the application has to be a complete waste. Re-apply at another stage of the project, Rogness advises, or just reapply for the next round outright if you have to. “I’m an eternal optimist,” Rogness laughs. “I believe if a program runs out of funding this round, there will be more coming, just wait.” Both also insist it’s important to ask questions and keep asking questions until you get the answer you’re looking for. Glenda Taylor, assistant director of the financial guarantee programs division at Agriculture and Agri-Food Canada, says there are lots of ways to ask for information even when you can’t get face to face with a program administrator. Every federal program has a toll-free number for farmers to call and october 2012

generic email addresses for info requests. Taylor says these systems at the very least can help to maintain the face to face encounters she does get to have with farmers. “We go to a variety of trade shows that change every year, an equal number of shows out East and out West,” says Taylor. “Nothing beats face to face.” Taylor is seeing a lot more movement towards web-based applications and search tools so there is work being done to help streamline those processes for farmers. Currently in the works is an informatics tool called AgPal which compiles information on assistance programs from several levels of government for the ag industry. Many communications are directed to grower associations as well to help get the word out to farmers through those channels since commodity groups are often close enough to the farm level that they can provide the best and most knowledgeable service to the producer. These organizations can help farmers eliminate programs they might be excluded from such as those which are not accessible to producers in supply-managed areas. For the Wynands, one of the best side effects of tracking grant programs has been the increased emphasis put on making time to learn. Dawn particularly enjoys the forum styled programs because these give farmers the opportunity to not only learn from experts, but also from each other. Each time she says she learns something about new or better ways of farming and gets another chance to grow and improve. At the end of the day she says no amount of grant money can equal the value she gets from those lessons. “As farmers, we’re constantly getting bombarded with information and you get information overload,” says Dawn. “People who are top managers know how much they don’t know, and that there is information out there. People just need time to look at it.” CG country-guide.ca 15

OC TOBER 2012

Take a New Approach to Farm Business Management

TAKING CARE OF BUSINESS Gerald Renkema owns a hatching egg operation outside of Baden, Ontario. With three million eggs, 36,000 replacement birds, and 250 acres of crops to manage each year, taking care of business is a full time occupation for this farmer and qualified Certified Management Accountant. CMA training helped to give Renkema the vision and drive to leave the corporate world and enter farming seven years ago. But it doesn’t make him any different from other farmers, he says: “For any farm business, understanding the cost of production and managing cash flow are the top priorities. Cost of production will tell you if have a profitable business. Once you know that, cash flow is the vehicle that will get you there. You

have to know when and where the money is coming and going from so that you can prepare for the short term.” Renkema’s biggest money management challenge came early. “When I started farming I didn’t have a system in place to take the bumps out of the cash flow,” he says. “I was at a point where money going out was exceeding what was coming in on a weekly basis, leaving me scrambling to find ways to fix the problem. It was busy work that created a great deal of stress.” To resolve the issue, he set up a floating line of credit with the bank which automatically replenished the chequing account when funds reached a

predetermined level. This established a short term loan that allowed the operation to function on a week to week basis without having to carry a lot of cash. It also took away the stress of uneven cash flow. His biggest ‘aha’ moment came some time later when he discovered that low cash levels actually motivate him. These days Renkema purposely keeps his cash to a minimum. “When there is too much cash in the bank, you feel over confident and don’t fight hard enough to make the business successful. Now when I’m flirting with negative weekly cash flows, it encourages me to look for ways to improve – to find ways to keep the cash working. It’s psychological.” Where business planning is concerned, Renkema says that it is important to have things written down that challenge you and push you to succeed. He has a formal business plan that is reviewed annually to establish targets for the coming year and beyond. He uses the document to review achievements against goals from the previous year. But creating a plan it is not something he does in isolation. “I’m motivated by talking to people about my business. I frequently meet with my bank advisor to talk about plans for expanding the business and paying down debt. Expressing my thoughts to another person holds me accountable and committed to follow through.” It is important to have a good relationship with the bank even if things are not going as well as anticipated, he adds. “They understand where you are coming from and can be compassionate in helping you get through the tough years. When the purchase of an additional farm put a dent in my cash flow a couple of years ago, the bank helped to design a financial structure for loans and repayment so that the purchase could be closed with minimal stress.”

MOVING TO THE NEXT LEVEL In addition to managing his farm business, Renkema is chair of the board for the Agricultural Management Institute (AMI). At AMI he uses his skills to help spearhead programs that benefit producers, including himself: He assisted in the development of the highly successful Grow Your Farm Profits (GYFP) initiative; and was the driving force behind the new Advanced Farm

Manager (AFM) program launched as a pilot project this fall. Growing Your Farm Profits is a popular method for farmers to initiate the process of creating a business plan - more than 3000 Ontario farmers have participated since its launch in 2009. The Advanced Farm Manager program continues where GYFP leaves off, offering a practical approach that can be applied directly to each participant’s farm. Both of these programs are delivered by the Ontario Soil and Crop Improvement Association (OSCIA) with funding support from AMI. Rob Hannam and his team at Synthesis Agri-food Network worked with AMI and OSCIA to develop the Advanced Farm Manager program and bring it to life. “Farm business management is a skill to continually develop so that farms can thrive and prosper,” he says. “Evaluating financial and business performance are the keys to maintaining a sustainable farm operation now and into the future.” Participants learn how to think strategically and learn specific business management skills in several areas. In particular, money management workshops help provide a better understanding of financial statements and reports. Whether a producer is looking to grow and expand, remain the same size, or focus on niche markets, participating in the AFM program can help to improve efficiency, performance and profits, Hannam says. “The AFM program fills a void in Ontario allowing farmers to move their business to the next level,” he adds. “Once the pilot project is complete, a key component of our evaluation will be feedback from participants. This will allow us to refine the program for annual delivery by OSCIA beginning in 2013.” To learn more about how the Grow Your Own Profits and Advanced Farm Manager programs can help you manage your operation visit www.ontariosoilcrop.org. To learn more about how AMI can help you take a new approach to your farm business management visit takeanewapproach.ca, email ami@takeanewapproach.ca, or call (519) 822-6618.

business

The land question

Damned if you buy, and perhaps even more damned if you don’t By Anne Lazurko, contributing editor

18 country-guide.ca

The question is how On Jeff Simpson’s farm, the first wave of expansion has happened through renting. Even that wasn’t easy, and Simpson found he had to put in a lot of time and energy to ensure he found the land he needs. “You can’t just sit in your kitchen and complain. You have to step out and do something about it,” Simpson says. And he did. For months, Simpson and his father scoured every newspaper and website and they contacted real estate agencies to keep track of land rental and sales listings. Simpson put in bids on anything that looked promising. “I won some and I lost some, but I bid on double what I ended up with,” he says. The legwork was vital to acquiring the land he needed. Simpson farms near Ruthilda in west central Saskatchewan and in the past year has more than doubled his seeded acres from 1,200 to 3,000, and next year he will rent his Dad’s land, bringing him up to 5,000 acres. Father and son each have their own incorporated farm, with an agreed division of equipment. Simpson says his father approaches renting his land to his son as an RRSP coming back to him. (Incidentally this is exactly how some land investment funds work. See AgCapita sidebar.) Living in Saskatoon with wife Angela and three children, the 42-year old Simpson realized his original 1,200 acres would meet neither the farm’s operating needs nor his family’s living requirements. “The margin of adequate dollars was slipping. You can’t have a bumper crop on every field in every year,” he says. Continued on page 20

Photo credit: David stobbe

he talk in all our farm kitchens this fall swirls increasingly around the price of land and its availability, especially in homes where the talk is of farm expansion. A new ReMax report just adds more heat, saying prices for high-end farmland in Saskatchewan and central Alberta are up 20 to 25 per cent over last year, although there’s price pressure all across the country. Can we really afford these prices? But can we afford not to buy? Some farmers want to point fingers, others are excited by the robust market, and still others have simply been caught off guard by the whole thing. In Saskatchewan the average price is now $1,200 to $1,800 per acre, and much higher in high-demand areas. In Alberta it’s $2,000 to $4,500 per acre on non-irrigated land. Those sound like Ontario prices from not so many years ago, and they make us all shake our heads in disbelief. Could Ontario’s $10,000 to $15,000 an acre really be a harbinger of what’s to come in other parts of the country too? Even at today’s prices, land is a bargain, according to many. That’s one of the reasons non-farmer investments in Canadian farmland are increasing, they say. There’s no doubt it’s a seller’s market, and many small farmers feel they’re being left behind because they’d have to risk everything to get in on the bidding. And even then they may well fall short. So if you’re hoping to expand your land base in a hot land market, the obvious question is how.

October 2012

business

“ Is there a point to going to 7,000 acres?” Jeff Simpson wonders

October 2012

country-guide.ca 19

BUSINESS Continued from page 19 Most of his expanded acres were acquired through three- to five-year rental agreements with a small amount purchased. His rents are quite variable with a $35 spread. Many of those expanded acres are at a distance from the home farm, some as far as 65 miles. Though he has concerns about farming land so far out, he feels it is justified because he was able to get it for a good price and the diversity of land type and weather patterns help to spread his risk. He now farms some land which has never seen drought, some heavy clay, and some prone to hail.

“I found land where it wasn’t a hotbed of sales, but it’s good land. So then I had to figure out how to go 65 miles,” Simpson says. “I schemed and thought about it for so long, and discovered trailers are the answer.” Trailers might get his equipment there, but he says he’ll need augers to leave at the bins in those fields. He’s also seriously considering the dilemma many farmers face: One big seeder? One big combine? Or stick with the older, largely paid-for equipment? Can I find labour to run everything? Do I lease or buy? You can almost hear the gears grinding in his head as he asks these questions aloud.

Simpson is confident he’ll find the answers because he says growing to 5,000 acres gives him the breathing room to find efficiencies in the operation while still being able to meet the needs of his family. He also feels that his expanded operation will be able to more quickly respond if new scenarios to purchase or rent land present themselves. “It all comes down to finances,” Simpson says. “You can overpay big time if you can put down 50 per cent, but you’ve got to finance half that inflated price. You have to be picky when you do that.” Continued on page 22

WHEN YOU’RE HOT, YOU’RE HOT Canada’s farmland is a hot commodity. With investors and speculators plunging headlong into the market, farmers have a sense of foundering, struggling to understand how they’ll find land to expand their operations, and sometimes looking for someone to blame. In Stephen Johnston’s mind, you can be sure, there is no blame, only the market. Johnston is founding partner with AgCapita, a land investment fund out of Calgary, and he feels ownership arguments are moot. “The overwhelming number of farmland transactions are still farmer to farmer,” he says. “We are a tiny sliver of the market.” AgCapita is an RRSP-eligible investment fund operating since 2007. The fund controls 34,000 acres thus far and will increase that by 15,000 acres by the next RRSP season. Investors are Canadian residents investing in an RRSP. It is an all equity fund which carries no debt and so is a low-risk investment, according to Johnston. But why is Prairie farmland in particular such a hot commodity, and who is buying? Johnston says both investors and farmers alike see Prairie farmland as a good investment, and Saskatchewan land as particularly attractive, because while it has appreciated at record rates over the past few years, it is still at a significant discount. “The outsized appreciation of the past three years is only

20 country-guide.ca

abnormal in the sense that there’s been 15 years of huge discounts,” he says. “That’s the driver of price support.” Johnston expects it will take a few years before prices become comparable to Alberta, at which point things might level off. “Our average investor is a Canadian who wants to put $10,000 to $20,000 of their RRSP funds into farmland,” Johnston says. “They see it as a better option because at least when they buy land they have the land compared to the stock markets of the last five to 10 years.” “Investors in this market are not speculators, whether they be farmers or investment funds. Western farmers are not heavily leveraged, which might otherwise cause concern, and farm prices are historically not volatile,” Johnston says. They are also the reasons why Johnston doesn’t see a lot of land being dumped on the market if prices, interest rates, or stock markets change. If RRSP-style investment funds are Canadian, what of the “Chinese investor” rumours that seem to abound amongst farmers dis-

gruntled at high prices and low availability of land? Johnston feels they are mostly that, rumours. The provinces relaxed their ownership regulations, but federal legislation restricts land ownership to Canadian citizens. (It should be said, there are growing concerns over the number of “exemptions” allowed). Overlapping real estate, money laundering, farmland security and land titles regulations ensure compliance, says Johnston.

Design criteria The AgCapita fund buys land and then rents it to producers. Rents are cash, 100 per cent up front on three- to five-year terms with an escalating rate over time. After five years in the business, Johnston says they typically lease back to the same farmer. The fund has a farm management branch which monitors farm practices on the land they own. As part of the lease agreement, reports are required on each quarter as to crops, yields, chemicals applied, etc. Field men check on the condition of the land as required. “We maintain that right as any landlord does,” Johnston says, adding they work with farmers they trust. “Trust, but verify.” Their renters are producers farming anywhere from 2,000 to 10,000 acres. While Johnston says the size of the farm doesn’t matter, he admits a larger farm might be able to outbid a smaller one. “But it is not a design criteria.”

OCTOBER 2012

business Continued from page 20

That inflated price Indeed. According to AgriTrend farm business coach Kim Gerencser, producers these days need a bulletproof balance sheet when considering investments in land. It’s because of the cyclical nature of commodity prices and weather patterns. “You put yourself at incredible risk if you don’t appreciate that there are cycles in this industry,” Gerencser says. Producers can prepare by forecasting three, five and even 10 years out and creating business plans using conservative numbers on yields and prices to ensure long-term serviceability of debt. Gerencser cites numbers from the 2011 farm census indicating that farmers carried $2 billion in interest and expenses on operating credit last year. A two per cent increase in Bank of Canada prime would demand an additional $400 million to service debt, money that would no longer be available for farm expenses and living needs. In other words, if a deal only makes sense when things are rosy, it’s probably not one to pursue. In order to expand successfully, a farming operation must know its fixed costs, says Gerenscer. Actually, make that its “stepped” fixed costs, which spell out the difference in per-bushel and per-acre fixed costs at different yield levels. And on top of that, you need to be absolutely on top of your cash cost of production. If you are expanding and growing your land base, Gerencser explains, you need to define cost and payback. Gerencser also advocates cost per unit of production modelling as a means to good decision making. “Every business that produces something can tell you precisely what it cost to produce that widget,” he says. “How many farms can tell you accurately how much it costs to produce that tonne of canola or bushel of wheat?” His tone implies there are not enough of them. The technology and know-how are out there. AgriTrend offers field map calculations down to one square acre to create grids with a profitability scale on each acre, Gerencser says. If a farm has accurate calculations it can then determine a financially prudent amount to spend to buy or rent land. But it is also true that other factors come into play in the decision to buy or rent land. These all lead into even larger 22 country-guide.ca

questions, including succession requirements, proximity to the home farm, and available capital. “A critical question that needs to be asked is how and why a farm is acquiring land,” Gerencser says. Using the proximity argument, he reminds producers to be careful their response isn’t an emotional one. “You have to make a business case for it,” Gerencser says. “There could come a point in time that we have to decide if we are in the farming business or the investment business. The investment might not be feasible for the farming operation, so renting becomes the only way to go.” With the flurry of investment funds and speculators coming to play in the Canadian land market, that might be sage advice. Dean Klippenstine takes it one step further. He believes that calculations of farm profitability will eventually ignore the ownership of land. He cites the case of wealthy investors paying huge amounts for pasture in the Alberta foothills. Their investment has nothing to do with farm profitability, but with the fact it’s a safe and comfortable investment. Klippenstine is an ag specialist with MNP in Regina. Convinced thatland ownership will become increasingly detached from production, he sees incremental expansion happening through rental agreements. In his mind, what is more important than land ownership is the ability to manage the land you have. “If a farm expands beyond its management capability to produce a crop, it will likely fail,” Klippenstine says. “We do not have the luxury of being less than perfect in grain production, because the last 15 to 20 per cent of yield is profit.” If a 4,000-acre farm expands to 5,000 and those acres are beyond the farm’s management capability, it’s not only the balance sheet for the last 1,000 acres that is affected, but the entire operation, he says. “The way to test if a farm expansion has been successful is to look at its crops. Farms that have systems and management in place will have success.” “The competitive advantage of farms will be their ability to produce,” Klippenstine says. Too many farmers expand their land base and then cut back on the “groceries.” They need to aim for maximum production whether it’s $4 or $13 canola. Sometimes land purchases come down to availability of cash. If people have enough wealth they can buy over-

priced land as long as it doesn’t affect their capital, Klippenstine says. Not that he’d recommend it. Two sections of land at more than $2,000 per acre on the Regina plains amount to a $2.6 million investment. While 1,280 acres isn’t a huge expansion in production, it is a huge investment. Perhaps this is why Klippenstine doubts the capability of very large farms to maintain themselves. “You look at a 20,000-acre package. The likelihood of their success is very small,” he says. “But we are getting better at it. There are more of them.” The recent sale of 40,000 leased and owned acres by Saskatchewan’s Wigmore Farms to Broadacre Farms might confirm Klippenstine’s doubts. Flooding caused production problems the past two years and a subsequent drop in world lentil prices forced Wigmore’s hand. Broadacre now sits at 75,000 acres with about a third owned. While Wigmore was once hailed as the farm of the future, its demise might point to the problems of a rapid scale up. Back on Jeff Simpson’s farm, he’s planning ahead for next year, excited at the prospect of farming 5,000 acres and that breathing room he talks about. Will he expand further? Simpson is very conscious of understanding his motivations for expansion and what it will mean to the rest of his operation. “Is there a point of going to 7,000 acres?” he asks. At 5,000 he hasn’t had to change much in terms of equipment or labour needs. At 7,000 these things become critical, he says. He’s also conscious of the economic factors around him. He sees investors in his area with 15 quarters of land and long-term renters, but he doesn’t see those investors hanging onto that land if commodity prices drop or interest rates go up, resulting in lower land rents. “It could all get dumped in a guy’s lap in a big hurry. In the back of my mind I know we need to be prepared for that.” Kim Gerencser echoes Simpson’s thoughts. “What happens when grain prices drop or interest rates rise and the investment firms can no longer get that return? Will the market take care of it?” he asks. “No one can answer that for me. How will these factors affect us at the farmgate? Who is going to be ready to buy if everyone is leveraged to the eyeballs and can’t do it when the time comes?” He answers his own question. It involves that bullet-proof balance sheet. CG October 2012

management

The rental paradox It turns out those soaring farmland prices may actually be a true reflection of the land’s real productive value. Here’s why By Gerald Pilger armers who have been hoping to expand their farm operations are viewing the rapidly rising farmland prices and land rental rates with a mixture of astonishment, despair, frustration, and anger. It’s great to see our assets appreciate, but how can anyone afford to grow crops on such expensive land? Nor does there seem to be any end in sight, at least at first glance. It’s been over a decade since land values have dropped, and according to Farm Credit Canada (FCC), even that was by a modest 0.6 per cent in 2000. Instead, says the FCC in its Spring 2012 Farmland Values Report, “The average value of Canadian farmland increased 6.9 per cent during the second half of 2011, following average increases of 7.4 per cent and 2.1 per cent in the previous two reporting periods.” Other surveys are finding similar results. The recently released RE/MAX Market Trends Report, Farm Edition 2012 says farmland in central Alberta, for example, has jumped 20 to 25 per cent over the past year and now averages $3,300 per acre. This documented inflation of land values has many expansion minded farmers looking for someone to blame, not only for skyrocketing land prices but also for the corresponding rise in farmland rental rates. Increasingly, they are pointing their finger variously at foreign investors (European and Chinese), farmland investment companies, corporate farming interests, and the oil and gas industry. However, the real culprit may be much closer to home. Contrary to the belief by most farmers that rising land prices push farmland rental rates up, Gary Schnitkey, farm management specialist at the University of Illinois says “the relationship goes the other way.” Rental rates push land prices up, says Schnitkey. As returns to agriculture go up, farmers bid up the price of land rents, and it is these increases in land rents that form a foundation for the rapidly escalating value of farmland. In other words, farmers driving up rental rates as Continued on page 24 october 2012

Offshore investors and non-farm funds get blamed for soaring land prices, but Illinois economist Gary Schnitkey says it’s actually farmers who are pouring fuel on the fire. It’s all good, he adds, unless interest rates climb country-guide.ca 23

MANAGEMENT Continued from page 23 they compete for land may be the real reason land prices are soaring. Farmland rental rates reflect the productive value of the land. Rent in effect is the amount a farmer is willing to pay to cover all farming expenses and still have a reasonable expectation of profit at the end of the day. Due to the differing financial positions of farmers and their differing production costs, the maximum rental rate any individual farmer can afford to pay and still make a profit varies based on the specifics of each operation. But it is the willingness of farmers to pay higher rents that is in large part driving land prices higher. Amazingly, current farmland prices aren’t out of line when evaluated on the basis of rental rates farmers are now willingly paying.

Still bargain priced In August, Schnitkey compared the market value and capitalized value of Illinois farmland. (Capitalized value in his calculations is cash rent divided by the 10-year treasury rate). What he found is that in the 23 years from 1987 to 2010, prices and capitalized values followed each other closely. The inference is that farmland prices do in fact closely follow changes in farmland returns and interest rates, and Schnitkey concluded that current Illinois farmland prices are supported by current cash rental rates and interest levels. Further, he concluded that this is still true, even in his area where farmland prices have jumped 17 per cent over the past year to a new average of $6,800 per acre, and where the average rental rate is now $212 per acre, up 16 per cent over 2011. Applying the same capitalization analysis to Canadian Prairie farmland shows that land renting in central Alberta for $80 per acre has a capitalized value of about $4,700, given 10-year treasury yields of 1.7 per cent (i.e. $80 divided by 0.017 equals $4,705). As a result Alberta farmland at $3,300 per acre is still considered a good buy for investors look-

FIGURE 1. ILLINOIS FARMLAND PRICES AND CAPITALIZATION VALUES, 1970-2011 12,000 Capitalized Value

10,000

$ per acre

8,000 6,000 4,000 2,000 0

Average Price from USDA

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 YEAR

24 country-guide.ca

ing for a safe haven for cash when farmers are willing to pay $80 rents. Similar calculations can be done across the country based on local rents. For instance, farmland is an even better buy in Saskatchewan where both rents and current land prices are significantly lower, and we are seeing this result in a flood of investment money that is pouring into agricultural land in Saskatchewan.

Is it a bubble? Many farmers remember the 80s when farmland prices crashed. Indeed, a growing number of farmers expect a repeat of this price crash in the near future. Looking at the accompanying capitalization chart, we can easily see that decreasing capitalization values preceded a decline in land values in the 80s. In 1980 the average price of farmland in Illinois was $2,041 yet the capitalized value was only $933 per acre. As a result land prices were no longer supported by cash rental rates or low interest rates, and farmland prices declined for the next seven years. For a similar decline in prices to occur again, Schnitkey says one of two things would have to happen. Commodity prices would have to fall, leading to a decrease in farmland returns, or interest rates would have to rise. While Schnitkey does not see either happening tomorrow, both are possible in the future. He points out that with interest rates so low, even a small increase in interest rates will have a large impact on capitalization values.

Protecting yourself In light of the large volatility we are seeing in commodity markets, Schnitkey recommends farmers refrain from locking in a long-term cash rental rate on land. “Don’t set a cash rental rate for a long period. Not more than one year! We have no idea of where commodity prices will be in the future.” Instead of cash renting, Schnitkey recommends a lease in which some of both production and price risk is shared with the landlord. He suggests farmers consider variable or flexible leases instead of straight cash leases. Such leases provide some protection for the tenant from production losses and/or price declines. At the same time, they offer landlords a bonus if production soars or if prices rise, making it fairer for both parties. Such leases also offer all the advantages of a crop share agreement to the landlord without the disadvantages of a landlord having to store and market a physical commodity. As a result, variable and flexible cash leases tend to be much fairer for both landlord and tenant. Schnitkey also recommends farmers reconnect with their landlords. Building a good relationship between landlord and tenant is critical. As a final note, Schnitkey points out too that the farmers complaining about high rents and high land prices tend to be young farmers looking to expand their operations. It's tough for them, but current values are clearly a boon to their parents. CG OCTOBER 2012

business

Six profit killers

You don’t have to miss out on all those extra dollars By Maggie Van Camp, CG Associate Editor Maybe it helps to think of them as having teeth bared, snarling hungrily as they gnaw away at the bones of your bottom line.

those solutions will have to the farm’s financial well-being. Each agrees that too few farmers read,

They’re a pack of profit killers, and what-

use or understand their financial statements.

ever way you look at them, whether you

For example, more than half of Kemp’s agri-

think of them as grizzly and vicious, or if you

cultural clients file only income tax state-

think of less imaginatively as mere numbers,

ments, and many use cash not accrual

they’re all too real.

accounting. “You can’t manage what you

Most of us just carry on, oblivious to how much they cost us. Yet if you dare look closely, you can flush them out. And stop them.

haven’t measured,” she says. Often, these three focus on income statements, and especially the comparison of

First though, you just need to know

current against prior years. They look for

exactly what you’re looking for, and what

discrepancies between years, and also for

caves to look in to find them. For help, we

changes in revenues and expenses, and then

turned to three professional guides: Lisa

try to determine their sources. They also look

Kemp, a beef farmer, accountant and senior

for trends over time, and when they see areas

manager with BDO Canada’s Lindsay, Ont.

of improvement from the previous period,

office; and farm management consultant Jon-

they try to understand why. “You really need

athan Small and accountant Scott Dickson,

to use your financial statement numbers as a

both with MNP in Red Deer, Alta.

starting point,“ says Kemp. “Then dig a little

All three take hunting down those nasty profit killers seriously. For years they’ve used

deeper and do further analysis to get the full story of what the numbers are telling you.”

ratios as tracking tools and they’ve identified

If your expenses are increasing as a per-

warning signs to keep on the lookout. They’ve

centage of revenue, maybe it’s time to arm

drilled down into financial statements, and

yourself with knowledge. So here are our six

then worked together with the farmers to

profit killers, and how to find them on your

identify solutions and forecast the impact of

farm financial statements. Continued on page 26

October 2012

country-guide.ca 25

business Continued from page 25

1. Gross margins falter

2. Overcapitalization

An easy place to start your hunt for profit killers is to look for decreases in gross margins (i.e. revenue minus direct expenses). These mean there’s less cash to cover your operating expenses, and you need to look for causes, such as decreases in yields or prices, or increases in costs. Too often, there’s little control over some profit killers on the farm, such as yield losses or volatile prices, says Kemp. So you need to look over a longer period to evaluate how effectively you are managing risk. Some accountants will take it a step further and analyze enterprise gross margin. This is a very useful way to identify which enterprises continually squeeze the net income of the whole farm. “If one (commodity) is always losing and one is always winning, why are you still producing the first one?” asks Jonathan Small. Small’s passion for enterprise analysis came when he started drilling down into margins per crop for farmers. Most of his clients were diversified, producing seven to nine different crops in hopes of spreading out risk. However, what Small found was that almost invariably, only about half the crops turned a profit. More startling, it was the same crops every year that produced negative margins. So by adopting a

From his Western Canada vantage, the most common profit killer Small sees is over-investment in assets, primarily land and machinery. He’s blunt about its impact. “Farmers who love to own land and do it exclusively over leasing land tend to make unreasonable decisions,” Small says. It can be difficult to separate ownership as an investment from the need for access to land in order for the business to succeed. “Sometimes we have a hard time convincing our clients they don’t necessarily have to own all the land they farm,” says Small, who’s originally from England. “Western Canadian farmers have a much stronger attachment to land ownership than anywhere else I’ve worked. They buy it for keeps, and for the next generation.” Although land is a great way to accumulate appreciable assets, its rate of return is low compared to other investments. The appreciation of land is reflected in a net worth statement, which farmers rarely look at unless of course they are trying to acquire more assets. This type of off-balance sheet discussion is rare, says Small.

“ Farmers who love to own l and and do it exclusively over leasing tend to make unreasonable decisions.” — Jonathon Small strategy intended to reduce risks, these diversified farmers were actually making their risks worse. Many farmers shun enterprise analysis because it’s difficult to calculate shared overhead costs. It’s worth it, though. You can either track use, plug in industry standards or make estimates by splitting up depreciation. As you get better at tracking these overhead costs per unit, Dickson promises, you’ll get better at figuring out real profit. Keep in mind though that the financial statement numbers need to be analysed in conjunction with production numbers to be really useful. Breaking down margins per enterprise unit of production gives a quick estimate of competitiveness and helps identify potential improvements. 26 country-guide.ca

3. Badly structured debt Interest payments nibble away at the bottom line for virtually every farmer’s profit-and-loss statement. For some, though, it eats at our very heart. Yet not all debt is all bad, especially with today’s incredibly low interest rates. Small says that in parts of the country, there’s almost a cultural fear of high interest rates, based on memories of farm losses in the ’80s. For 30 years, this fear has shackled growth and has even been passed down to the next generation. It’s a fear that can take the focus away from the farm’s goals, making it impossible to take advantage of scales of economy that would make it possible to achieve those goals. “Many farmers are way too aggressive paying back debt,” says Dickson. A guideline is that current debt should be no more than 20 per cent of total debt. The large capital requirements for supply management and guaranteed steady cash flow means that farms in supply management can get away with a little higher ratio, while those involved in ranching should be a little lower, says Dickson. Sometimes it’s just a matter of structuring debt terms to the lifespan or depreciation rates of the asset. “Match debt structure to the acquisition,” says Dickson. “Too many train wrecks can happen when farmers lock themselves into loan payments that are too aggressive for their cash flow.” Dickson often sees problems arise when farmers dip into their operating lines for capital assets instead of acquiring separate financing. As a result of depleting their operating lines, they either have to miss out Continued on page 28 October 2012

SPOTLIghT ON CROP ADVANCES Crop Advances is an annual report that summarizes applied research projects involving the OMAFRA Field Crop team, in partnership with commodity groups, industry and the OSCIA. www.ontariosoilcrop.org/en/resources/cropadvances.htm

Is soybean variety important in making accurate fungicide application decisions? By Lilian Schaer The jury is still out on whether or not soybean variety can play a role in making accurate fungicide application decisions. A three-year study by the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA), the University of Guelph and Ontario Soil and Crop Improvement Association showed some yield increases on average, but not enough to make solid varietal recommendations. “Recent work in corn has shown that yield response to spray is highly dependent on the hybrid,” says Horst Bohner, OMAFRA Soybean Specialist. “If some soybean varieties respond to foliar fungicides more than others, this information could be important to help growers make economic management decisions.” How was the research conducted? This project compared the yield response of 20 soybean varieties to Headline foliar fungicide. The varieties were selected based on different genetics and a range of observed disease resistance. Trials were planted in two locations near Exeter and Chatham with four replications at each site. Seed quality parameters including oil, protein, seed size, and germination were assessed. What did the study find? Yield response for the different varieties tested ranged from -5.5 bushels per acre to +9.5 bushels per acre over the three years of the study. However, it was not consistent for

each variety from year to year so the relationship between variety and fungicide remains unclear. “Scientifically speaking, we did not find enough of a difference between varieties to say that varieties respond differently to a foliar fungicide., However, there was an average yield gain across all the varieties some years,” says Bohner. “If a grower has heavy foliar disease pressure, it makes sense that foliar fungicides will give a yield increase.” On average, researchers observed a two to three bushel per acre yield increase response, which Bohner says is not enough to make economic sense for farmers to use foliar fungicides on every acre of soybeans. “If we’re going to make money with applying fungicides, we need to get the yield a little higher,” he says. “We basically need four to five bushels per acre as an average response for it to be worth the effort of driving through a standing crop. At two to three bushels, we’re just not there yet, and more research is definitely required.” Where can I get more information? Full project results are available in the 2011 Crop Advances report at http://bit.ly/RRn5n7. How was the research funded? This project was funded in part through the Farm Innovation Program, a federal-provincial-territorial initiative, and by Grain Farmers of Ontario. OSCIA assisted with communication of research results.

ONTARIO SOIL AND CROP IMPROVEMENT ASSOCIATION

Photo: Farm & Food Care

Top soybean and fungicide tips for growers • Link between fungicide and variety remains unclear. Some positive yield responses are present, but more research is needed to determine the relationship between soybean variety and fungicide application. • Sufficient yield response essential. An average yield response of four to five bushels per acre is needed for profitability in an average year. • Improved seed size and quality. Fungicide application showed an increase in seed size and quality, so there may be benefit for seed growers.

Mission: Facilitate responsible economic management of soil, water, air and crops through development and communication of innovative farming practices

www.ontariosoilcrop.org/default.htm

business Continued from page 26 on the savings they could get from pre-buying, or they are forced to market in less-than-ideal situations. Sometimes they even have to go back to the banker and explain their error. “Bankers don’t like to refinance, and this makes you look like you don’t know what you’re doing,” says Dickson. “We see far more problems with this than with too much debt.” Kemp says cash flow statements can really help farmers keep on top of this. A cash flow statement tells the story of where cash is coming from and how it is being used. “If cash being used for loan payments and personal withdrawals exceeds cash generated from operations this could signal a problem,” she says. Is operating debt being used to pay term debt? Are capital investments being paid for through operating surplus or financing? Statements can also highlight where term financing or personal money is being contributed to cover operating shortages. “It shows if your operation is generating enough cash flow to cover your debt obligations and personal living needs,” she says. “There are big farms that aren’t as profitable as smaller farms,” says Kemp. “And there are farms with lots of debt that are doing well, and farms with no debt that are doing poorly.”

4. Too small to succeed For Kemp, one of the most enlightening guides is the operating expense ratio. Basically, it is calculated by dividing earnings before interest, taxes and amortization by gross revenue. This number tells how much is left over to pay for debt and to support the family living withdrawal. Kemp often calculates this for smaller farms that start off relying on off-farm income and a desire to grow, and then wonder why they aren’t able to quit their off-farm jobs. Kemp plugs in their family living needs and debt obligations and gets a quick estimate of how big they must get to farm full time. “This is where farmers sometimes go off-side. They are simply not aware of the size that they are going to need,” says Kemp. “The farm is simply not big enough.” To prove the point, Kemp did a quick estimate based on some of her own clients and found that last year the operating expense ratios for dairy were 50 to 60 per cent, feedlots 85 per cent, crops were 65 per cent and cow-calf were 80 per cent. Then she starts pounding on her calculator to figure it out backwards to see what gross their are going to need. If a family needs $50,000 to live and cover interest and principal, then for a cow-calf operation, they’ll need $250,000 gross revenues. Small has seen this profit killer rear its ugly head when he’s helping families through succession. Sometimes the family simply doesn’t have a good understanding of the farm’s ability to support two or three households. They also don’t understand the impact that supporting another family or individual can 28 country-guide.ca

have on the farm’s ability to grow, just when they need to expand. “They need to plan ahead or their equity will continue to go down,” says Small. “That pattern is hard to break.”

5. Not paying yourself If your cost of production calculations do not include fair market value for labour, they can be really misleading, our experts say. “Your effort should impact the bottom line instead of ownership,” says Small On corporate statements, payment for effort is reflected in retained earnings on the balance sheet. If it’s too low relative to the size of the farm or the productivity, there could be a problem. Basically this means the farm isn’t able to accumulate equity, except in the appreciating value of the land or quota. Off-farm income shouldn’t show up in financial statements, yet many farms rely on off-farm income well beyond the start-up phase. “If the farm doesn’t turn a profit for years and off-farm income is carrying the family, wouldn’t you be better to sell the farm and invest in a T-bill?” asks Small.

6. Not understanding risk If risk is misunderstood, it’s not managed well. “It’s a lack of understanding of probability and impact,” says Small. Interest rate risk is an example. Farmers often lock in interest rates even if they are not highly exposed. Calculating your debt-to-asset ratio will give you a sense of the exposure. Not quantifying risk often leaves farmers vulnerable. It contributes to the low uptake of some government programs as well, and it limits the amount of basis pricing that many farmers do. Insurance programs to ensure a floor price and limit the downside are as popular as programs to insure a profit. In order to decrease the farm’s exposure to crop disasters, farmers need to plan for them, says Small. Managing that risk should be under expenses, through marketing and crop insurance. After all, it doesn’t matter if canola is worth $14 a bushel if you don’t have a crop. “The U.S. drought this year should be a reminder that it can happen to us in Canada,” he says. On the feed side, many hog producers have been waiting for harvest so they can use their own feed. However, Dickson is concerned that some don’t realize the tight U.S. supply will likely mean higher prices until the next crop comes off. They are losing out on selling that crop, and they are also losing out on poor hog prices. It’s not just a couple of months, that’s 13 months of tough sledding,” says Dickson. “Instead of cash flow it becomes loss flow.” Now, Small worries that if this stiuation lasts long enough, even the best hedging farmers won’t be able to hedge out of it. Asks Small: “Does fixed capital lock you into production, even if production is unprofitable?” CG October 2012

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page 4 8 10 14 18 20 22

Corn’s political. Soys aren’t

es, I know it seems a sweeping generalization to say that corn is a political crop, and that soybeans aren’t. Still, the facts increasingly support it, and they should give pause to farmers who have been swinging strongly in corn’s favour, thinking corn will be the decade’s horse to ride. Start by looking at our Gord Gilmour’s interview with former Saskatchewan Premier Grant Devine in the business pages of this month’s COUNTRY GUIDE. Devine, who has been a lot closer to the levers of power than any of the rest of us will ever be, is certain about it. Washington will drop ethanol, no matter who’s in the White House. Devine is an optimist. He hopes that ethanol’s demise will be so gradual, there will be little price impact. But the loss of a four-billion bushel market will always be a big thing. That’s what market analyst and farmer Philip Shaw wrote in our CORN GUIDE last month. Let me quote “If the market wakes up one day and learns that the renewable fuel standard has been suspended, the price of corn will drop precipitously… the corn market in the U.S. and the world will face a paradign shift back in time.” Devine and Shaw deserve attention Soybean Guide, October 2012

because neither has a bias. We hear too much from the pro-ethanol lobby as well as from farm groups that have bet on ethanol. Objective views are rare. Soybeans get justifiably knocked these days because their trendline yields haven’t kept pace with corn. Yes, soys can gut it out in a tough year, but on most farms, most years, there’s no comparison. The yield gap favours corn, and it is getting wider all the time. So what justifies our confidence in soybeans? It’s the soybean itself. Soymeal makes a near-perfect pig ration, and we’d far rather bet on China’s demand for meat for its new middle class than on ethanol’s support from a small group of fickle U.S. politicians. Besides, despite the decades of promises about special end-use traits in corn, there’s been little progress. Compare that to soybeans, which are already being released with modified oil profiles, and where the prospects for food and industrial uses are unending… without government support. It all means that our No. 1 research priority should be higher soybean yields. Corn will be our support for decades, of course. But soybeans will be our future. Tom Button, CG Editor 3

soyguide

Land of N

Bargain land prices, surprising yields and new markets are fuelling a big push by farmers like David Schill to open up Ontario’s corn/soy frontier By Ralph Pearce, CG Production Editor

ot so long ago, southwestern Ontario was considered the province’s agricultural heartland. Then a generation ago, central and eastern parts of the province laid claim to the title. Now the crown be shifitng again? Whether they’re in the Temiskaming region or if they’re north of Sudbury or around Thunder Bay, Ontario’s northern farmers have thrived in pockets, hearing from time to time that they are actually south of most Prairie farmland, and that they should get ready for the world to discover their real potential. The fact is, though, the explosion has been a long time coming, and for most farmers in most other parts of the province, the north is all too easy to ignore. Yet corn and soybeans genetics are doing better farther north than many may realize. And now, as commodity prices create extra incentive, interest is building in what’s happening in places such as New Liskeard or outside of Thunder Bay. And it isn’t just because land prices are far lower there than in Lambton or Oxford counties. Instead, it’s because more people are learning one of the better-kept secrets in the province: that farming works in Northern Ontario, i.e. the real north, not just the middleground around Orillia. At $4,000 an acre, crop land is being purchased by farmers from southern Ontario, who are then migrating north after learning what’s feasible. For instance, what began as one man’s drive to invest in land in Northern Ontario is now a full-time farming venture for his son. David Schill is reaping the benefits of his father Larry’s longterm strategic vision. In 2002, the Schill family first purchased land just north of Earlton, in the heart of the Temiskaming region, primarily as an investment. Now, it’s David’s operation to manage. Primed for growth “My wife and I moved here in 2004 and since then, we’ve continued to purchase and rent land and expand our operation,” says Schill, who now manages

10,200 acres, 6,000 of which are his. “My dad is always looking to further the investment, and with me he knows the job is going to be done right.” This year, Schill has about 2,500 acres of soybeans and 1,000 acres of corn, and as with most farmers who are growing corn in the region, he’s selling the corn mainly to local dairy and feed operations. Soybeans, on the other hand, are mostly identity-preserved varieties or seed, which means they face a long truck journey, heading south. “There just isn’t enough volume in Temiskaming for a processing plant to be economically feasible,” says Schill. Nor is there a lot of hope that such plants will soon be built, even for the region’s larger crops. Schill notes there have been feasibility studies for local canola processing, but there isn’t a steady enough supply of canola to justify a processing plant, even though the region generates about half of the canola grown in Ontario. For soybeans and corn it’s complicated because even if it made sense to crush soybeans for oil or convert corn to ethanol, you’d still be left with the soymeal or the DDGS from the ethanol plant that would have to be trucked out of the region. But those concerns aren't putting the brakes on cash crop development. Schill agrees that there’s been considerable investment in the region, both from farmers in the south selling their operations at higher land prices and looking to reinvest in the north, and from speculators who are amassing pools of money and bidding on land. According to Terry Phillips, an agronomist with Co-op Regionale de NipissingSudbury, land prices are attracting farmers to the Temiskaming region, but so are yields. Phillips points to Lee Laframboise, a dairy producer in the Earlton area who harvested 225-bushel corn in 2008, admittedly a good corn year for most parts of North America. Continued on page 6

Soybean Guide, October 2012

Photo credit: Manon’s Photography

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“The big change in the last 10 years has been the influx of larger farmers.” — Terry Phillips

Continued from page 4

Along the way, farmers and agronomists are quickly learning corn and soybean agronomy so the region is on a scientific par with anywhere else in the traditional corn belt. In a field near Verner, about midway between Sudbury and North Bay, for instance, Philips was initially puzzled by yellow soybeans in midsummer. It turns out the area been fairly dry, so the beans hadn’t developed adequate roots. Then, when the rains came and the crop experienced a major growth spurt, the roots couldn’t keep up with the potash demand. That forced the crop to cannabilize its upper leaves, meaning Phillips was getting his first local look at potassium deficiency. And the learning process continues. What’s particularly interesting about the region is that the 2012 canola crop in the north is being challenged. Phillips, the vice-chair of the Ontario Canola Growers’ Association, notes flea beetles and Swede midge are making their respective marks on the crop in his region. With canola’s high cost of production, combined with the area’s growing confidence in soybeans, Phillips is forecasting between 15,000 and 20,000 acres of soybeans for the Temiskaming district in 2013. Long, long days “The big change in the last 10 years has been the influx of larger farmers, 6

including Mennonite farmers,” says Phillips. “And farmers in general are much more modern than they have been. In the past, you had the large dairy guys who were keeping up with new technology and new iron. Air drills, three years ago, were pretty novel, and were purchased by the 10,000-acre growers. Now, you have farmers who are farming 800 acres and buying air drills. And we’re looking more like Western Canada, where you have mile-long fields.” Not only are the fields getting larger, but there are signs of more consolidation in the region and for the first time, many farmers are applying fungicides to oats, canola, spring and winter wheat and now soybeans. There are even a few farmers who have applied 28 per cent on their corn, marking the first time that most have used that input. Looking at a map of Ontario, it’s easy to dismiss the thought of growing corn or soybeans in Temiskaming with its 2100 crop heat units or in the Thunder Bay regions with its 2300 to 2500. But what these areas lack in heat units, they make up partly in hours of sunlight. It turns out those long days can really pay off. “Some growers here have been trying to work with growing degree days (GDD) to convert the measuring stick for weather criteria,” says Phillips, noting that there’s been some interest in that, as well, in Saskatchewan and Manitoba — and

On the other hand For all of the optimism and eagerness to grow corn and soybeans the one key drawback is the lack of local processing markets. For corn, the processing shortfall may not be a huge issue, since much of the crop is grown and fed to livestock. For soybeans, however, there’s only one way to the south, and that’s down Highway 11. Other drawbacks include an expanding farming district, in terms of land area, but a diminishing pool of potential farmers, all because the local mines are reopening and expanding their sphere of influence. Rates for miners can start at $19 per hour and rapidly climb all the way to $50 and beyond. That means new farmers must come from the south, says Phillips. Yet they are coming. In the Thunder Bay district, there is a similar corn and soybean expansion. According to Tarlok Singh Sahota, director of research and business with the Thunder Bay Agricultural Research Station, the region has been better known for its cereals and forages. But it does have a history of corn production, as far back as the 1930s while soybeans were introduced to the area around 2000. There are also growers who are trying chickpeas in the district. In all, the Thunder Bay growing region is roughly 27,000 acres, with a good portion still taken up by cereals and forages. Sahota notes that within a 35 km radius of the research station, he can find 15 different varieties of barley, which he believes to be one of the most diverse concentrations for a single crop in all of Canada. The big challenge in the region however, is frost, especially for soybeans. “Soybeans were not here before 2000 because the longer day varieties didn’t suit the Thunder Bay climate or the conditions for the season, which is around 90 to 100 days,” says Sahota. He adds that some growers have managed to hit the 40-bushel per acre mark with their soybean yields. “Our killing frost normally comes around September 8 and sometimes there can be frost even in June. But since 2004 while I’ve been here, we haven’t seen any killing frost between May and early September.” On the corn side, the crop fell out of Soybean Guide, October 2012

Photo credit: Allan Dawson

again, they’re farther north. “They have those long days, too. They have a temperate climate with a large land mass, and they’re usually harvesting before we are.”

favour, largely due to wet fall conditions. Farmers could grow decent short-season hybrids, but couldn’t get into the fields at harvest. A few farmers tried it in the 1970s and then again in the early 1980s. But what turned the tide for an increase in acres was the introduction of tile drainage in the area, through the late 1990s and into the early 2000s. “Here, we don’t get more than 140 bushels, and the farmers were growing corn only for silage,” says Sahota. “Only after 2007, a few farmers started growing corn for grain but that’s feed grain, it’s not intended for human consumption. Because the moisture content is high, they were able to harvest by November, and the moisture at that time is usually 20 to 30 per cent.” That’s the other unique feature about crops grown in the Thunder Bay region, similar to the Temiskaming district. They stay where they’re grown. Sahota says that most of the soybeans grown in the region are harvested, roasted and either fed to livestock or sold to another livestock farmer, similar to corn. From Sahota’s perspective, the expansion has been made possible mostly

because of the focus on genetics by the seed companies as well as public breeding programs. Dave Harwood, technical services manager for Pioneer Hi-Bred, agrees that corn and soybean production in parts of northern and northwestern Ontario have been helped significantly by genetics, both in terms of trait developments and pushing the hybrids and varieties into earlier planting windows. Genetics first “We are advancing earlier corn hybrids all the time, not by leaps and bounds — it’s not as though we’ve dramatically changed the thermal long-season requirement of corn that has created a huge paradigm shift,” says Hardwood. “But incrementally, we’ve done it.” The advent of Bt corn in 1996 improved the economics of corn production and enhanced its stability, both with stronger stalks and increased stress tolerance. Then following the launch of the initial Bt hybrids, there was the creation of earlier-season hybrids, that helped improved production spread further east in Ontario, and now to the north and northwest.

Much the same scenario has taken shape within the soybean sector, with glyphosate-tolerant varieties providing the springboard for further innovation. “I think it comes down to growers understanding what it takes to grow soybeans successfully, understanding that early planting of soybeans is appropriate,” says Harwood. For years, convention held that with soybeans, growers needed to wait for higher soil temperatures. “But we know more now.” While some might see the lack of local processing, or big shipping costs to reach the south as factors that will hold back northern development, Harwood disagrees. He recalls the optimism following the end of the federal Crow Rate, and how it shifted some of the economics of growing crops in some of the main cereal production areas of the West. Now, Harwood sees something similar taking shape in other regions, including Ontario and the Maritimes, and even some zones in the West. Says Harwood: “It’s going to be fun to watch over the next 10 to 15 years who has the most accurate vision of the way it’s going to play out.” SG

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Soybean Guide, October 2012

soyguide

Soybean outlook I

2012 has almost been a fairy tale. Now, can we farm happily ever after? By Philip Shaw

have grown soybeans since I can remember. As a child in southwestern Ontario in the 1960s, hoeing soybeans was a rite of passage. There weren’t many herbicides back in those days so my summers were spent pulling weeds in the never-ending battle to keep the fields clean. At that time soybeans were restricted to the deep southwest of Ontario. In 2012, the situation could hardly be more different. Ontario has 2.64 million acres of soybeans grown right across the province. Of course, with the adoption of Roundup Ready technology, the battle of the weeds has ended for many growers too, although there is also a booming non-GMO food-grade soybean business in the province,where you might see soybean growers walking through fields picking weeds as in the days of old. Corn may often be referred to as king but 2.64 million acres in Ontario don’t lie. Ontario farmers like to grow soybeans. Statistics Canada has pegged the 2012 crop at 39.4 bushels per acre. By the time you read this, you will have a better idea whether the very dry weather in parts of the province did even more damage, or whether the late rains did more good than expected. In 2011 the Ontario soybean yield was 44.9 bushels per acre, which itself was down from 46 bushels per acre the year before . With corn enjoying the limelight because of its robust industrial demand, sometimes soybeans get overlooked. This was the case this past March when USDA initially projected 95.5 million acres of corn to be planted in 2012, with 73.9 million soybean acres. The soybean projection from USDA sent soybean prices higher. Brazil and Argentina had just come off a poor production year and the world needed soybeans. That March 73.9-million-acre planting intention number from USDA was eventually changed to 76.08 million acres of soybeans planted in the United States in 2012. With normal yields, the United States was set to renew world soybean stocks, which had dwindled after the poor South American crop. The rest of the story in 2012 has almost become legend. The worst drought to hit the United States in more

than 50 years has redefined the supply and demand balance sheet for grains around the world. Simply put, that forecast for replenished soybean stocks didn’t happen, with hot and dry U.S. weather impacting the soybeans in a similar fashion to the severity with which it shrivelled the corn crop. The USDA March soybean yield projection of 40.5 bushels per acre had slipped to 36.1 bushels per acre by August 10 and was ratcheted down again on September 12 to 35.3 bushels per acre. This put 2012 U.S. soybean production at 2.634 billion bushels, down from the 3.056 billion bushels produced last year. This has pushed down the soybean stocks-to-use ratio to 4.3 per cent and has redefined price direction for the immediate future. The effect of the drought in the United States on price movement has been striking. For instance, on June 1, 2012 the November soybean futures contract closed at $12.58 a bushel. On September 12 after the release of the USDA crop report the same contract closed at $17.45 a bushel, having previously reached a high of $17.89 a bushel on September 4. Cash prices to Ontario producers had been plus $16 a bushel for many weeks leading into the 2012 harvest. With soybean prices at or near record levels, Ontario soybean producers who got moisture in 2012 are poised for a healthy revenue year. Part of the 2012 soybean price story can be told by the problems in Brazilian and Argentinian soybean fields coming out of the winter of 2012. Brazil had expected a crop close to 80 million tonnes but ended up with 66.5 million tonnes, while Argentina was expecting a crop close to 55 million tonnes, but ended up with the crop of 41 million tonnes. This put a supply constraint in front of the market going into the U.S. growing season, and now with the U.S. crop damaged, prices will force demand to be rationed. With the South American new crop about to be planted, the world will be awaiting its supplies starting in March of 2013. World soybean supply is a real problem in 2012 because of China's insatiaSoybean Guide, October 2012

ble demand for soybeans, projected to be 59.5 million tonnes in the 2012-13 crop year. In other words, even at current price levels, Chinese soybean demand is inelastic, which means Chinese demand for soybeans does not change drastically as price moves. It's extraordinary, and the world will wait and see where soybean futures prices may go. There is an obvious constraint coming ahead in the winter of 2012-13 as American soybean supplies dry up and South American supplies reach export facilities in March of 2013. Yes, prices have been at or near record levels, but the supply and demand dynamics are in place for explosive price movement. At a certain point demand will have to be rationed aggressively, but as of September 12, 2012 USDA report, we are not there. This price projection into 2013 means Ontario soybean producers are well positioned. Having prices near or at record levels is something that many farmers dream of. The challenge is always getting a good crop at a time when prices are high. These production challenges for Ontario soybean producers are very real, even aside from the droughty production areas in 2012. Soybean yield drag is one problem. The emergence of glyphosate-resistant weeds is another. Based on Ontario provincial yield testing, soybean yields are increasing at 0.32 bushels p er acre p er year. Meanwhile, provincial corn yields in Ontario are increasing by 2.0 bushels per acre per year. This means corn yields are increasingly outpacing soybean yields, which puts the Ontario soybean producers at a disadvantage when considering planting decisions. Many producers find that corn gives consistently better yields over time, and this belief is being substantiated by research results. Soybeans also benefit from extending the rotation to four or five years, up from the current two or three, which would also see acres be reduced. Those clean soybean fields garnered through Roundup Ready technology may also be disappearing, which in theory could put a damper on soybean plantings. New glyphosate-resistant weeds have been identified in Ontario, and weeds such as resistant giant ragweed and Canada fleabane thrive despite glyphosate applications. Even so, new management strategies are being Soybean Guide, October 2012

develped to combat these new problems, and future technologies such as dicamba and 2,4-D resistant soybeans may help as well. Whatever happens in the field, however, robust global demand is likely to continue. As well, noncommercial speculative demand within the soybean market bring huge pools of investment capital into play, accentuating trade volume and making for higher highs and lower lows. Today, the volatility in a sin-

gle trading session is sometimes greater than an entire year's volatility a generation ago. For now, with memories of 2012 setting the stage for more global acres in 2013, the challenge for Ontario soybeans producers is to figure out just where they fit within this dynamic market. In my book, world demand for soybeans will be strong, and Ontario producers are well positioned to take advantage of it. SG

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Planter VS. drill For Eric and Max Kaiser, the answer is clear. Their planter is better… because of their crucial modifications. By Ralph Pearce, CG Production Editor

Photo credit: Shay Photography

nput costs are surging. The price of land, equipment, fertilizer, seed and just about any other inputs you can name are all surging. But then, soybean prices aren’t exactly at year-ago levels either. Now the question is, has the economic environment changed so much that some of our tried and true practices are suddenly locking us out of top profitability? In particular, does the combination of higher priced seed and the booming economic payback for maximizing the performance of that seed justify the switch from no-till drills to planter units? The topic has been a candidate for research in Ontario by both the University of Guelph and the Ontario agriculture ministry, and it’s also a popular subject for a number of growers across the province, many of whom are members of the Innovative Farmers Association of Ontario. One of those is Eric Kaiser, who farms 900 acres near Napanee, Ont. Kaiser is often at the centre of a knot of farmers at IFAO meetings and other gatherings where farmers are bouncing ideas and opinions off him, and he seldom turns down an opportunity to share what he knows and what he does on his farm. Kaiser is also the first to point out that his conditions work on his farm. They won’t necessarily work on other farms, and he makes no apologies for that, nor does he expect his equipment configurations to be adopted with the same kind of success that he sees on his operation. Still, it’s hard to get good on-

farm information on such production questions, so it’s worth putting his experience into the mix. Kaiser farms on Napanee clay, a tough, very dense soil type and one that few would think would be a candidate for notill farming. Yet he makes it work on his farm, where he runs three 300-acre fields with a rotation of corn, soybeans and wheat followed by a cover crop. Kaiser also has chicken manure, which he spreads on his wheat stubble in August. Again, he concedes that the conditions under which he farms and the equipment

he uses work for him. All of his land is in one location, it’s systematically tiled and he never grows one crop continuously. And the bottom line on all his management? He uses a planter unit for all of his crops — even wheat. “The big advantage with planters is that they singulate the seed and plant each seed into an ideal environment, just like they do with corn. And it’s just about that simple,” says Kaiser. That separates planters from drills, Continued on page 12

Soybean Guide, October 2012

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which many agronomists refer to as controlled spill devices. “They do not do a uniform job of distribution, which means you need more seed, and with very few exceptions, a planter will do an adequate job of providing uniform depth of seed,” Kaiser finds. “Those two — the singulation and the planting environment — are the biggest advantages for the planter.” It’s important to emphasize that Kaiser works with a planter unit of his own design. It’s a White 6600 planter but it’s been configured to very specific row widths. For corn, Kaiser’s planter is set for six 30-inch rows. When he’s done planting, it’s reconfigured to 17 nineinch rows for soybeans and wheat. “The only hitch is that we can’t plant corn and soybeans at the same time, but because we’re all in one location with limited acreage, it’s all ready at the same time,” says Kaiser. He can also plant all of each crop in six days, which often works out to six consecutive days, as wheat, corn and soybeans all were this year. “We plant all of our corn, and then we physically transform this thing from six 30s to 17 nines.” Kaiser says. “The other advantage with the row-unit planter is that it’s much more suitable for no till than a drill, particularly for soybeans.” Would a similar system work with split parcels of land, say, three tracts totalling 2,000 acres but separated by 20 kilometres? “Absolutely,” says Kaiser. “You need two planters anyway, so you’ll have three units — your drill, your corn planter and your soybean planter,” he lists. “Then you can plant corn and soybeans at the same time, and if you have a large enough acreage, chances are you have enough people to do it. I realize that for the majority of those in agriculture, planting wheat with a row unit is going to be more than a challenge, because you can’t buy a planter unit that will plant narrower than 15 inches, and there will be a yield penalty for wheat at 15 inches. That’s why we built our own.” REDUCED COST The use of the planter also allows Kaiser to reduce his planting populations, thus saving on seed costs. In past, he’s planted soybeans with populations as low as 105,000 seeds per acre and now routinely plants at 130,000. He’s also planted population plots at the request of Marion Calmer, a consultant and farmer who plants soybeans at 12

75,000 seeds per acre. Then again, notes Kaiser, Calmer farms on what he calls some of the best soil in the world, near Alpha, Illinois. Aside from the concern about planting populations and row-width configurations, Horst Bohner, soybean specialist with the Ontario ag ministry believes the debate over planters versus drills is pretty much settled. Based on research he’s done across three years, he’s convinced the proof is in: planters outperform drills in most situations. “The key is that we have to talk about the same row width, and when we’re talking about 15-inch rows, there is definitely a small advantage to the planter unit,” says Bohner. “Both in terms of plant survival, so in other words, you get a higher percentage of what you feed it in terms of plants per acre, and there is a small yield benefit.” Bohner’s research was conducted in 2008, 2009 and 2010 with six trials altogether, including different seeding rates and using both a drill and a planter (the full report on this research can be found at

www.ontariosoilcrop.org/docs/v7soy52010.pdf). Bohner holds to the notion

that planter units with 15-inch rows perform the best both from a yield perspective and an economic point of view. “When we started this, we thought, because of the accuracy of the seeding depth and placement, we would show a significant benefit, and that’s what really convinced us,” says Bohner. “With increased seeding costs, the old technology of the drill was not the way to go anymore.” The problem is that the yield advantage can be very small, especially when you compare 15-inch rows to 7-1/2-inch drills. “I’m still a big proponent of using a planter,” Bohner says. “And if I’m producing fields commercially, I would definitely go for a planter unit.” The other question on Bohner’s mind is whether a 30-inch row from a planter could compete with a drill. The accepted answer in the past had always been “not a chance,” because it was thought that a farmer would be giving up too much yield potential with the wide row. “There’s too much ground not being covered early in the season, and the University of Guelph did some work on that,” says Bohner. “Depending on whether you’re talking about no till or conventional tillage, there can be up to a 4.0 bushel advantage to going to intermediate (15-inch) or narrow (7-1/2inch) rows over wide rows (30-inch).” Soybean Guide, October 2012

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In 2012, Bohner is conducting some trials working with 7-1/2, 15 and 30-inch rows in an attempt to “take back” some of the 30-inch disadvantage through better fertilizer placement, or even by adding some nitrogen in order to get the soybeans to close the canopy faster. “It could make the argument that if you’re going to invest in one piece of equipment, we know that we want to plant that corn very accurately, could you use that same piece of equipment and plant your soybeans as well?” asks Bohner. There is also some interest in 30-inch rows, particularly in eastern Ontario, where there’s a significant challenge from white mould, as well as further north into the Dufferin County region. COMING FULL CIRCLE For Bill Deen, associate professor and researcher with the University of Guelph, a return to planters is history repeating itself. When soybeans were introduced to Ontario, they were primarily planted in wide rows, using a planter. Then no-till practices and no-till drills were introduced at about the same time. “The two really occurred simultaneously, and one of the reasons we saw a real interest initially in no till was because by using the no-till drill, we went to narrower rows and that gave us a yield increase,” says Deen, who is conducting Soybean Guide, October 2012

research with Bohner examining the planter-versus-drill question, including how it interacts with residue levels and other parameters. “I think there is some movement away from the no-till drill, and so I guess the question is, is that movement away from the drill justified, based on lost yield, or is it associated with the drill?” Deen acknowledges the success of a grower like Eric Kaiser, adding that his numbers are hard to argue. But he also states that Kaiser has nothing to compare it to, he’s citing his numbers under his practice and his on-farm conditions, something that Kaiser readily acknowledges. “In terms of the concept of uniformity of emergence, I think Eric’s right, that on average, you tend to get more uniform emergence because you have better depth control, better seed-soil contact, and better seed-furrow closing,” says Deen. “And I believe it when Eric,says that if you can guarantee uniformity of spacing, so the field is uniform, then you can probably get away with populations close to 100,000 seeds per acre, because I think there are a lot of population response curves that indicate that yield doesn’t start dropping off until you’re around 80,000 to 90,000. And my guess is that if you can maintain uniformity, yes, you can get away with considerably lower populations.” SG 13

SOYGUIDE

Western breakout After huge gains in the Red River Valley, soybeans may be ready to compete in drier parts of Manitoba, and beyond By Allan Dawson

ou would probably have thought you were in southern Ontario, not Manitoba, if you had been dropped in the middle of Red River Valley this past summer. It would have been an easy mistake to make, for one simple reason. There were soybeans everywhere you looked. Nor was it an illusion. Statistics Canada says Manitoba farmers seeded a record 875,000 acres to soybeans in 2012, making soys the third-largest crop in the province behind canola at 2.73 million acres and wheat at 2.2 million. What’s even more remarkable is that until 1998, Manitoba didn’t officially produce soybeans. A few farmers were experimenting, but there were too few acres to be picked up in the federal stats, although Manitoba Crop Insurance Corporation records show 118 farmers insured 10,932 acres that year, with an average yield of 30.1 bushels an acre. Fastforward 14 years and industry officials say Manitoba soybeans are racing ahead, with forecasters expecting the provincial crop to approach one million acres in 2013. That would be a 14 per cent increase over this year’s plantings, which were up 26 per cent over 2011. “I think soybeans can get to a million acres and maybe more eventually,” says Bruce Brolley, crops expert with Manitoba Agriculture, Food and Rural Initiatives’ (MAFRI).

But, says Brolley, “they will always have to compete for a spot in the farmers’ rotation.” Soybean acreage going from zero to a million in less than 20 years might seem like an overnight success, but there were lots of challenges, including a false start in the 1980s. Brolley, who is originally from Ontario, was convinced that Manitoba had a great fit for soybeans and started touting the crop when he signed on as a new MAFRI agronomist in 1997. “In the early days it was hard to be taken seriously,” Brolley recalls. It turns out, however, that the crop had four things going for it. Improved varieties, lower production costs and the crop’s ability to tolerate excessive soil moisture better than most other crops are among the reasons cited for the rise in soybean acres in Manitoba. Topping the list, though, is the crop’s ability to generate more dollars per acre. First, farmers had to be shown the crop’s potential. That’s where MAFRI and the Manitoba Pulse Growers Association played a role, working with farmers willing to experiment. Then, when MAFRI began scientifically demonstrating soybeans’ suitability, crop insurance, now known as the Continued on page 16

Soybean Guide, October 2012

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Ma n i t o b a Ag r i c u l t u r a l S e r v i c e s Corporation, improved and widened its soybean coverage. This wasn’t the first stab the province had taken at the heat-loving oil and meal seed that originated in east Asia. According to a MAFRI report, soybeans were grown here in the early 1900s. The next big push came in the early 1980s, but Baldur Stefansson, one of the fathers of canola, questioned why Manitoba Agriculture was experimenting with soybeans. He pointed out the obvious. Manitoba farmers already had an oilseed and meal crop well suited to their growing conditions — canola. And he was right, at least for a while. Earlier-maturing Ontario soybean varieties, such as Maple Amber and Maple Presto were a bust in Manitoba. They often didn’t mature early enough and even when they did, yields were poor. A dozen years later the experimenting started anew. But this time was different. The new batch of early varieties were better adapted, although the crop still faced a credibility challenge. In 1995 only a few hundred acres of soybeans were grown in Manitoba, including those seeded by Agassiz Seed Farm Ltd. at Homewood. Murray Froebe, who owns and operates the farm and seed business with his father Earl, was looking for another crop to add to the rotation. The Froebes grew edible beans, but found that tough to do on some of their heavier clay lands. Murray, who had recently returned with a degree in agriculture from the University of Guelph, used his Ontario contacts to source Alta soybean seed for some plots. The results were promising, so they grew more. By the late 1990s, the Froebes were retailing certified soybean seed, including OAC Prudence, and buying the resulting crops for food-grade exports to Japan. Soon, Roundup Ready soybeans were introduced and they now dominate production. Non-GM soybean production is now a niche market. Standard rotation What started off as an experiment, became a novelty, then a special crop and is now mainstream, Froebe says. “In the last three years soybeans have become a standard part of the rotation,” Froebe says. “Farmers in this area (Red River Valley) aren’t dabbling in them anymore, they’re committed to them. They are buying the flex headers. They’re talking about buying planters or air drills that will handle soy16

beans… and they’re capitalizing accordingly. They are in it for the long haul.” So what happened? Lots. By the mid-1990s a few farmers took another look at soybeans and found, at least in the Red River Valley, which is usually warmer and wetter than other parts of the province, they could get a crop by growing earlier-maturing varieties from Ontario and the United States. As the acres grew, so did interest among soybean seed companies. They began testing more varieties for their Manitoba fit, Brolley says. Variety registration rules also changed, making registration easier and spurring more research. In fact, some of today’s varieties were developed specifically for Manitoba. Inoculants improved too, and Roundup Ready varieties made weed control simple. Improved production resulted in better crop insurance coverage, reducing farmers’ production risk. Plus, as production grew so did interest among buyers. “What’s helped fuel soybean’s expansion is we’ve reached that critical mass where elevator companies got involved for the commodity soybeans and that fuelled the fire for shipping a lot of soybeans out of Manitoba at good freight rates and thus made them more competitive against other crops,” Froebe says. In 1998 Manitoba soybean yields averaged 30.1 bushels an acre, which is close to the current five-year average, even though plantings increased almost 80 fold. Moisture tolerance Moisture tolerance is a big factor too. “It’s kind of a comfort for guys who know they’ve got something that can tolerate different types of weather,” Brolley says. Manitoba’s average soybean yield is not much lower than canola’s 34.6 bushels an acre. But averages can be misleading. In wetter areas, such as the regional municipality of Brokenhead, northwest of Winnipeg, the five-year average soybean yield is 27.1 versus 24.7 for canola. Soybean yields and prices have been competitive with canola, but in 2012 soybeans cost 24 per cent less to grow, according to MAFRI’s cost of production estimate. It puts soybean’s variable costs at $176.45 an acre compared to $231.80 for canola. The biggest difference is fertilizer costs, which it pegs at just $11 an acre for soybeans versus $83 for canola, mainly because soybeans fix their own nitrogen. While there’s agreement that soybean acres will continue to increase in Manitoba, opinions vary about their

expansion into western parts of the province that are typically drier. “They need varieties that depend a little less on water so the guys further west can start growing them,” says Kyle Friesen, an Altona-area farmer and president of the Manitoba Pulse Growers Association. “I think that’s what will determine how many acres we have here in Manitoba.” Brolley agrees. Canola is still king in the southwest, he says. “Even though you can grow it, in some areas, you may not want to from a profitability standpoint,” says Doug Wilcox, the Manitoba Agricultural Services Corporation’s manager of agronomy and program development. “Just because you can grow it doesn’t mean you should.” New Normal? Froebe is more hopeful. “We have a 1,200 acre soybean customer in Boissevain (in the southwest) and they’ve been fighting water,” he says. “They struggled getting their crop in this past spring. So what is the new normal? It looks like southwest Manitoba and southeast Saskatchewan is getting higher rainfall in the past few years. And that’s going to fuel the expansion. With the high price of fertilizer, guys are looking at the risk of putting canola in.” Besides, canola performance is sometimes disappointing. Despite what looked like a bumper canola crop, many yields were below trend. Extreme heat at flowering plus a myriad of diseases are being blamed, and these lacklustre canola results could push farmers to grow even more soybeans next spring, says Froebe. Although many soybean crops this year needed more rain, he expects some of the later-maturing varieties that did get some rain in early August will yield quite well. Still, it’s hard to argue that soybeans are a sure thing. The crop has definitely had some hiccups. In 2004, the coldest growing season on record, the Manitoba crop averaged just eight bushels an acre. The next year plantings fell 38 per cent to 95,330 acres, but the year after that hit almost 350,000. In 2007 acreage fell to 208,267 acres but farmers harvested a record average yield of 36.4 bushels an acre. Plantings have been going up every year since. Yet soybeans have also demonstrated incredible tenacity, and Brolley for one thinks it’s too early to say they’ll always be a Western niche. Says Brolley, “Soybeans have shown they are a crop that’s here to stay.” SG Soybean Guide, October 2012

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Fall weed control 2012 shows big wins for hitting some weeds in the fall By Ralph Pearce, CG Production Editor

or Ernie and Gary Taves, who grow corn and soybeans on their family farm in the Wheatley, Ont. area, fall herbicide applications are almost automatic, particularly as they try to control dandelion and wild carrot. “We don’t do it every year with every field, but every field, every year has to be considered,” says Ernie. “We’ve done it several times on hundreds of acres. Those weeds have become very challenging and very costly to control in the spring. In the fall, the control has been very good.” Fall is a season of contrasts. The days are short but the list of jobs is long. There are soybeans and corn to harvest, wheat fields to plant, and fertilizer to get down, to name just some of the big jobs ahead. Mix in some mixed-up weather, and

it’s already a challenging picture. So do you have time for fall weed control too? Ernie Taves for one is beginning to look at the time-crunch issue as more a matter of perception than fact, adding that applications in the fall can make some weeds much simpler to handle come the spring. Still, he agrees the advantage has to be big enough to make the time investment in the fall worthwhile. And he believes it is. For instance, Taves remembers when a sprayer malfunction meant a strip didn’t get sprayed in the fall, leaving a small triangle of unsprayed ground that was all too easy to find all through the next year. During the ultra-early spring of 2012, crop advisers and Ontario government agronomists often talked hopefully about the prospect of fall weed control when they

saw dandelion and chickweed break out in midwestern Ontario, and with more horsenettle and ground cherry coming on. Dandelion has been mentioned by a growing number of farmers, dealers, advisers and extension personnel, with fall herbicide applications being considered a better management practice. Depends on the weed Peter Sikkema believes fall weed control comes down to a matter of knowing your enemy. There are some weeds, such as dandelion, where it makes perfect sense to use fall weed control, while with others there’s much less of an advantage. “We can just get better control of dandelions with a fall application of glyphosate than we can in the spring,” says Sikkema, a professor of weed science at the University of Guelph’s Ridgetown Campus. “Depending on the weed species, emergence pattern and a weed’s sensitivity to herbicides, that will dictate whether or not you should go with a fall weed control program or one for the spring.” Dandelion has become a troublesome weed for many growers across the province,

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Soybean Guide, October 2012

and it’s an easy candidate for a fall herbicide application. Much the same is true for chickweed. A full rate of Refine in the fall (or the spring) is sufficient for control. But what about something more difficult, like ground cherry or horse nettle? Those species have been on the list for some growers who have approached Sikkema for advice, and they are weeds that require a little more consideration, particularly when the rotational crops are factored into the situation. “If it’s after winter wheat or sweet corn or processing peas, and you have good weed growth in the late summer or early fall, you’ll have a lot of green foliage that will absorb and translocate the herbicide, so you’d be much better off to spray in the fall, because horse-nettle doesn’t come up until later in the spring,” Sikkema says. “Usually, that is after we put on our burndown .” In any case, fall weed control needs to be combined with long-term planning. “If you choose to put on Guardian, which is Roundup plus Classic, for dandelion control in the fall, I think it’s an excellent herbicide and it does a really good job on dandelions,” Sikkema says. “However, you are locked into growing soybeans the next summer.”

Canada fleabane Unlike dandelion, Canada fleabane — a growing issue in southern Ontario because of its spreading resistance to glyphosate — may be less of a candidate for fall application. Sikkema notes that Canada fleabane emerges every month of the year with the exception of January. If growers have a problem with glyphosate resistance in that weed and wanted to clean-up the seedlings in the fall, they could opt for glyphosate with Eragon. “The downside with that is that you’re going to have more seeds germinate between your fall application and planting next spring, so you’re going to have to repeat the application with the exact same herbicides,” says Sikkema. “In that situation, there’s no real benefit to the fall application compared to the spring, and in fact, the spring is better.” Rob Miller is another advocate of fall applications, and he acknowledges that the convenience of Roundup Ready cropping systems has influenced application practices. A field biologist with BASF, Miller agrees with Sikkema’s assessment that fall applications depend on the weed species in question, and he points to perennials such

as dandelion, sow thistle and wild carrot as good candidates for fall control. He’s also seen chickweed in some of his company plots, and concedes that with the warm spring in 2012, it was a bigger problem than in many previous years. “With the use of Roundup Ready crops during the last 10 years, there’s been a shift in weed control so we’ve naturally selected for these tough-to-control weeds that glyphosate struggles with,” says Miller, adding that it’s a challenge to shift the grower’s mindset away from conventional practices, such as spring herbicide applications following nitrogen. “We need to look at production as a whole and ask, ‘What’s more important: your weed control or getting the nitrogen on in the spring?’” “If we can provide residual weed control in the fall, those winter annuals don’t get as established in the fall, so come spring time, it allows you more flexibility to get your nitrogen on the wheat,” Miller says. “Then you can spray your in-crop herbicide to better coincide with your fungicide. It provides greater flexibility and you won’t have to rush out there, because those weeds won’t be as wellestablished.” SG

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SOYGUIDE

Finally, Ontario is getting its new soy processor, just in time to open major new markets for Canada’s soybean growers By Ralph Pearce, CG Production Editor

Full speed ahead F or more than a generation, Ontario’s soy sector has led the globe in extracting value out of the identity preserved (IP) soybean trade, with delegations steadily crossing the Atlantic and Pacific to sell buyers on Ontario’s ability to deliver world-class quality and even better purity. At the core of that business, however, has been the assumption that “IP” is synonymous with “food grade.” Now, it looks like time for a re-think, with a new processing plant slated for the province that may help capture even more value for Ontario’s soybean growers. In 2005, Monsanto launched its new food-grade soybean line called Vistive, a trans fat fighting specialty oil bean targetted directly at processors and consumers. The product of years of development, Vistive was supposed to usher in a new era for growers, especially since Ontario’s soil and climate appeared to enhance the low linolenic oil profile that was Vistive’s key selling point. Despite that promise, Vistive fell victim to what an increasing number of observers have been thinking has been hampering Ontario’s soy industry all

along. We don’t have right-sized processing capacity for an IP-based crop. Instead, any Vistive soybeans grown in Ontario had to be shipped for processing to a plant in Michigan, in much the same way that IP food-grade varieties that might have had markets in Canada were often shipped offshore raw because we didn’t have a facility that could do the value-add. Now, all of that is expected to change with the construction of an Ontariobased oilseed processing facility, along with something of a revised definition of IP for growers. Final details have yet to be announced, but according to Jeff Schmalz, president of Guelph-based Soy 20/20, the strategic plan is set, the investors are committed and the equipment has been sourced. Before the end of 2012, Schmalz says there should be an announcement about the start of construction on the first of two phases, which will see the building of a large oilseed crush facility, similar in nature to the two existing crush plants in Ontario. The second facility will be smaller, but will have the ability to process smaller, identify-preserved runs. Both are owned by the same principal,

Soybean Guide, October 2012

and it’s hoped the announcement on the construction of the second plant will be made early in 2013. “What it’s going to enable us to do, for example, is to plant 25,000 acres of higholeic soybeans and process them here, and keep the feedstock in Canada, and sell those outputs domestically,” says Schmalz. Schmalz says this type of development has been part of his strategic plan for about five years. “We’re talking to a company that supplies all of the vegetable oils to one of the largest retailers in Canada, and they want to be able to deal with us too, because they’re very interested in selling unique oils to their customers. And I love the sound of that, because our farmers are going to make another couple of bucks on top of Chicago.” ON TOP OF CHICAGO The second plant would help Ontario look beyond the food-grade market. Specifically, Schmalz is talking about fatty acid profiles and their particular fit for industrial uses. Depending on the year and commodity prices, at least 75 per cent of the soybeans grown in Ontario go the conventional crush route, with the oil ending up as vegetable oil or margarine and the meal going primarily for feed. But with the new processing facility, soybean growers will tap a new industrial market for oils that can be sold to downstream processors to be turned into lubricants, surfactants, waxes and floor coatings, to name just a few of the innovations. As promising as that sounds, however, the task before Schmalz and Soy 20/20 is to identify what’s best for Ontario growers. To go chasing after all 20 categories that have been defined as potential markets for higholeic soybean oil is simply not an option — there aren’t enough soybeans grown in North America to do that. The only logical course of action is to go after those top three or four categories that make the most economic sense. Hence the narrower focus on the so-called industrial uses. While Ontario doesn’t yet have any high-oleic varieties on the market, that will soon change. The first high oleics are being grown in the U.S. this year, and there will be more in 2013. Schmalz expects Canadian varieties will be available by 2014. “You have 80 million acres of soybeans in the U.S., give or take a few million, and I’ve heard estimates of up to 30 to 35 million acres that will be high oleic within five years,” says Schmalz, noting that a large portion of that crush will go to the frying market, which is another coveted Soybean Guide, October 2012

end use. “A smaller and more profitable niche would be the whole lubricant space. Surfactants is another one — the surfactants market is worth $10 billion a year, so when you look at these petroleum-based industries, the size of the markets is staggering and they’re all different markets.” IT’S ABOUT TIME For Martin Gooch, the announcement of a processing facility for Ontario is long overdue. As the director of value chain management with the George Morris Centre in Guelph, Gooch believes that too much of the focus for Ontario agriculture and agri-food has been on commodity crops, with too many lost opportunities. “It’s endemic to Canada, not just to agriculture, and that can take years to change,” says Gooch, blaming a lack of strategic leadership in the industry and at the government levels as well. Gooch points to research as well, which often focuses more on how to increase the yields of commodity crops than on how to develop high-value strains of those crops. “We don’t encourage seed firms and breeders, in my opinion, to invest money in developing varieties that will solve the marketing issue.” “In developing such new markets, you’re adding value to agriculture and to the rest of the chain,” Gooch argues. “But to do that, you need strategic thinking and a program that supports that concept, and by and large, we don’t currently have that.” With the details surrounding the plant’s construction being finalized, much of the process that Gooch describes is moving forward, and Gord Surgeoner is another of those individuals applauding the opportunity. As president of Ontario Agri-Food Technologies, Surgeoner has watched many “breakthroughs” develop and then fade in the face of cumbersome and delayed regulatory limitations or disputes over novel trait claims. And then there’s this processing facility and businesses such as Smart Earth Corporation that are breaking new ground and seeing positive results from their efforts. “Identity-preserved crush will be a huge opportunity for Ontario,” says Surgeoner, agreeing with Gooch and Schmalz. “You have to have all the pieces of the puzzle together, and this has always been a missing piece in Ontario.” In an ideal world, Soy 20/20’s goal for Ontario agriculture would be to push production of identity-preserved soybeans to 100 per cent. But that would require Ontario to import crush beans to satisfy

existing oil and soybean meal demand. In 2012, that notion is a tough sell with the prospect of growers earning $17 or more per bushel, for conventional crush. But we don’t live in an ideal world, and that’s okay with John Cowan. As vice-president of strategic development for the Grain Farmers of Ontario, he’s happy to see the processing facility being built in the province. However, he believes that growers will never stop growing conventional soybeans. “First of all, if you produce something IP, and it doesn’t make the quality that the IP requires, you still need a place to put it,” says Cowan. “Also, you’re not going to get every farmer to grow IP. No matter what you talk about with IP, there’s extra work, and there’s extra work right from the seed side all the way through to the grain elevator and the handling process, because that’s what IP is all about, and not everybody’s interested in it.” From Cowan’s perspective, the Grain Farmers of Ontario has three distinct ways of looking at crop production: growing for a current market, growing for a segregated market or growing to meet a new market. In the case of the processing plant in Ontario and the impact it may have in attracting growers to plant high oleic soybean varieties, the process can touch on all three streams. “We’re going to make a new market,” Cowan says. “There are all kinds of possibilities.” ALL KINDS OF POSSIBILITIES Often, government assistance is perceived as a necessary step in establishing new businesses, but Schmalz is pleased to note that no such support has been sought at this point. “Ours is a vision of where we need to be in the next 15 years,” Schmalz says. “We need to change agriculture, in a positive way. We need to make our farmers more money, and we need to spawn some new, next-gen businesses.” From that perspective, the oilseed processing plant is just a start. It will open the doors for specialty markets for IP soybeans, including both food and non-food uses. And it will continually push revenues for farmers.. “As exciting as the last 10 years have been, I think the next 10 years are looking even more exciting,” says Cowan. “Ontario needs to keep pushing and keep in the forefront. The Ministry of Agriculture has something called ‘Open for Business,’ and I’d like to prove it — not just say it but actually show it.” SC 21

soyguide

Greasing the market G

New lubricant has

exciting market potential, but will

producers benefit? By Ralph Pearce, CG Production Editor

et set to welcome EcoLube to the shelves of a store near you. Announced last June, the spray formulation is a penetrating lubricant to rival products such as WD-40, with one significant difference. EcoLube is a socalled green substitute, derived from vegetable oil. That means soybeans. Indeed, Eco-Lube has attracted the attention of the Canadian soybean industry and the Grain Farmers of Ontario, which has provided some financial support, as well as several retailers. Meanwhile, a campaign is underway to get EcoLube shelf space with major retailers, with much of that campaign focused on consumers. For instance, the public will be getting a chance to see EcoLube up close at the Cottage and Life Show, Oct. 26 to 28 in Toronto. According to the company’s website ( w w w. s m a r t e a r t h l u b r i c a n t s . c o m ), EcoLube displaces moisture, is long-lasting, prevents corrosion and dissolves rust. It's also environmentally friendly, has no unpleasant odour and will not stain most surfaces or fabrics. In short, Eco-Lube outscores WD-40 one key trait. Still, overcoming a market leader in any sector is a daunting assignment. “Any time you have an incumbent leader like WD-40 — and they’ve done a fantastic job marketing their product — the retail channel isn’t really that interested in looking at other products,” says Jack Grushcow, owner of Smart Earth Corporation, the manufacturer of EcoLube. “They like to have their section leaders.” In short, WD-40's solid reputation and an established leadership provide little incentive for change. Even talk of environmental benefits and superior performance may not be enough. Yet Gruschow, who also ow ns Linnaeus Plant Sciences, Smart Earth’s parent company, isn't giving up that fight. “The performance is superior to WD-40,” he says. “People who go to their cottage can spray this on a boat or on a dock, or in the house around children or pets. These are the things that people are starting to consider.”

Pro g re s s h a s b e e n s l ow, b u t Gruschow is determined, and he's persistent, which may make sense consideri n g t h e m a r ke t f o r p e n e t r a t i n g lubricants in Canada is estimated at $40 million annually. Tapping 10 per cent of that market would be a huge gain for Smart Earth Corporation. And the demand for traitspecific soybeans — high oleic varieties, in this case — would be a significant boost for Canadian growers.

Realistic forecasts Some voices suggest keeping our optimism a bit in check. Kevin Marriott farms near Petrolia, Ont. and is also a director with the Grain Farmers of Ontario. He recalls the days of the Ontario Soybean Growers, and he talks about the heady sense of “can’t miss” optimism that ballooned behind biodiesel. That’s why, although he believes in EcoLube, he prefers the “slow and steady” approach of introducing the product with the belief that it's going to take time and effort to build consumer acceptance. “I don’t want to be negative. In my mind, this particular product is very environmentally friendly and effective,” says Marriott. “What it will also do is help our education process for people, making them more aware of how good soybeans are for the environment.” Marriott also thinks products such as EcoLube could help farmers score points in the food-versus-fuel debate. “It’s a great idea, it’s just going to take time,” says Marriott. Start somewhere Another individual who’s been working behind the scenes to set the stage for new soy products is Jeff Schmalz. As president of Soy 20/20, he has been watching, working to line up the right people to manage a growing list of possibilities. Schmalz says it hasn’t been easy in the last five years. What often begins with great promise becomes bogged down in issues about finances, government regulations or even a lack of vision by hopedfor participants. Soybean Guide, October 2012

But Schmalz believes he is connected with the the right person in Grushcow, the right company with Smarth Earth Corporation, and the right product with EcoLube. “We’ve been working with Jack Grushcow for at least three years on getting soybean oil into some lubricants,” says Schmalz, whose five-year strategic vision for Soy 20/20 has expanded to several industrial product lines that he believes hold great promise. “We’ve analyzed the category and believe that over time, there’s a significant opportunity, so we’ve partnered with Jack and started with this lubricant, and there are plans to do greases and other products to develop a number of offerings for consumers.” EcoLube is being manufactured using high-oleic soybeans, based on varieties that were planted in limited quantities in the U.S. this year. It’s expected that high-oleic production will expand in 2013 and then move north to Ontario in 2014. By then, it’s hoped that Ontario’s new processing plants will be up and running, and ultimately driving demand for higher-value identity-pre-

“What it will also do is help our education process for people, making them more aware of how good soybeans are.” — Kevin Marriott, GFO

served soybean varieties. It’s also hoped that EcoLube will be the first of many such success stories that will help Ontario growers grab more of the green market. “We did strategic plans both in our food business and our bio-products area,” says Schmalz, noting that lubricants like EcoLube came out number one on a list of 20 different opportunities. Surfactants, waxes, polyester resins, cosmetics and hydraulic fluids were some of the other top scorers. The question became, what makes the most sense for Ontario and Canada? “This is a harbinger of things to come,”

Schmalz says. “This is one oilseed variety and there are others in the pipeline that we need to be able to crush and process in the province. That’s the way to link the whole value chain and that’s the way you’re going to get wealth to farmers, through premiums.” It’s easy to dream big but Schmalz is careful, for a number of reasons, not the least of which is that the specialty processing plant has yet to be built. On the other hand, he has reason to be optimistic. Many of the sectors he’s identified as part of the end-use markets for high oleic soybeans show excellent market potential. Grushcow notes the value of the market for WD-40 is some $20 million per year in Canada alone. And the market for surfactants is as much as $10 billion annually. For now, Grushcow is going to start with EcoLube and with a strategy that may target soybean producers as their best customers by going after shelf space in stores where farmers shop. It may be ironic, but it may also work, Grushcow says. “That may be the first place we look to develop retail distribution.” SG

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BUSINESS

Non-farm businesses create more succession opportunities, says Tammas and Lisa, here with Braydon, Brooke and Brant

OFF-FARM SUCCESSION Like a growing number of farms, Manitoba’s Collins family is finding their non-farm business ventures are a big help — and a big challenge for a smooth succession

PHOTO CREDIT: PERSONAL EXPRESSIONS PHOTOGRAPHY

By Angela Lovell ammas Collins has always been the kind of guy who believes everything is possible. That makes him a lot like a lot of other famers. But now with his wife, Lisa, their two sons and three daughters, the family is entering a succession transition that all of them admit is going to be difficult. And they also know that getting it right will be as important as anything they’ve ever done. The linchpin, they believe, will be their strategy of developing non-farm businesses for the kids to draw income from while they integrate into the farm. When the Collins household sits down at the kitchen table of their Pilot Mound, Man.

OCTOBER 2012

farm to discuss succession, it’s at a very large table. With five children, their spouses and the grandchildren to consider, it’s a very complex process that they are just beginning to really figure it out. The table is large in another way too, because in addition to the farm, the family runs an electrical contracting business, it operates a local hotel, and now is looking at building condo-style apartments in town. Of course, that’s no accident. “Our attitude is you have to keep identifying the needs in the community and meeting those needs,” says Tammas. “When progress ends, decay begins.” But it does create a web of interlinking Continued on page 30 country-guide.ca 29

business

When farmers get involved in in-town business projects, life improves for everyone, says the Collinses, seen here in their Call-Inn’s Hotel. Continued from page 29 relationships, both between family members and between enterprises. “How the dots are going to connect is probably one of the biggest challenges in farm families, especially where you have multiple family members involved as we do, and multiple businesses,” says Tammas. The Collinses are seeking advice from professional financial advisers and others to help guide the family through this complicated process, and Tammas and Lisa are also listening hard to their kids to understand their aspirations. Yet Tammas and Lisa believe they know some of their best building planks. “To motivate anyone in a business, you need them to have ownership,” Tammas says. “For our kids just to work for us and not to have any ownership or any reward is not the same as them owning a piece of it, although it is extremely tough to have a large operation with multiple family involved and have everyone work together.” It’s a pitfall for many farm families, says Bruce McQueen, a wealth management adviser with Assante Ag Group in Brandon, Man. “One of the problems I constantly run across,when I am doing estate planning with farmers, is that a lot of them assume their heirs will get along once they inherit the farm or estate, and that’s not necessarily always the case,” McQueen says. “And they assume they know what their heirs want — they don’t talk to them beforehand.” The Collinses are determined not to fall into that trap. “Many farm families haven’t wrapped their heads around the whole issue of succession and maybe not planned as far in advance as we have,” says Lisa. “I wonder whether that isn’t because many of them aren’t really ready for their kids to come back and take over the farm. They encourage them to 30 country-guide.ca

go away and do their own thing and then in five years or so maybe we can buy some more land or be more ready. I think some parents just try to hang on too long.”

Overlapping generations Tammas and Lisa aren’t exactly ready to retire either. “They are addicted to their work and always need to be busy,” says daughter Brooke. “There’s not a day off for them ever. They are always looking for something to do.” Finding something to do hasn’t been much of a problem. Besides raising five kids while expanding their farm operation, Tammas and Lisa also operate a full-time electrical contracting business that does residential, commercial, agricultural and industrial work. Then, last year, the family also opened Call-Inn’s Hotel, Restaurant and Lounge in nearby Pilot Mound. Even the history of the Collins farm is a little more frenetic than many third, fourth or fifth generational farms in the area. Indeed, Lisa and Tammas are relative newbies to farming. Tammas’s parents ran a grocery and clothing store in the town of Pilot Mound — about two hours southwest of Winnipeg in southern Manitoba — for over 40 years. It wasn’t until he was approaching retirement in the mid-1980s that Tammas’s father decided to purchase some land and try his hand at farming, along with Tammas and three of his five brothers. It didn’t go too well and by the time Tammas and Lisa took over the farm in 1992, the other brothers had moved on to other things. From that time on, it was full steam ahead as the couple expanded the grain farm from 800 acres to its present 5,000 acres. The farm expanded as the family grew, reflecting a pressure that farmers feel across the country. “Would we have expanded the farm as much if we didn’t have five kids? No, Continued on page 32 October 2012

Bus Tour 2013

to National No-Till Conference – Indianapolis

January 8 to 12, 2013

Here are a few of the confirmed National No-Till Conference Speakers. For a complete and up-to-date listing go to www.no-tillfarmer.com Alex and John Young John Young remembers when his father no-tilled the first acres of corn on his Kentucky farm. Some 50 years later, the 2nd generation no-tiller and his son, Alex, will deliver the keynote address. Jerry Hatfield, a USDA-ARS lab director, will share how notill production systems can provide the buffer you need to cope with the extreme weather conditions we are facing more often. Kris Nicols, researches the impact of glomalin (substance produced by fungi) on soil aggregation, water relationships and its impact on crop rotation, tillage, cover crops and livestock grazing. Sjoerd Duiker, soils specialist from Penn State University will share how to move away from rotational tillage and identify practices to move toward pure no-till systems. Odette Menard believes earthworms are a farmer's most important tillage tool. She’ll discuss why earthworms are critical to implementing notill practices and how they improve soil structure.

Bus Tour includes:

 Visit with Dave Brandt in Ohio.

Dave is recognized across the US for his research and innovation on cover crops and their contribution to no till farming.

 National No-Till Conference

Registration includes books and handout materials ($249 registration value).

 Accommodation (double occupancy).  Bus transportation with pick up spots at

Kitchener, London & Chatham.

 Some meals included.

$575 + HST – Early Bird Price $685 + HST – after Nov 15th

To register go to www.ifao.com or call 519-986-3560

“The National No-Till Conference offers great speakers and super opportunities for networking with other no-till farmers.” “You couldn’t come close to matching this Bus Tour price if you put this trip together on your own.”

Mark your calendars for the IFAO Annual Conference, Feb 26 and 27, 2013

business Continued from page 30 we would have grown the farm to the point where we could manage it ourselves,” says Tammas. “Our kids were a huge factor in deciding how big the farm needed to be.” Tammas and Lisa aggressively acquired land, staying ahead of the market and often attracting criticism for the prices they paid. “Every time I went to buy land people would shake their heads and wonder why I paid that much,” recalls Tammas. “We would always pay too much, but then a few years later it wasn’t too much… I was aggressive because I have always been optimistic about farming.” Tammas remains optimistic about farming and knows that even if he’s wrong about that aspect of the Collins’ family operations, he has, to an extent, been able to help his kids insulate themselves from the dangers of having all their eggs in one basket. “They are constantly expanding and I think they are thinking of family when they are doing it,” says daughter Aimee.

“Even though it’s really hard on them when they are taking on more land or more businesses, they are always thinking of the kids. They want to expand the farm, the town and the businesses so there are opportunities for us and our kids.” Three things motivate the Collinses and are integral to their succession plan: community, family and business. Success is measured only to the degree that all three of these things flourish. Ta m m a s a d m i t s t h a t t h e k i d s thought they were slightly crazy when they decided to get into the hotel business, but the motivation, as usual, was driven by their big three. “Our biggest motivation all the time was to get another hotel in our community because there was a huge void,” says Tammas. “We never expected to run it and we didn’t really need another challenge in addition to what we already had.” 2011 certainly wasn’t the best year to begin another new venture. The extremely wet spring conditions had meant over 40 per cent of their crop-land was never seeded and yields weren’t great on the remainder.

The ABC’s of Succession Planning With thanks to Bruce McQueen of Assante Ag Group. A. Advice Seek advice from more than one source. Don’t just go to your tax accountant. Talk to other financial advisers and retirement estate planners. They have specialized knowledge of the constantly changing tax laws and provincial and federal regulations that will affect your situation.

B. Be prepared Start succession planning well in advance of the expected transition or sale date. If you aren’t looking four or five years ahead, there will be some strategies that your advisers will tell you about that you simply may not be able to adopt because your timeframe will be too restricted.

C. Consider Consider all the parties involved. Have a family meeting to make sure everyone is on the same page. Talk about some of the things people don’t like talking about, like what happens in the case of premature deaths and/or marriage breakdowns. Don’t assume that your heirs are going to get along after they inherit the farm or estate. Plan for both the best scenario and the worst.

D. Don’t… Don’t listen to coffee shop counsellors. You risk getting outdated, incomplete or bad advice from misinformed sources. Don’t assume that your situation is the same or similar enough to a neighbour or other farmer’s to try and adopt the same plan or strategies.

32 country-guide.ca

The hotel was meant to be a community-owned project, meeting a desperate need created by the demise of the old hotel, which had burned down a few years earlier. With the assistance of the Province of Manitoba, the community planning group had prepared a business plan for the six-room hotel, lounge and restaurant, which showed that the project could be reasonably viable. But when the committee applied for debt financing, their credit union took a different look at the business plan, injecting more cautious numbers, so the loan application got turned down and the project fell to a standstill. That’s when Tammas and Lisa stepped in, realizing that if the hotel wasn’t run as a private business it wouldn’t become a reality. So, they took the plunge, mortgaged heavily and hoped the kids weren’t right with their misgivings. “It was an extremely stressful time,” admits Tammas. “We took a large mortgage and a huge leap of faith, not knowing which business plan would prove to be right. We had no idea really how it was going to do, but it’s paying the debt, the bills and the staff, so it’s good so far.” A year on, with the hotel holding its own, the kids are more supportive. Their 25-year old daughter, Brooke, is managing the hotel, while also completing her last year of an education degree in Brandon. In addition, 27-year old Aimee, currently on maternity leave from her teaching position after the birth of her second child, is also helping out when she can. Meanwhile, sons Brant, 25 and Brayden, 22 have followed their Dad into the electrical business, along with Brooke’s husband, Rhegy, and all three are involved in the farm operation as well. Their oldest daughter, Jocelyn is also a teacher and lives about an hour away at Morden, Man. Besides running all of these businesses the Collins family has a long tradition of community involvement. Tammas’s father Arnold was instrumental in building Prairie View Lodge, a 30-bed personal care home, and his mother Eileen continues to serve on many local organizations including the Pilot Mound Chamber of Commerce and the Pilot Mound District Foundation. “It was drilled into me,” says Tammas. “My parents were huge community people — they gave up their lives to work for their community. Not October 2012

business that they ever pushed me — they just led me by their own example.” Tammas was mayor of Pilot Mound for eight years. He was a first responder with the volunteer ambulance service too, and has worked on numerous community projects, including the Pilot Mound Millennium Recreation Complex. This 46,000-sq. ft. multiplex took a decade to complete, almost entirely funded, built and operated by a massive pool of volunteers in the community. Brooke feels that some of the goodwill her parents have built up over the years, with their tireless volunteer efforts in the community, is now being repaid in kind by the locals, who have been very supportive of the new hotel. The new hotel has, in all reality, probably been better for the community than for Lisa and Tammas, who admit there isn’t much left after the bills and the staff are paid. But it’s creating economic activity and jobs for 15 people. It also pays around $18,000 in property taxes each year to the town and buys local goods and services. But even though no one is in business to lose money, personal satisfaction is also part of the story here. A big part of the family’s rationale in opening the hotel was their desire to provide a service as much as a new business. “It’s very gratifying at Christmas time when we see lots of family members coming back to visit and gather together at Call-Inn’s. It’s become a community meeting place, not just a business that is creating economic activity in the town,” says Tammas. You’d think they had enough on their plate already but they are also now contemplating building a four-plex housing development to meet yet another identified need in the community. Tammas and Lisa have a solid belief that it’s important to do everything they can to build the infrastructure and the economic environment that will enable rural kids to remain connected and committed to their land, their families and their community. “We do promote our kids to stay here,” says Tammas. “When I was younger I didn’t think it was a thing that I should do until I realized that this way of life is far better than a way of life that could offer more money somewhere else.” It’s a message that has resonated enough to keep all of their kids within a two-hour radius of home. “They’ve October 2012

given us leeway in what we want to do and to make the right decisions on our own, but they have also stressed that maybe staying around home is the best thing for us, and obviously we are all here,” says Aimee. Tammas and Lisa buck the trend among many farm parents who encourage their kids to get an agricultural degree or diploma so that they can come back to farm. “These farm kids are going to school and coming back and working for Monsanto or somebody else,” says Tammas. “They’re not necessarily working on the farm or for themselves.” Tammas and Lisa on the other hand believe that, while an education is vital, it’s not necessarily a formal education in agriculture that’s the best insurance policy. “I believed that the kids had to go to school to become an electrician or a teacher, but it (formal education) is not necessary to be a farmer because they can learn so much more hands-on or have the knowledge handed down. Neither myself, Lisa or our kids have ever been to school for farming,” says Tammas. “We have encouraged the kids to go to school for their electrician and education training, but our thinking is that they then have a core skill that isn’t related to agriculture and any additional advice that they may need on the farm can be outsourced. Whether it’s the right thing or not I guess time will tell, but so far it’s working for us.” Tammas admits the family has relied heavily on local agronomists and consultants to scout their crops and advise them on their fertility needs. They have also used technology, such as GPS and variable-rate fertilization to achieve more productivity and efficiency and cut down on the hours they spend on the seeder, sprayer or combine. But farming isn’t only about fieldwork. Having run an off-farm business for so many years has really helped them focus on the business management side of things, which they believe has made the biggest contribution to the success of the farm. “Farming today is all about taking risks and it’s managing the logistics, the manpower, the equipment, the transportation, that is the challenging part,” Tammas says. “We have other people making the agronomy decisions for us so we can concentrate on the financial side of things.” With their various enterprises sparking on all cylinders there’s no tempta-

tion to simply sit back and enjoy the fruits of some very long hours of labour, because it’s succession that is probably the number one reason for everything they have done since their first child was born. “It would be totally disheartening for us to see what we have worked so hard to build just fold or be sold off in pieces,” says Tammas. “We have not been building these businesses over the years for ourselves.” It’s why they are seeking professional advice about how they will structure things for the future to make the transition of the various businesses as smooth as possible. “The most important thing is to be smart enough to know that we don’t know it all,” says Tammas. The businesses are all separate entities operated currently as partnerships, but are likely to be incorporated sometime in the future, and although they formalized how it will be structured, the intent is to gradually divest themselves of shares in each of the enterprises as family members take over the reins. Sharing their parents’ vision hasn’t always been easy for the kids. Brant admits that he would far rather have been playing hockey when he was younger than riding a tractor or learning the electrical business. “But Dad has taught me how to work hard and I know that things weren’t easy at times,” says Brant, who just got his journeyman electrician licence this spring and also works on the farm. It’s also taught him another valuable lesson, Brant adds. “Having a business is so different than working for someone else.” “We certainly don’t expect anything to be spoon fed to us,” adds Aimee. “We know that we have to work hard.” Interestingly it’s the hotel venture which seems to have precipitated this period of transition for the family and that has prompted some serious consideration to the whole issue of succession. “It’s a difficult time for our family right now,” admits Tammas. “The kids need to make their own decisions, but they need to also demonstrate that they are ready to be leaders.” That, says Tammas, will come as they take ownership of the enterprises that Tammas and Lisa have worked hard to build up over the years. “History has proven it over and again,” Tammas says. “Anything given gets lost, so what they will have has to be earned.” CG country-guide.ca 33

business

The cost of success By Richard Kamchen

For growers like Mark Delanghe, the irony is that high crop prices may actually make this the most important year ever to know your true cost of production

34 country-guide.ca

October 2012

business

Photo Credit: Brent Foster

ark Delanghe knows that you could let it turn into a frustration instead of looking it at as both a key management tool and one of the practices that elevates the game of the most successful farmers. Because it’s true. Every winter, he does a cost of production for the corn and soybeans on his 1,200-acre Wallaceburg area farm in southern Ontario, and every summer, he begins finding out just how wrong he was. Input costs change. Or sometimes a field may need an extra spray, or his machinery may ring up extra repair bills. And then there’s the big one. Each year his yield is either higher or lower than forecast, so his estimated cost per bushel is out of whack. In other words, it’s inescapable. Every year, Delanghe’s cost of production calculations have got to be wrong to some degree. So why bother? The truth is, in fact, that Delanghe doesn’t work as hard at his costs of production as he did when he first started doing them. In part, that’s because he’s better at finding his costs, but in part too it’s because he doesn’t worry about being quite as precise.It doesn’t really matter, he explains, if he rounds off his cost of production for corn at $4.17 a bushel instead of calculating it to $4.175. “You can spend a lot of time on this stuff, and I would agree that it isn’t necessary to go the third decimal.” Still, Delanghe does his cost of production. Always. Part of the reason is risk management. “If you don’t know where you stand when prices do go south, then you’re going to struggle,” Delanghe says. “You need to know that $4.17 a bushel is the key figure.”

October 2012

But there’s more to cost of production that that, Delanghe insists. “It allows me to find out where I’m going.” Indeed, with healthy crop prices, that “where I’m going” value of cost-of-production calculations could prove vitally important. Lynn Jacobson agrees. Jacobson is a farmer at Enchant, Alta., and spoke to Country Guide while harvesting the last three of his nine quarters. He’s busy, like all farmers, and he concedes there’s a temptation ignore cost of production during good times. But in that direction lies trouble, he believes, and he points to the need to replace older equipment to explain why. “I know there’s been a lot of iron sold this year, probably because guys have been using the older stuff for quite a while and think they need to change, and this is an opportunity to do it,” Jacobson says. Even so, equipment is getting so expensive, it’s as important as ever — and maybe even more important than that — to know your cost of production. Otherwise, how do you know if you should be buying your own new combine, or buying a used unit, or maybe forming a partnership with other farmers to share the expense. You could rely on the equipment dealer’s computer models to tell you, or you could know your own numbers. Smaller farmers need to consider working together, Jacobson believes. In fact, he thinks it’s a consideration that almost all farmers will feel they should look at if they really understand their costs. “That might be the way we have to go,” Jacobson says. “On our farm, we can’t afford a $400,000 combine. On that type of money, I might as well retire.” Continued on page 36

country-guide.ca 35

business

Continued from page 35

Today’s opportunity

High prices, high dangers

Val Panko, a regional farm business management specialist in Moose Jaw for Saskatchewan’s Ministry of Agriculture, says that knowing your cost of production is especially critical in these times. “This is the time when farmers need to use earned equity to make positive gains in their net worth position, not just additions to their net worth through their appreciating land base,” Panko says. That’s where knowing cost of production comes in. Efficiently converting assets into net wealth is a function of knowing your costs and trimming where possible to maximize your return on those assets. “Many farmers make tough financial decisions such as buying additional machinery based on grain prices and how they perceive their financial position to be as a result of those prices,” Panko explains. “Using your cost of production to make those decisions is much less of a gamble, and lets you know what you can afford in a worst-case scenario.”

Jean-Philippe Gervais, chief agricultural economist for Farm Credit Canada in Regina, encourages farmers to keep the long view in focus. It’s hard to be forward looking in good times, Gervais says, and it’s easy to get swept up in the optimism, so you neglect to ask the hard questions. “What if economic growth in southeast Asia slows down and all of a sudden that rising food demand we’ve seen in recent years starts to slow down?” Gervais asks. “What if we get a bumper crop next year in the U.S.? How am I going to be able to compete in that environment?” From a management point of view, knowing your cost of production when times are good creates an opportunity to look at your business and determine how best to use the increased cash flow, Gervais says. The knee-jerk reaction can be to pump revenue into expanding the operation by purchasing more land and machinery. But that might not be the right move for every farmer. For some, it might be more prudent to pay down their debt. “There’s no denying farm debt in Canada has gone up quite a bit in recent years,” Gervais says. “For most producers I would say, based on what I know looking at some of our customers and looking at the industry in general, I think it makes more sense to use that cash to pay down a bit of debt.” But the answer can depend on where your business is at. Repaying debt and ensuring the farm financials and balance sheet look good might be best for a farm that’s still growing, but for a more mature operation with less debt, it might be better to put cash into off-farm investments for retirement. Consulting a farm financial adviser may help. “I’m just amazed at the complexity of the business now,” Gervais says. “You have to be not just a production expert, but you also need to know marketing, financials, and even human resources.”

36 country-guide.ca

The other side of the fence Critically, cost-of-production analysis not only tells you how profitable your own farm is, it also helps you compare your profitability against other farms, says David Sparling, ag professor at the Ivey School of Business in London, Ont. “Are you doing worse or better?” Sparling asks. As the capitalization in agriculture increases, a lower cost of production may mean your neighbours can keep expanding when you have to retrench. On the plus side, though, cost of production analysis can help you evaluate new opportunities, and see which might have the best impact on your ability to achieve your business objectives. As well, cost-of-production analysis can help farmers evaluate their economies of scale, which Sparling believes are hugely important today, and likely to get even more important in future. According to research he’s done with Statistics Canada data from 2010, Sparling says a producer with $100,000 in annual revenue requires $20 of assets to produce

$1 of sales. A producer who earns $2.5 million or more requires only $2.72 of assets to generate that dollar. “If you think about producer profitability, it really comes from a bunch of factors,” says Sparling. “It comes from picking markets where your products are attractive and will fetch a price that’s much higher than your cost of production. If you go into markets and don’t understand the cost of production, then you don’t know whether that price is going to make you money or not.” Another consideration that isn’t factored in by many farmers today is the value of their own time. It’s one thing to know the cost of a tonne of fertilizer or a litre of diesel, but your contribution is just as important to your real cost. Perhaps the best way to see this is to do a strengths and weaknesses analysis of your farm, Sparling says. “A grower can realize where their time might be better spent,” agrees Justin Funk, managing partner with Agri Studies Inc., based in Guelph, Ont. Funk and his father, Tom Funk, adjunct ag economics professor at the University of Guelph, mined a wealth of data and information from the 250-page Large Commercial Producers Study of 2010 compiled by Agri Studies and Ipsos Forward Research. In doing so, they confirmed many of Sparling’s findings from the mid-2000s, concerning cost of production figures and trends. Their work also raises uncomfortable questions, including whether farmers with larger operations are more likely to understand their cost of production. “I think that’s a safe assumption. Larger businesses are more likely to engage in more business planning-type activities, in general,” says Funk, adding that large farmers are also more likely to seek outside financial and business advice. Also important is attitude, Funk says. Are you a farmer or are you a chief executive officer of a farm business? “If that mentality changes,” says Funk, “perhaps so will the understanding and appreciation of more of the quantitative elements of farming.” CG With files from Ralph Pearce, CG Production Editor.

October 2012

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TOOLMAN

Will the good times get better? By Errol Anderson lobal grain prices have been incredibly powerful due to massive 2012 drought and the enormous losses in U.S. corn and soybean ouput. The drought has altered the fundamentals of grain markets worldwide. Production in the Black Sea region has also been cut. It hasn’t been all roses in Canada, of course. Yields in all three Prairie provinces have been lower than expected due to the combination of disease, pests and untimely summer heat. Much of Ontario is below trend as well, with severe losses in pockets. But here’s the important point. The U.S. has lost more yield this year than Canada and Australia produce in total. That’s astonishing. Global grain supplies will no doubt be snug until the South American crop enters the market next spring. That is a long way off. As well, there is no guarantee of a bin-busting Brazilian soybean harvest. As a result, grain traders will remain edgy until new-crop Southern Hemisphere supplies are better known. As a result, bargaining power has clearly shifted into the camp of the grower. So with this devastating loss in global production, are we now simply in a new marketing era? With corn prices peaking over $8 per bushel and soybeans making all-time highs late summer, the U.S. drought has had a bullish domino effect across all grain markets. Grain ending stocks as of July 31, 2012 have shrunk for most Canadian grains. And now that winter is approaching, there’s no telling how high prices might go should further global weather disruptions occur. But this price road will not be a straight one. The tug of war between supply and demand and even global financial markets will intensify. In this market environment, buyers may need to sweeten the pot to attract grain, with those enticements sent through basis levels. Grain basis levels especially for commodities such as canola are expected to remain attractive well into 2013. Remember, basis is the price spread between the futures and your local cash price. But through these superheated markets, modest sell-offs will no doubt occur. What goes up will eventually come down to a degree, no matter how bullish a market may look on the supply side. Let’s look at the Western Canada canola market as an example. As of writing mid-September, 1 Can canola bids were well above $14 per bushel delivered. The flat price for canola is certainly impressive, but basis levels do tell a different story. Country delivered basis levels have actually strengthened through the harvest period due to strong crush and export demand. Growers have 38 country-guide.ca

been mesmerized by cash bids well above anyone’s expectations. So what could possibly knock these markets off their bullish perch? Outside financial markets and commodity funds have a big voice in our ag markets. Changes in demand can be brought on by any slowdown in the global economy, and these changes can alter the bullish stance of any market. This is just a part of the law of supply and demand. Plus, during periods of excessively high prices, global substitution will flourish where possible. As an example, there have been significant changes to the flow of high-priced U.S. corn as cheaper substitutes have found new markets. Shiploads from Brazil and the Black Sea region have found its way into the U.S. market. These changing trade patterns also impact prices. And the price peak for any commodity in short supply is when demand is eventually rationed via price. This is basically called demand destruction. So the moral of the current market story is this. The U.S. drought plus other global weather uncertainties will keep ag markets strong into 2013. As well, you can expect solid buyer support as the battle for spring acres approaches. Demand from crushers, exporters and feeders paints a powerful price picture over the next few months. And new-crop bids should be supported as well. The world market can simply ill afford any reduction in acres and production potential in the new crop year. The U.S. drought of 2013 will have an impact on commodity prices for months to come. But there will be selloffs no matter how fundamentally strong a market may appear. They are the inevitable. The U.S. drought of 2012 has made a powerful statement, but it doesn’t provide bullet-proof protection against price slippages from time to time. This incredible event will provide Canadian growers with much healthier profits this year. Demand is solid as the world adjusts to the reality of snug supplies. But we can’t simply let our marketing guard down. Strained supply and demand fundamentals have the uncanny ability to rebalance themselves. Our grain markets into winter will be strong with active buying interest and price optimism. Grain market prices are apt to above the norm this winter, and this global event will offer growers an excellent opportunity to price both their old and new crop grain at highly profitable levels for many months ahead. CG Errol Anderson is a commodity broker located in Calgary and author of ProMarket Wire, a daily grain and livestock risk report. He can be reached at 403-275-5555 or email prowire@shaw.ca. October 2012

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The basics of legal trusts A trust may be your best option if you want to control how assets are distributed to your beneficiaries. But think deep about your motivations, and get ready to do your homework By Maggie Van Camp, CG Associate Editor t’s hard to make trusts sound exciting, and maybe that’s a good thing. The issues that determine whether a trust is your best option are often some of the most serious, sober and technical issues that your business and your family will ever face. In brief, a trust can help you distribute assets or income to specific people in a specific way in some specific situations. Trusts can also help solve problems and save taxes. However, trusts can also be costly, and they have the potential to cause unintentional problems. On farms, as well, trusts can be even more complicated, since the benefits of the trust must also be balanced against potential tax concerns from the loss of rollovers and impacts on the capital gain exemption. “A trust does not suit every situation,” warns Len Davies, farm financial adviser and estate planner near Chatham, Ont. First you need to understand that a trust simply spells out the relationship between parties, using guidelines to direct how assets or property are transferred to the trustee who holds and manages them for the benefactors. You should also be aware that trusts require extra paperwork, such as a bank account and a tax return. Also, a trust is deemed to sell all of its assets at fair market value every 21 years, which could trigger tax liability if not planned for. A tax-free rollout to beneficiaries is one of the many ways to plan ahead for this, but it has to be planned for and 21 years can go by extraordinarily quickly. Lawyers are needed to set this up and an accountant will probably be needed to maximize the tax benefits and, if you don’t select yourself as trustee, there will be ongoing trustee fees. It would be simpler if there was a minimum value of assets that would make a trust worthwhile. Every situation is different, however. For example, if a child has an addiction problem, a trust might be a good solution even for smaller estates. Still, you need to watch whether the expenses will justify the benefits. “When setting up a trust you better ask how much is this going to cost,” warns Davies. “You could be in for a big surprise.” By their nature, incorporated farms already have a certain level of family governance and insulation in place. “Family members have share certificates instead 40 country-guide.ca

of names on title, and often shareholder agreements protect the farm as a going concern and provide a mechanism to deal with things like incapacity, death, or marriage breakdown,” says Barry Broughton, a lawyer from Lethbridge, Alta. “Trusts may be layered on this structure for relatively short term purposes but doing this can be very complex.” The type of trust depends on what you want it to do for you. Canada Revenue Agency’s website lists 24 different types of trusts along with a virtual cornucopia of tax implications and rules for each. Better yet, for examples of how different kinds of trusts can be used for farm estate planning, try starting at Alberta Agriculture and Rural Development’s website (www.agric.gov.ab.ca) and search for the online version of their publication Use of Trusts in Farm Estate Planning, or search for Manitoba Agriculture’s Legal Guide to Farm Estate Planning. Fundamentally, there are two kinds of trusts — one for when everyone’s alive, and one called a testamentary trust that kicks in when the original owner dies. Living trusts (techncially called inter vivos trusts) are formed to direct assets when everyone is alive. For example, a grandfather may put some land into a trust for a grandchild and name the trustee to be the grandfather’s son. The son, a farmer, rents the quarter section from the trust and pays rent to the beneficiary, the grandchild. The trust states the ownership of the land passes to the grandchild at a certain age whether the grandfather has passed away or not. Living trusts can be tax friendly, says Davies. They allow a person to have additional beneficiaries and let the trustee decide who gets what. “If you want to give a minor funds, it can be more tax effective to funnel it out as a beneficiary of a trust rather than to take money out of a business and pay tax on it at your rate,” says Davies. Also, living trusts in some situations protect against liability. Any assets owned by a trust are protected, even if you were were personally liable for something. With careers that could attract an unwanted liability, putting the farm in a trust protects it. Similarly, a living trust is one of the strongest ways to protect the farm assets from getting split up in a divorce. For this reason Davies has seen parents put a farm’s common shares in a trust for their son or daughter who would be the beneficiary of that trust. However, they don’t own the shares so don’t have to give half to their spouses if they get divorced. October 2012

business Testamentary trusts are basically a set of rules in a will, or by court order, for how an estate will be dispersed at your death. So if you want to change your mind in a couple of years, you just go back to your lawyer and change your will. These trusts allow estates to be passed down to a benefactor, such as a child or spouse, so they have income without having to manage the estate. Sometimes there are even tax benefits because the trust itself has to claim income and pay taxes, not the benefactor, but check this out with a qualified adviser. A testamentary trust can delay the inheritance of the estate until the beneficiary is a certain age. For instance, parents may set up a testamentary trust so their child does not get the asset until they turn 21 years old. Sometimes Davies recommends estates be incrementally given, with a certain percentage at one age, some later and the balance at a another time. Although they are getting income such as interest from that trust all along, Davies believes this encourages more prudent spending. “The idea is that a person may blow the money at first,” he says. “If they only had 25 per cent, they would be more careful and use better judgement when they get the next 75 per cent.” Spousal trusts can be employed to make sure a spouse has money but can never sell the asset. Davies has suggested this type of testamentary trust if a farmer has been married a second time and wants to

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provide for this spouse but also wants the heirs to get the property. The spouse has use of the property but never owns it, and it passes on to the children at the spouse’s death. For example, a second wife could live in the farmhouse and get the land rent, but the farming child would own the land in the end. Trustees legally hold the property for beneficiaries and this can be useful is certain cases. Henson trusts are absolute discretionary trusts for disabled children so they get the income from the asset in a trust. Since the assets do not officially vest with the beneficiary they cannot be used to deny government benefits, such as the Ontario Disability Support Program. Making a trust discretionary means that you pass the decision making on to the trustee. In some cases, trustees are very expensive but the expense may be warranted if your heir has an addiction problem, says Davies. In other cases, trustees are family members or the person owning the asset. Spendthrift trusts are often set up for parents of isons or daughters who cannot handle money, says Davies. Self-awareness is needed, however, and a hard look at your reasoning. There’s a fine line between wanting to care for your family and wanting to control them. “I do not like trusts that are used simply for ruling from the grave,” says Davies. “You may want to, but circumstances change and if a trust is not flexible you will get your horror stories.” CG

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country-guide.ca 41

MANAGEMENT

Tax planning It’s going to take even more planning to keep the tax man at bay this year, so we asked MNP’s Darren Swann for his strategic advice By Madeleine Baerg

nce in a while, everything just lines up. Markets go high, the weather plays along, and yield and quality hit the mark. If this describes your 2012, how can you make sure that Ottawa isn’t the real winner? “This year is shaping up to be a good year for many Canadian farmers,” says Darren Swann, a senior tax manager with MNP LLP in Red Deer, Alta. That means tax planning will be crucial, says Swann, who has been providing tax advice for 12 years to business owners, about 85 per cent of whom are farmers. “It’s important every year, but it’s especially important in a strong year to carefully assess your tax situation and plan in advance for tax-saving opportunities.”

1. GET ORGANIZED Yes, it’s advice that you’ve heard before, but it’s never been more important. As a starting point for effectively managing your tax situation, you need up-to-date books and records reflecting all your cash revenue and expenses as well as equipment purchases and dispositions. In fact, getting organized is the year’s single most important tax tip. Without organization and a paper trail, other tax savings techniques can’t be as effective.

2. PRE-BUY AND PRE-PAY If this year’s income is unusually high and has the potential to saddle you with a heavy tax bill, average this year and next year’s incomes by pre-paying for next year’s costs… so long as you manage your farm accounting on a cash rather than accrual basis. Crop inputs such as fertilizers, seeds and chemicals that you’ll use next year can be purchased prior to December 31 this year and either be stored on site or delivered from the retailer when necessary next year. But here’s the catch. You must have clear title to the goods. The Canada Revenue Agency does not count credit on a supplier’s account as a tax deductible purchase. “Sometimes a guy will go to a fertilizer dealer and give, say, $100,000 down as a deposit on a future purchase,” Swann says. “The CRA takes the general view that, in this situation, there is no expense for tax purposes because, if you change your mind after year end, you can just ask to be refunded the deposit.”

3. PRE-PLAN If you’ve got extra income, your first impulse may be to finally buy that new machinery you’ve had your eye on. Maybe yes, maybe no. From a tax-saving perspective, you can only claim 50 per cent of the normal capital cost allowance in the year of purchase. For example, if you purchase a $300,000 combine, which has a 30 per cent capital cost allowance (Class 10), in the year of purchase you can only claim 15 per cent or $45,000 of the purchase price. In the year after purchase, you can claim 30 per cent of the remaining $255,000, giving you a deduction of $76,500. What this means, of course, is that if you have a really great year this year, you really needed to have bought your big machine last year in order to bring this year’s income down. That puts this year’s decision in a different light. Now you need to ask yourself whether you will have extra income to protect in 2013. Also ask yourself, how much 2012 income can I defer until next year? Pre-planning is key to tax savings success. 42 country-guide.ca

OCTOBER 2012

management

4. Defer (if you can)

6. Consider incorporation

Check the details with your accountant. You may — or may not — be able to defer income until next year. Some buyers can help you defer income even after your commodity has been delivered. For example, a grain farmer can deliver a crop to an elevator and, upon request, receive a cheque postdated to the next taxation year. “From an economic standpoint, it’s in the elevator’s interest to postdate a cheque because they’re holding that money back and getting a rate of return on it,” says Swann. That said, taxation rules aren’t quite so flexible for other commodities. A cow-calf operator who sells animals through an auction mart cannot request that the auction mart post-date a cheque into the next taxation year. “The CRA considers the auction mart to be an agent of the farmer. When the auction mart sells the animal, always assuming the auction mart is paid on time by the purchaser, that money properly belongs to the farmer even if it is being held in trust by the auction mart.”

In higher-income years, it can be difficult to “buy your way out” of your tax liability. Purchasing next year’s inputs and livestock or deferring income to the next year can provide short-term solutions for a sole proprietorship or partnership. However, this strategy may only defer the tax problem. If you have another good year next year, you could be on the hook for an even bigger tax bill. “At times, farmers may even feel inclined to make decisions that are motivated by tax considerations which, more often than not, are the wrong business decisions, such as not selling inventory when market prices are at or near all time highs,” says Swann. By transferring your farming operations to a corporation, farm income is subject to a lower tax rate. Depending on the province of residence, the first $500,000 of profit earned by a corporation is taxed between 11 and 15.5 per cent. Contrast this to your personal tax rate, which can range from 25 to 44 per cent, and the savings are obvious. For example, if you run a farm in Alberta that brings in $300,000 taxable and you have the highest personal tax rate (39 per cent), you could be looking at a tax bill of $117,000. The 14 per cent corporate tax bill for the same income would be $42,000. “The lower corporate tax rate can give the operator more discretion on whether to buy out of their tax liability each year, and the lower rate of tax means the corporation can retain a larger part of their after-tax earnings to re-invest back into the farm by retiring debt, investing in new farm assets, expanding the farm or making distributions to shareholders,” says Swann. One of the greatest benefits of a corporation is its ability to defer a significant amount of tax into the future. This deferral will last as long as the funds are retained at the corporate level for reinvestment back into the farm. The deferral benefit will last until the accumulated income is eventually paid out to the shareholder. At this time, the combined personal tax rate paid on the distribution of corporate funds and the original tax paid that was earned by the company will approximate the tax that would have been paid if farm income was reported by the individual. However, although the tax benefit is clear, the decision to incorporate the farm needs to be considered from all angles, says Swann. Incorporation can change how you operate as a business, it can impact how you benefit from farm programs, and it can complicate estate and succession planning. “It’s not always a simple decision,” Swann says. “Tax is one consideration point, but there’s definitely a business consideration anytime you restructure.”

5. Keep it in the family An often overlooked tax savings opportunity is to pay reasonable wages to your children who helped out or worked on the farm, says Swann. So long as your children have no other income, the first $10,000 they earn on the farm will not be taxed. “My recommendation is the child should be put on payroll,” Swann says. That means more than flipping the kids some cash when they come asking. Instead, it takes planning and discipline. “I highly recommend that any hours worked be carefully tracked,” Swann says. “The farm should register for a payroll account number, and should issue a T4.” Paying wages to yourself and your spouse is somewhat more complicated, depending on what form of business structure you operate under. If you operate as a sole proprietorship, you can pay a reasonable wage to your spouse for any hours worked. If you operate as a partnership with your spouse, you wouldn’t pay wages to the partners because they’ll get a share of the income from the net profits of the farm as determined by your partnership agreement. If you operate as an incorporated business, you can pay wages to yourself and your spouse, if he or she is involved in farm operations. Paying yourself and/or your spouse a wage provides one method that you can remove cash from the business to yourself personally. It will be a deduction to the corporation and be taxed personally. Wages can allow you to utilize certain personal tax credits, contribute to Canada Pension Plan, and create RRSP room. In addition to wages, incorporated businesses offer a variety of remuneration strategies which can include dividends and land rent (assuming you own the land personally). Generally speaking, dividends carry a lower rate of tax than wages.

October 2012

7. Even you can’t do it all You can’t be an expert at everything. Unless you know CRA tax rules as well as you know your soil, you should depend on outside help to maximize your tax savings. “A pre-year-end meeting with your professional adviser is key to identifying or implementing potential planning opportunities to manage your tax bill,” says Swann. “Farmers need to ask themselves: is it better to be really good at farming and depend on help for the non-farming aspects of the business, or is it better to be just okay at a whole bunch of things? Our job is to work with the farmer to find opportunities to help mitigate tax costs.” CG country-guide.ca 43

management

Way beyond horsepower The horsepower race is over, say the execs at John Deere. Now the race is to achieve digital supremacy, and its outcome will fundamentally reshape the future of farm machinery By Scott Garvey, CG Machinery Editor

n a way, it’s been a good thing that engineers have always had to spend weeks, months, or even years at their desks refining their designs before they ever get made into prototypes or undergo actual testing. That kind of methodical approach allows ample time to consider potential flaws and refinements, and it leads to the kind of durable, well-designed products that farmers need. Trouble is, the traditional approach takes time. Lots of it, and with the pace of technological innovation today, last year’s wonder gadgets are this year’s door stops. So companies can no longer stay on the cutting edge doing things the way their founders did. Slow and steady must evolve into fast and agile. In the software industry, a new engineering concept called Agile Development has replaced the methodical approach. It allows companies to more rapidly react to market changes and deliver new products in a timeframe that recognizes today’s fast-moving reality. Managers at John Deere say they’ve now adopted that technique in order to keep pace with farmers’ evolving needs, and to meet the demands those needs place on farm equipment.

44 country-guide.ca

“The going wisdom in product development prior to agile software development was to have long-term plans,” says Aaron Senneff, an engineering manager at John Deere Intelligent Solutions, the company’s technology division. Deere considered its designs carefully for a long time, it executed for a long time, and then it tested for a long time, looking for total confidence when it launched in the marketplace. “That’s been the wisdom at John Deere for 175 years,” Senneff says. “A lot of engineering processes we (as engineers) have created over time seek to drive out disturbance, try to push out change, to create consistency. What Agile does is allow us to embrace it.” It’s a whole new perspective. For the first time, Deere isn’t talking about what needs to be tweaked. It talks about where it wants to go with the design. “It wasn’t just a project we were trying to fix,” Senneff says. “We addressed the way we develop electronics and intelligent solutions at John Deere. We went to agile development.” Of course, the challenge was to find a way to make this real and practical, not just some words on a poster. So, to make themselves agile, engineers gather in meetings every two months to discuss the status of their projects and how the potential products they create will meet a market need. During these meetings, groups may decide to continue on their original path, modify projects or completely change direction to keep pace with emerging trends. “We want to make sure we’re developing a pipeline of sustainable products and solutions,” says Senneff. “After two months they demonstrate what kind of product innovation they’re able to come up with and we start all over again. So we can be very fast and flexible reacting to technology and customer changes. Agile says every two months we’re going to re-plan and start over. It recognizes the marketplace changes rapidly.” Periodically, engineers are given two free days to work on any project they want. At the end of those two days, the entire engineering team and management take a look at what the freewheeling sessions netted. On occasion, those new, unplanned inventions have made their way into existing Deere systems, enhancing the features in new versions of products the company already offers customers. Even as employees adapt to the new engineering October 2012

management environment, company executives have made it clear they will continue to consider alternatives to agile development, if those alternatives offer better and faster ways to get new products to market. “Agile is a very, very important fundamental organizational change,” says Senneff. “We really think this is going to launch John Deere forward in terms of product innovations. (But) I don’t want you to think we’re putting all our eggs in one basket. We’re constantly looking at new design processes.” Today, agile development is no longer confined to Deere’s Intelligent Solutions division. It has spread to all productdevelopment departments. All engineers, including those creating the next generation of green iron, are using it. That is essential to the brand’s overall marketing strategy, which requires rapid development of fully integrated machines and products that blend technology with the muscle to apply it in the field. “This is really something across our entire organization,” says Senneff. New solutions are at the heart of what Deere’s senior managers see as the key to keeping the venerable brand’s gigantic lead in the worldwide farm machinery market. To make that point as he addressed a group of securities analysts and farm journalists at a July gathering in Des Moines, Iowa, the company’s outgoing ag and turf division president, David Everitt, discussed how the company’s board of directors was reluctant to take the bold step of moving from producing horse-drawn to tractordrawn implements in 1918. “If we had not done that, if we had followed conventional wisdom, we all wouldn’t be here today,” Everitt said. “We’re at that point again... between 1918 and today we were successful because of what I call the bigger, better, faster strategy. We made our machines bigger, we made them go through the field faster and we made them more reliable. Great formula. But we’re about at the end of that. There is a limit to how big you can make a combine. The capability to change the dynamics of productivity using technology is where we’re at today.” The company is no longer interested in one-upping its competitors with tractor horsepower ratings, as witnessed by its decision last year not to take the new 9 Series tractors up to the maximum engine ratings offered by CNH and AGCO machines.

To make the transition to a new kind of productivity race, Deere is rapidly adding new products to its suite of FarmSight digital technology. “The technology is based on the hard work of more than 400 engineers and 900 total employees whose focus is on just doing this (developing technology),” said Everitt. Then, by offering a full line of machines designed to seamlessly integrate and optimize that expanding line of inhouse digital technology, company executives hope to convince farmers an all-green fleet is the way to go. Deere executives call it the “green-on-green advantage.” As the company moves to create an infrastructure of telematics and digital support technology, it is building enhanced compatibility into its machines at the field level. That gives farmers an entirely integrated operating system, and it creates a one-stop shopping choice coupled with the after-sales support required to keep equipment running and data flowing. Executives made it clear they will continue to participate in developing

October 2012

ISObus standardized technology along with other manufacturers, which allows machines from all brands to connect and work together. But they also made it just as clear that the range of system features they are willing to share on a common ISObus platform is significantly smaller than what they will offer when a farmer chooses an all-John Deere equipment fleet. It’s a strong motivation for customers to buy only John Deere machines in order to get that “green-on-green” edge. By offering enhanced capability to farmers who go the all-John Deere route, the company hopes to drive demand for all its products higher, allowing the brand to stay well ahead of the smaller competitors currently nipping at its heels. If there are any doubts, the new exec who will take the reins of the company’s North American ag equipment division after Everitt’s pending retirement this fall summed up the rationale behind pushing the green-on-green advantage. Said Jerry Roell: “It’s about making the moat wider and deeper around the castle.” CG

Put your business planning skills to the test! The Grand Prize Winner will receive the opportunity to attend the 13th International Farm Management Association Congress held in July 2013. For full contest details and entry form, please visit www.takeanewapproach.ca/challenge.aspx, or call (519) 822-6618. country-guide.ca 45

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19/06/2012 11:39:44 AM

What is really important to you? Maybe you really can have your cake and eat it too By Pierrette Desrosiers, psychologist and coach

hen I talk to Mark, I know that many of us will understand what he is saying, especially this year when strong commodity prices mean that many farmers are achieving what they always thought was the one thing separating them from a rich and deeply satisfying happiness. With three beautiful children, a loving wife, a very successful business and hardly any debt, it would seem that Mark has it all. What else could he ask for? “I don’t know why, but I feel that I’m not meant to be happy,” Mark confides to me. “I want more and more, and I’m never truly happy.” Why do we do everything we do? Why do we want a bigger business, a better herd, higher yields, trophies, or more money? It is because we think these things will make us happier. But do they? The answer to that is, “Apparently not.” We make hundreds of choices each day that affect our businesses, our eating, our spending, our relationships, our activities and our health. However, many of these decisions are made unconsciously and automatically, and they often prove to be based more on emotion than reason. In fact, our choices are strongly influenced by our values, which as you may remember from a recent column are the things that tell us what is good, moral and important. If that sounds fuzzy, or if you don’t know what your values are, or even if you have values, or if you want to get some insights into someone else’s values, here’s a quick way to go about it. Look at what you do with your time, money and energy. Notice what you talk about, and what subjects you are likely to raise in a conversation. These are the values that are really important to you or to the person you are thinking about. Then comes a question that you might want to spend some time with. Are these values as good, healthy and moral as we think? Do they each contribute in equal measure to our well-being and health, and to the well-being and health of those around us? Also ask yourself, does the pursuit and achievement of these values necessarily bring happiness? Research shows that values such as autonomy, self-actualization, harmonious interpersonal relationships, ethics, integrity and working for a cause greater than oneself are associated with greater happiness and greater life satisfaction in general. On the other hand, pursuit of social success, 46 country-guide.ca

wealth, recognition and prestige leave one more open to stress, anxiety, depression and dissatisfaction. I often have farmers in coaching sessions who have realized that after reaching what they have dreamed about for years, they are left with an empty feeling. Why? How could one explain that reaching your goals could make you unhappy? Some of the explanation is that in order to reach your goals you have disinvested in what makes people happy, including relationships, your health, your family and sometimes integrity. Do you really want to know whether what you are seeking is contributing to your happiness? Do you wish to avoid too many regrets at the end of your life? I invite you to try the following exercise: Imagine a gala ceremony for your 75th birthday. 1. Who are the friends and family around you? Make up the list of those you absolutely want to be there. 2. Why are those the people you would invite? 3. During the speeches in your honour, what would each of the following say about you: a. Your children b. Your brothers and sisters c. Your friends d. Your colleagues e. The people who have known you (neighbours, clients, suppliers…) 4. What would you like them to say about you? 5. What character traits of yours will they remember? 6. What particular contribution of yours will they remember? 7. In what respect, and why, were you important to them? Finally, think about looking at your life as a photo album. What are the photos that you want to see? Equally important, what will be the missing ones? What will you regret the most? Which will make you most proud? At this point, it would be worthwhile and wise to take a few minutes to ask yourself what really matters to you. This simple reflection may lead you toward different choices in your day to day. You have no choice about your past but you have many choices about your future. Happy contemplation… and happy birthday! Pierrette Desrosiers is a work psychologist, professional speaker, coach and author who specializes in the agricultural industry. She comes from a family of farmers and she and her husband have farmed for more than 25 years. (www.pierrettedesrosiers. com) Email: pierrette@pierrettedesrosiers.com. october 2012

w e at h e r

S Co pe nowld rio y ds

NEAR NORMAL TEMPERATURES AND PRECIPITATION

Col Snowd perio y ds

MILD WITH NEAR TO A BIT BELOW NORMAL PRECIPITATION

ra Sca Mil in tt d / s ere no d w

al ast o C ain r

MILDER THAN NORMAL

Oc rai cas n / ion sn al ow

NEAR NORMAL

Sc Mild rai atte n / re sn d ow

COOLER THAN NORMAL

October 21 to November 24, 2012

ONTARIO

Oct. 21-27: Seasonal to mild this week apart from a couple of cooler, wet days. Blustery at times. Frost overnight in northern regions with a threat in the south. Oct. 28-Nov. 3: Seasonal to mild south but cooler outbreaks bring rain, gusty winds and a frost risk on a couple of occasions. Cool north with periodic snow. Nov. 4-10: Unsettled as fair skies interchange with a few wet, blustery days. Frost in many areas. Occasional snow central and north. Chance of heavy precipitation. Nov. 11-17: Fair overall but rain, chance snow in the south on a couple of days, risk heavy in places. Snow in northern areas. Changeable temperatures. Windy. Nov. 18-24: Temperatures fluctuate but trend to the mild side. Blustery. Fair skies aside from rain or snow south on two or three days, changing to heavy snow in the north.

QUEBEC Oct. 21-27: Fair most days but rain occurs on two or three days, chance heavy in places. Snow and frost in northern areas. Temperatures vary but trend to the mild side. Blustery. Oct. 28-Nov. 3: Seasonal to mild under windy conditions. Fair skies interchange with rain changing to heavier snow/frost central and north. Frost risk south. Nov. 4-10: Wet snow and frost is common october 2012

in the south on a few days, intensifying to heavier snow in central and northern regions. Seasonal to occasionally mild. Windy. Nov. 11-17: Normal to occasionally mild temperatures but with frosty nights south. Occasional snow, heavy in places. Colder north with intermittent snow. Blustery. Nov. 18-24: Expect seasonal to mild temperatures overall although outbreaks of cold and wind will bring light snow to many areas. Heavier snow near open waters and northern areas.

ATLANTIC PROVINCES Oct. 21-27: Seasonal to mild temperatures dominate the week with frost in a few inland localities. Fair but expect rain on two or three days, turning to snow north. Blustery. Oct. 28-Nov. 3: Unsettled as disturbances bring fair skies as well as periodic rain and strong winds on a couple of occasions. Variable temperatures. Frost in inland areas. Nov. 4-10: Frequent fair skies and highs in double digits but near zero at night. A couple of stormy days with high winds and heavy rain. Heavy snow west and north. Nov. 11-17: Colder air and gusty winds bring changeable weather on two or three days. Fair skies alternate with occasional rain or snow, possibly heavy in places. Nov. 18-24: Look for temperatures to vary

from mild to cold under windy conditions. Fair but wet, windy conditions on a couple days with heavier snow west and north.

October 21 to November 24, 2012 NATIONAL HIGHLIGHTS With the approach of winter, inclement weather will become more prevalent in parts of Canada during this period. This will be most noticeable in many areas of British Columbia, Alberta and western Saskatchewan where snow, blowing snow and sub-zero cold will all make their seasonal debut. For the most part however, a near normal temperature and precipitation regime is likely in these areas. A more favourable picture is emerging over the eastern two-thirds of the country where a lingering mild circulation is expected. As a result, above-normal temperatures from the eastern Prairies to the Atlantic ocean will delay the onset of winter-like weather well into November. Indications are that somewhat drier than usual conditions will accompany the mildness in spite of a few stormy, wet periods in extreme eastern regions.

Prepared by meteorologist Larry Romaniuk of Weatherite Services. Forecasts should be 80 per cent accurate for your area; expect variations by a day or two due to changeable speed of weather systems. country-guide.ca 47

ACRES

By Leeann Minogue

Filling the air with canola The crop wasn’t turning out the way the Hansons had hoped. There wasn’t as much of it as they expected, and it was coming off so hard and slow. Then they met the real challenge fter he unloaded the truckload of canola into the bin, Dale stopped the grain truck in front of the farmhouse to pick up coolers full of lunch for himself and his father Ed, who was out in the field running the combine. Donna met Dale at the door with the sort of glare that might have killed a lesser man. Dale’s first instinct was to check his watch. 11:50. Nope, he wasn’t late. He’d told Donna that he’d get to the house between 11:30 and noon. He ran through a quick list of dates in his head. Their anniversary had been in July. He was pretty sure her birthday was in the spring. Had he promised to fix something before he went out to the field? Donna finally spoke. “I. Am. Never,” she spoke slowly, frowning. “Taking that truck to town again.” Donna had been dispatched to the dealership earlier to pick up an air filter for the combine. “Truck’s not running well?” Dale asked, surprised. The truck was fairly new, and they’d had no problems. “It’s not the engine,” Donna said. “It’s the radio.” 48 country-guide.ca

Dale laughed. “You getting mad about something on the CBC again?” “Not that radio,” she said. “The two-way radio.” Dale thought back to their morning. “Uh oh.” “Uh oh is right,” she said. “I parked in front of the post office. And when I came out, there was a whole crowd gathered around the truck, just listening. Your father cursed at top volume for at least 10 minutes straight. I’ve never been so embarrassed in my life.” Ed had been combining blown canola swaths. It had not been going well. “One woman was there with two little kids. She threatened to call the cops. Luckily Susan Jacobs showed. She helped me calm everyone down long enough to make a getaway.” There wasn’t really much Dale could say. “Maybe it wasn’t really all that bad,” he tried. Not that Ed was usually mild-mannered, but the wind-strewn canola was frustrating everyone. The Hansons had spent a good part of the summer driving out to the fields to look at their 2,000 acres of canola. None of them said anything out loud, but secretly they were all doing the math in OCTOBER 2012

acres

“ It’s not the engine,” Donna said. “It’s the radio.” their heads: 45 bushels per acre times $13 per bushel… But once they actually got the combine in the field, 45 turned into something a lot closer to 25. Ed and Dale and Dale’s son Jeff had spent hours analyzing the crop, inspecting the straw behind the combine, plucking plants still left standing. “Aster yellows,” Jeff said in one corner of a field. “Looks like some sclerotinia over here,” Dale pointed out in the middle of the field nearest to the house. “Leaching,” said Ed. All kinds of diseases. Hot weather. Nitrogen leaching after last year’s flooding. A yield loss like this didn’t come from just one problem — all sorts of factors were conspiring against them. And that was before the wind came up. “You should’ve heard the guys at Wongs,” Ed had said when he came out to the farm. “Bud Nelson said he saw swaths blown 35 feet in the air. Some of that canola west of town blew so far, nobody knows if they’re combining their own crop or their neighbour’s. The wind just picked it right up and twirled it around in the air like a bunch of gymnasts’ ribbons.” The wind hadn’t affected the Hansons quite that badly — even after they adjusted for Ed’s rate of exaggeration. But they did have a definite problem. They had two quarter sections of canola strewn around the field as if a gigantic herd of buffalo had jogged through. There were lots of places where it was impossible to tell where the original swath had been. Dale thought his son Jeff seemed a little smug. “I told you we should think about straight cutting the canola,” Jeff said. “This would’ve been the year to try it.” Jeff’s wife Elaine took no sides. “We couldn’t know it was going to be this windy,” she said. At any rate, it was too late to do anything about it now, so Ed was left in the cab, swerving around the field. Dale couldn’t figure it out. Last year, after all the rain and drainage in southeast Saskatchewan, they’d barely been able to seed any crop at all. The whole year was almost a write-off. This year, even with their crops yielding below average, high prices were going to leave them in a pretty good situation. And October 2012

yet, in some ways, this year was almost equally upsetting. He supposed it had something to do with expectations. Last year, when they didn’t seed many acres, they knew they weren’t going to harvest much. This year they’d expected a bumper crop. Jeff had been talking to the dealer about buying a new sprayer, and maybe even a new combine. Donna had been leaving brochures about winter cruise vacations in subtle places around the house. He knew Jeff and Elaine had been talking about replacing their SUV. Obviously, a lot of these things were going to fall off the list. Dale drove back out to the field. The day went slowly. Elaine had taken their toddler to play at the paddling pool in town that afternoon, so she brought back a big bucket of Kentucky Fried Chicken home for supper. Elaine and Donna packed the chicken and the toddler into the truck and drove out to the field. With the two-way radio off. They parked next to the grain truck, where Dale was flipping through old copies of Reader’s Digest while he waited, and waited, for the combine to fill with another load of canola. Dale pulled lawn chairs for everyone out of the back of the truck and Ed (who usually insisted on eating on the go) left the combine idling so he could join the family. “Might as well take a break,” he said. “It’s not like we’ve got a lot to lose if we take a little extra time to pick up this crop. At least the family can spend some time together. Some of my best memories are when you and your sister were little, Dale, and your mom would bring you AVAILABLE BACHELORETTES Monique is 50 she is Italian/French descent, she is well travelled a great cook, divorced, a professional in banking and finance she is avid skier, works out 4 times a week, she is petite 5’4 130lbs, she has two independent children. She is comfortable with who she is and is seeking a man who is confident, values his family and friends, has a good career and is wanting to have a long term relationship in his life Pauline is 46 5’5 130lbs a VP divorced with no children, she is a classy lady slim very pretty but a farm gal through and through. She loves antiques, picnics, sitting by the lake on a summer days with my little fishing pole. I love motorcycles, nascars, baseball, hockey and Tim Horton’s. She works out 3 days a week but takes time for her family and friends, she likes cuddling on a the couch with her significant other Laurie Bie is 47 athletic, kind, caring, loving ,affectionate. She is a curvy lady 5’5 140lbs she is sensual, loves the outdoors, motorcycles, horses, animals, water sports, quadding. She is a business owner and a happy go lucky lady. She is divorced with one child who is semi independent. I love people I can be the life of the party. I have a lot of friends but no one special in my life looking for a man who will be there for me and I will be there for him

two out for supper. She’d spread that old blue jean blanket out on the ground.” Dale remembered the same thing. And the days when Donna had brought their own small kids out for meals in the field, using that same blanket. Now, he watched his grandson stumble through the canola. The little boy fell down when he bent over to point at a fuzzy caterpillar, hollering excitedly for his grandma to come and see what he’d found. Dale took the plate of chicken Elaine handed him and smiled, relaxed for the first time all day. Midway through dinner, Elaine spoke up. “I heard a great story in town today,” she said. “My friend Jenny was on her way to the bank when she walked by this half-ton truck. Somebody must have left the radio on, Jenny said, because there were about 17 people standing around the truck, listening to a crazy guy cursing like a wounded sailor.” CG

Trait Stewardship Responsibilities Notice to Farmers Monsanto Company is a member of Excellence Through StewardshipSM (ETS). Monsanto products are commercialized in accordance with ETS Product Launch Stewardship Guidance, and in compliance with Monsanto’s Policy for Commercialization of Biotechnology-Derived Plant Products in Commodity Crops. This product has been approved for import into key export markets with functioning regulatory systems. Any crop or material produced from this product can only be exported to, or used, processed or sold in countries where all necessary regulatory approvals have been granted. It is a violation of national and international law to move material containing biotech traits across boundaries into nations where import is not permitted. Growers should talk to their grain handler or product purchaser to confirm their buying position for this product. Excellence Through StewardshipSM is a service mark of Excellence Through Stewardship. ALWAYS READ AND FOLLOW PESTICIDE LABEL DIRECTIONS. Roundup Ready® crops contain genes that confer tolerance to glyphosate, the active ingredient in Roundup® agricultural herbicides. Roundup® agricultural herbicides will kill crops that are not tolerant to glyphosate. Acceleron® seed treatment technology for corn is a combination of four separate individually-registered products, which together contain the active ingredients metalaxyl, trifloxystrobin, ipconazole, and clothianidin. Acceleron®, Acceleron and Design®, DEKALB®, DEKALB and Design®, Genuity®, Genuity and Design®, Genuity Icons, Roundup®, Roundup Ready®, Roundup Ready 2 Technology and Design®, Roundup Ready 2 Yield®, RIB Complete and Design™, RIB Complete™, SmartStax®, SmartStax and Design®, VT Double PRO™, VT Triple PRO™ and YieldGard VT Triple® are trademarks of Monsanto Technology LLC, Monsanto Canada, Inc. licensee. LibertyLink® and the Water Droplet Design are trademarks of Bayer. Used under license. Herculex® is a registered trademark of Dow AgroSciences LLC. Used under license. Respect the Refuge and Design is a registered trademark of the Canadian Seed Trade Association. Used under license. (3701-MON-E-12)

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life

Retire easy The hard truth is that nearly half of all women are widows by the time they turn 65, and 20 per cent of men are widowers By Helen Lammers-Helps

e’ve all heard it before. In fact, you can hardly pick up a magazine of any kind without running into a story about it. But that doesn’t make it any less true. Retirement can be one of the biggest challenges we face in life. It’s just like the fact that retirement can be even tougher for farmers. We say it all the time, but it’s still a fact to be reckoned with. Farming isn’t just a job, it’s a way of life. It’s a home as well as a business. Farmers ARE farmers, after all, and they often think: “If I’m not a farmer, what am I?” Plus, there are all those succession issues. So, it’s little surprise that it’s so tempting for farmers to put off making plans for retirement.

Divorce rates in Canada are rising faster for our 58- to 65-year olds than for any other age group — and the experts say it’s mainly because they fail to prepare for retirement Unfortunately, this kind of thinking can create a lot of heartache and stress. Death and illness are inevitable and if you don’t put plans into place to transfer the farm, your loved ones are left picking up the pieces. The reality is that by age 65, 45 per cent of women are widows and 20 per cent of men are widowers, says Donna McCaw, a retirement planner in Fergus, Ont. who grew up on a farm and is the author of the retirement planning guide, It’s Your Time. It’s also a mistake to think that you’ll be in charge of your own retirement schedule. In fact, 25 per cent of people are forced to retire due to health reasons. Wouldn’t it be better to make sure 50 country-guide.ca

everything is in order while you’re still able to oversee the process? Do you want to leave your spouse the burden of selling the farm and moving if something happens to you? Sadly, many farm businesses run into trouble when the founder dies without having the proper paperwork in place to ensure a smooth transition to the next generation. Not only does this put the farm business in jeopardy, it can also lead to bitter fighting amongst family members. Or a spouse may be left on the farm, unable to run it. “It can be a complicated mess,” says McCaw. If the founder develops a bad back or a heart condition the transition can be rushed. “Think about it now, not after the first heart attack when you’re desperate,” McCaw advises. Sometimes the next generation will leave in frustration if the older generation won’t pass over the reins in a timely fashion. “Sometimes it takes an ultimatum from a wife or a daughter-in-law to make things happen,” says McCaw. These nasty situations can be avoided. With a little planning, retirement can be something you look forward to. Ideally people should start planning for retirement 10 years before they expect to retire, says McCaw. This can start with creating a vision of what your ideal retirement should look like. Incredibly, 35 per cent of couples have never discussed their vision of retirement before retiring, she says. This may help explain why the divorce rate for 58- to 65-year olds is growing faster than any other age group. McCaw recommends husbands and wives prepare separate lists of things they would like to do when they retire and then compare lists. It’s a look-before-you-leap approach. Retirement affects more than income, McCaw says. “Your role, routines, companionship and self-worth are just a few aspects that will change due to retirement.” The retirement honeymoon usually lasts six months to two years, says McCaw. After that it’s not unusual for people to get tired of travel and having too much leisure time on their hands. McCaw also cautions against relocating immediately. If you plan to move to another country full time, stay there during the off season. “Try it out, rent first,” says McCaw. Look for a home where you can “age in October 2012

life

place.” Wider doors, all the living space on one floor, smaller yard… these are some of the things to consider. “Think long-term. You do not necessarily want to have to look after a three-acre property,” she says. One of the reasons farmers can’t imagine retiring is that they’ve never had time to cultivate hobbies or interests outside the farm. They don’t have a clue what they would do if they had some spare time. However, if you put some thought into what other things you might do if you had more time, you might be surprised at the list you come up with. Is there a worthy cause or charity you could get involved in or help fundraise for? Has your neighbour been bugging you for years to join the Optimist, Lions or Rotary club but you never had the time? Here is your opportunity to make a difference in someone else’s life. Or maybe you could put your expertise to work in a Third World country. There are many charities that could use your skills. Could you mentor a young farmer? Older farmers have a wealth of experience that the younger generation could benefit from. Many farmers regret that they were so busy working that they didn’t get to spend as much time with their kids when they were growing up as they would have liked. Retiring can mean having the time to spend with children and grandchildren. Maybe you want to buy a cottage to spend more time with family or take the family to Disney World. When you think back to your youth, what did you used to like to do that you might take up again? What about taking a course in woodworking? Would you like to learn more about the Second World War history or your family’s roots? Have you always wanted to play the piano or improve your photography skills? Try perusing the leisure section of your local community college course catalogue. There is an incredible variety of courses available at low prices. You may find some things you have never even heard of before. McCaw cautions retirees to choose carefully how they will spend their time. You may get asked to get involved in a lot of things but make sure they are personally meaningful to you, she recommends. Retirement is an opportunity to have more balance in your life. When we are working and raising a family, other aspects of our lives such as spirituality, intellectual or social pursuits may take a back seat. Maybe you’d like to learn more about your own faith or other religions. There are hundreds of courses available online, and many of them are free. Maybe you’d like to get in better shape physically? Many municipalities have beautiful recreation facilities with indoor pools, fitness classes and walking tracks. There are also hiking, gardening and canoe clubs where you can enjoy the great outdoors, get some exercise and make some new friends. Once you start looking around, you’ll be amazed at what’s available in your community. October 2012

Donna McCaw’s tips : Prepare for a new future • Take courses • Do some self-assessment • Research new options • Gather resources • Start volunteering • Daydream, imagine, visualize • Return to dreams and passions you may have abandoned along the way • Consider your choices of how to invest your time, money and energy

Watch and learn Movies can get you thinking about retirement and show you some of the positives (and the negatives) you might not have considered. These are among Donna McCaw’s recommendations. Young@Heart (2007). Documentary about a choir of seniors who perform songs both old and new. About Schmidt (2002). A movie starring Jack Nicholson as Warren Schmidt, a 65-year old retired insurance salesman. This is the alltime how-not-to-retire movie, says McCaw. The Bucket List (2007). Jack Nicholson and Morgan Freeman face their mortality with imagination and verve. The Straight Story (1999). This movie chronicles the journey 73 year-old Alvin Straight takes from Iowa to Wisconsin on a riding lawn mower to make amends with his ill, estranged, 75 year-old brother.

Try making your “bucket list.” What do you really want to do before you die? Have you always wanted to see the majestic Rocky Mountains? Go on an Alaskan cruise? See the desert? No matter what your age, it’s a good idea to have a bucket list. It will help you prioritize and realize your dreams. If you truly can’t imagine not working, then consider a phased approach to retirement. Can you gradually reduce your level of responsibility or number of hours worked? Can you hire a farm manager? What about taking on a part-time job or starting a part-time business to help you ease into retirement? Remember that there is an adjustment period when you retire. “It can be tougher than people think,” says McCaw, “but talking about your expectations and fears can help you work through any issues together.” CG country-guide.ca 51

h e a lt h

Keep those old eyes young By Marie Berry

ith age, you can expect your eyes and your eyesight to change. You may experience eye discomfort too, with an increased sensation of foreign bodies in the eye or a feeling of grittiness. Eyesight changes can include glare, haziness, flashing lights, moving spots, and even refractive changes. As well, the structures surrounding your eyes change. For example, eye lids droop, eyes become dry, or alternatively they tear more often. You want to keep your eyes “young” and preserve your vision. It turns out, this is a goal you can do something about.

With a bit of effort and care, you can help your eyes last a lifetime As you age, your ability to focus on close objects decreases. It’s a phemenon we call presbyopia. You may find reading a book or newspaper, doing close-up work such as sewing, or working at a computer more difficult. You may not wish to admit it, but you may need reading glasses or even prescription lenses. Dry eyes can be a problem with age because tear ducts don’t work as well as they once did, especially for women after menopause. You may notice dry eyes after using a computer because you blink less often while staring at the computer screen. Artificial tears are key to treating dry eyes and there are many different types. You want to choose one that you like and use it on a regular basis to keep eyes moist. Alternatively, your eyes may tear up more readily, which results from your tear ducts trying erratically to cope with dry eyes. Peripheral vision becomes reduced as you age, with a loss of one to two degrees for every decade

You know you should brush your teeth, but do you brush as you should? And what about flossing? Next month, we’ll talk about dental health and why it’s so important.

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of life, so you need to be careful driving and remember to turn your head to shoulder-check. Colour vision also becomes less brilliant, especially blue shades, as you age because the cells in the retina which detect colour are less active. With age the size of the pupil decreases, as does its reactivity to light, which means older people are more readily dazzled by bright lights including sunlight. Wearing sunglasses or glasses with lenses that reduce glare reduces this potential for temporary blindness. You may notice more spots, floaters, or even light flashes with age. The vitreous liquid in the eyeball shrinks over time and moves away from the retina, causing these symptoms. (Keep in mind, however, that these symptoms may also indicate a detached retina.) Cataracts result when proteins in the lens change, so the lens becomes opaque or cloudy. It is not a tumour or a new growth over the eye, but rather a fogging of the lens itself. Cataracts are more common in people over 60, with symptoms including blurred vision, glare, and altered colour perception. Fortunately cataracts can be surgically removed by removing the lens and implanting an artificial one. Age-related macular degeneration is the leading cause of blindness in Canada, accounting for a third of all cases. The thin layer of light sensitive nerve cells known as the retina is located at the back of the eye. Near the centre is a small spot about the size of a pea called the macula. The macula is the processing centre for eyesight, and if it deteriorates your vision becomes like a camera with a spot on the film. A good supply of blood is needed for the macula to perform well, and with age you have an increased risk for diabetes complications, high blood pressure, high cholesterol, and even infections which can all affect blood flow. While eyesight problems do increase with age, most are readily managed. However, good control of any condition that can contribute to diminished eye sight is essential. And, of course you know the rest. Get regular eye examinations for early detection of problems. Wearing sunglasses. Eat a healthy diet. And if you smoke, quit. After all, you eyes need to last a lifetime! Marie Berry is a lawyer/pharmacist interested in health care and education.

October 2012

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It is a beautiful evening in Saskatoon. Blue sky abounds and I decide to take a walk. Curious, I wander into an area where the houses have a similar design. A car is passing between two large pillars, and I follow. Inside, following a circular road, I chat with a few folks who are also outside enjoying the evening. When I get back to my starting point, I discover I am captive in an enclosed community. A gate between the pillars is locked and a large fence encircles the entire area. As I ponder escape from my self-made imprisonment, a black Lexus approaches the gate. The driver pushes a magic button, allowing his exit. I trot along behind. The gate closes, walling people in and walling people out. Reflecting on my brief experience, I wonder why people are attracted to living behind a closed gate and inside large walls. We are communal and social beings by nature, yet there is a yearning within us to create a separate enclave of people who look like us, talk like us, act like us, and think like us. We have an urge to be with, and perhaps to be only with, our own kind. I am not attacking a certain kind of real estate development. To me, a gated community is a symbol of the limitations and exclusions many people seek. If we associate only with people who are the same as us, and who view life the way we do, we are in danger of making a limited life for ourselves. We need to ensure we do not end up with gated minds, gated hearts and gated lives. To do so limits the potential within each of us, as well as the potential for all of us together. It would be easy to avoid associating with people different from ourselves, but we would miss the challenge, and even the struggle, of knowing and understanding those who are different from us. It is healthier and richer to look at life through windows than through mirrors. What I am suggesting is not easy. When we cultivate a willingness to appreciate and seek the well-being of people who are different from us, including people who disagree with us on important matters, life becomes more complex. The experience often creates more questions than we are comfortable with, and answers do not flow easily. Civility and openness to those who differ with us, or who are different from us, does not compromise who we are or what we believe. When we respect people and their right to express their basic convictions, our lives are enriched. There is huge diversity of religious belief, but tolerance is sometimes lacking. The differences among believers, and the differences between those who are believers and those who are not, challenge people with deep convictions. When factions shout at each other across a wide and deep divide, we are all losers. I am saddened when people toss around labels, and write off those with beliefs that differ from their own. Religion is a wondrous value, but it is most valuable in humble hands. When the late Neil Armstrong stepped onto the moon, he spoke of “one giant leap for mankind.” His words, recalled with his recent death, remind us that we have many more common interests and convictions than we are often willing to admit. Without a shared commitment to the common good we are all the poorer. Suggested Scripture: Luke 5:27-32, Luke 18:9-14

Or call toll-free: 1-800-665-1362 E-mail: subscription@fbcpublishing.com

Rod Andrews is a retired Anglican bishop. He lives in Saskatoon. October 2012

country-guide.ca 53

Va l l e y

No more local meat

ILLUSTRATION: RICK KURKOWSKI

Dan Needles is the author of “Wingfield Farm” stage plays. His column is a regular feature in Country Guide ust got back from a 90-mile drive to deliver 50 chickens for processing at the “local” abattoir. It’s ridiculous that a rooster should be taken for that kind of ride after all the effort I put into his low-impact, drug-free, pasture-based, Shinto-inspired lifestyle. His carbon footprint went from zero to 60 in a couple of hours. But I don’t have any choice. The last two chicken processors in the Valley went out of business this year, victim of the murky politics of Canadian food inspection. And if you do a chicken at home, it is a criminal offence to serve it to your guests. When I was a kid, all the chicken we ate was processed at home on the farm. My first unpaid job in agriculture was snagging broilers and holding them on the stump for various axe-wielding neighbours on the 7th Line. The last words a chicken heard were “Pull yer nose back a little, Danny!” And what a terrible job it was! My hands smelled like a chicken barn for weeks and the sour smell of cooked feathers hung on the air till Christmas. Forced child labour is frowned upon for a number of very good reasons. One of them is that plucking a bird cleanly is a job best left to an expert unless you don’t care about the odd pinfeather floating up in the soup. So it didn’t bother me that much when our leaders decided that all chick54 country-guide.ca

ens should be processed off the farm, in a dedicated building where inspectors would supervise sanitation and animal welfare. In fact, I thought it was a good idea. I still love to drop off a crate of live chickens at one end of the building and come back at five o’clock to pick up a box of shrinkwrapped birds that look exactly like the ones you see in a supermarket. No blotchy yellow skin from chilling in the summer kitchen. No dogs chewing a chicken head on the veranda. This was progress. Then about 10 years ago, all the small plant owners in the neighbourhood started complaining about the Domesday Book of regulations that sat on their desks. Every few months some new regulation would be handed down from on high requiring an expensive piece of new equipment or an upgrade to the building. The cost of processing a chicken went from a dollar to three dollars; a pig jumped to $250 and a cow to over $500. Rules would change back and forth with no warning, no discussion and no appeal. One plant finally gave up and closed, then another and another until there was only one left within 50 miles and it didn’t take chickens. So now I drive 90 miles to do what I once did in the drive shed. When I left the city and came back to the farm in 1987, there were 800 provincially inspected plants in Ontario. Today there are under 100. You pretty much have to book a steer in for his exit inter-

view the day after he is born, because the plant is always booked further ahead than a heart surgeon. At the present rate, local meat will disappear from this province sometime over the next five years. And don’t even think about picking up an axe yourself. Fifty years ago we thought people who did their chickens at home were practical, resourceful and smart. Now we think they are dangerous and turn the matter over to the police. This state of affairs appears to suit everyone in government and the federal packing plants just fine. To them it is only a question of time before the last few eccentrics out there on the sideroad accept that meat is a commodity that should be left in the hands of corporations. Don’t bother your pretty little head about it. Just buy it in the supermarket, like everybody else does. And stop asking questions about where it came from because we don’t really have a clue. Recently, voices have been raised in protest. The National Farmers Union and the Federation of Women’s Institutes have organized a campaign to save local abattoirs. The local food movement is finally waking up to the fact that this subject might be more important than nailing up road signs to protest wind farms and gravel pits. If something isn’t done soon, their wistful tasting festivals in the fields will be of interest to vegetarians only. October 2012

“We’re optimistic. We’re producing more and better products and seeing a positive result.

I think the future is going to be great.” – Sabrina Caron, Quebec

It’s time to tell the real story Canadian agriculture is a modern, vibrant and diverse industry, filled with forward-thinking people who love what they do. But for our industry to reach its full potential this needs to be better understood by the general public and, most importantly, by our industry itself. The story of Canadian agriculture is one of success, promise, challenge and determination. And the greatest storytellers are the 2.2 million Canadians who live it every day. Be proud. Champion our industry.

Share your story, hear others and learn more at AgricultureMoreThanEver.ca 08/12-18723-4E C

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