As we work our way into the first quarter of 2010, it is appropriate to take stock of progress achieved by our business over the past year. We also provide a projection of what may be expected in terms of grain marketing and market trends for the coming year. Of course caution is advised, changes in regional or international economic events can alter any price or production forecast.

The Directors of GEC were pleased to welcome Clayton Bulpitt, New Perth and Robert Mulligan, Kinkora to the Board. Both were appointed by Executive Council in 2009. They replace Ian MacIsaac, of the Charlottetown area who resigned to pursue other opportunities, and Robert MacMillan, Mt. Stewart. Having served two consecutive terms, Mr. MacMillan is not eligible for re-appointment. The Board is appreciative of the service and commitment shown by retiring Directors. Best wishes are extended to them as they move on in new and exciting directions. Additionally a new elevator management trainee Joseph Leck, a recent degree graduate of the Nova Scotia Agriculture College is on staff at Roseneath, as we work to ensure the management continuity of our sites, both now and into the future.

For 2009, the major focus of re-investment has involved a make over of the Kensington facility. While it would be desirable to be operating from newer more modern facilities, given the intensity of the activities carried out there, and a traditional crop mix of predominantly cereal and oilseed crops to be handled, a decision was taken to focus investment activities on upgrades to the dryer and receiving aspect(s) of the operation. A new Leg and, Brock Meyers dryer has been installed with 100 metric tonne per hour drying capacity. A double screw auger with D.C. drive was added to the dumping shed that has subsequently decreased the unloading time, truck line ups are smaller, and waiting times have been reduced. Enhancements were carried out to driveways and ancillary handling systems to provide to the extent possible, an efficient shipping and receiving process for our customers. Over the past several years, close to 3 million dollars has been invested at all three sites including Elmsdale and Roseneath; these capital projects have now been completed.

During 2009, GEC held discussions with the province and the private sector in relation to the types of additional infrastructure required to handle non traditional oilseed crops; plans for the required infrastructure have been examined; sufficient to handle several thousand metric tonnes of new production. GEC will assess the opportunity as commercial growth in these sectors continues.

In accordance with statutory requirements and the annual audit, GEC settled the 2008 crop year Pools by mid December 2009. Cheques were in the mail prior to months' end. Pool performance results are generally available in the Annual Report to the Legislature, available through Island Information, Charlottetown; GEC administrative office; or the P.E.I. Department of Agriculture.

One major business development activity carried out by the GEC in 2009, is that the corporation has taken the lead on executing an industry consultation to determine the role of the GEC in terms of encouraging innovation within the sector. Two meetings have been held to date. With a decline in livestock production locally and available market opportunities emerging for newer crops, it has been useful to assess the relative balance between the GEC’s ability to innovate; finding new crop markets, and handling systems versus the tactics involved in handling and drying close to 50,000 metric tonnes of conventional commodity production. With a static infrastructure, it is a challenging process to determine how to balance off competing interests relating to marketing, industry development activities or planning for new infrastructure additions.

As an example of an innovation, a project co-sponsored by the Island Grain and Protein Council, and led by the George Morris Center, with funding assistance from ADAPT, the feasibility of establishing a soybean crushing and refining operation is now under consideration. The intention will be to provide full disclosure to the farmers and others interested in such a venture before any business plan would be developed. There will likely be three Island grower/stakeholder type meetings arranged this winter of 2010, across the province to discuss the opportunity further. Interest in such a project appears to have a regional following as well.

As far as market development is concerned, it was not exactly a banner year for milling wheat. Toxin issues reduced the marketability of the crop available as milling wheat from a potential of close to 25,000 metric tonnes down to 5,500 metric tonnes with the balance either destroyed, salvaged for fuel, stored, or marketed through the feed trade. GEC has been working to establish residual markets in an attempt to ensure that the maximum amount of product may be sold at the highest possible price.

On the other hand, fortunately, there has been a substantial increase in demand regionally for soybean. Fueled by stronger prices, increases in the acreage of both conventional and Identity Preserved soybeans is now evident. From a few thousand acres grown in the early 80's, production from the sector now exceeds 40,000 acres per year with further increases forth coming. New oilseed markets for crops such as Crambe are emerging, supported by local value added processing. TRT Etgo in Quebec is close to the completion of a large crushing and refining operation with the potential to crush 1 million tonnes per year. Their targets include 400,000 metric tonnes of soybean and over 600,000 metric tonnes of Canola all of which is expected to be of eastern origin, so the crop prospects & choices for farmers are greater now than ever.

For barley, wheat, and oats there still exists a market opportunity to sell into the Atlantic feed market. However, the high production costs and lower prices received are dampening profit prospects and forcing farmers to look for alternative cropping opportunities.

Soybeans: There are four tangible options available to soybean growers: Forward Contract, IP Contract, Soybean Pool, and direct purchase. GEC has quoted a forward price for GMO beans and purchase up to 50% on this basis. The other 50%, a grower may elect to place in a pool at harvest. Alternatively, the GEC will purchase a quantity of beans out right for cash to service the local livestock industry or for local export. At the time of writing, soybeans are worth in the area of net $315 per metric tonne for delivery next fall. A fourth option is an IP contract where the seed source is controlled, there is a management program in place, and export specifications are to be met at the time of delivery. The specialized management program guarantees a grower premium if all the specifications are met. Growers are encouraged to discuss this opportunity with those in the IP business.

Milling Wheat and Feed Wheat: Recent experience has shown that year over year success in growing a high quality milling wheat crop is becoming more difficult to achieve. There are a number of reasons for this but the major problem to be overcome appears to be related to growing conditions. Some agronomists are suggesting that the answer may be found in new winter wheat varieties.

In 2010, GEC expects to market 5,500 metric tonne as milling wheat. Approximately 10,000 metric tonne of feed wheat was sold privately, farm to farm, to feed companies, or was placed into storage. GEC was not a major buyer of feed wheat this year as our customers held us to a strict quality standard. To date there have been few sales of new crop wheat. At the time of writing, the Minneapolis futures price for hard spring wheat is just under $6.00 per bushel. This is roughly equal to $270.00(Can) per metric tonne for next years delivery.

Feed wheat pricing often is not determined until after the harvest in Western Canada and around the globe is completed. This is due to the fact that the feed market is characterized a residual, that is, the quantity of milling wheat and quality is known by all in the trade, the remaining wheat is then destined for the feed market, thus it competes against crops such as corn or barley price wise. At the time of writing, the selling price for feed wheat that remains low in toxin is in the low $200 per metric tonne range as it competes favorably against corn. Higher toxin feed wheat is trading in the $160.00 per metric tonne range. Growers need to consider that all feed wheat markets are depressed due to lack luster local livestock pricing opportunities. If livestock prices improve, then stronger demand for feed is to be expected.

Barley/Oats: For the both the buyer and seller, the manner in which barley or oats tracks corn, is in part a function of local basis. For example in the case of the seller, if Chicago corn is used as the commodity against which to hedge, and if the value of a futures contract "put" declines as the delivery date approaches, it would be expected that the spread on the cash price of corn/barley or oats would track together and the cash market for the increasing corn cash price would offset the declining value of the hedge. The reverse is also true. In the current market in Atlantic Canada, this is not the case. The cash price for barley or oats is declining, and futures price earlier this fall for contract corn had been trending upward...some analysts call this a Texas Hedge. Couple this with a street value of roughly $155-$175.00 per metric tonne, and production costs that approach $200.00, it is little wonder that the value and volume of the barley/oat acreage is declining. Growers are advised to check out the feasibility and strategy behind growing such crops on their own operations. For example, either barley or oats works well in a potato rotation, and the incidence of a crop failure is far less than with wheat. On the other hand there may be a glut in the oat market as it appears some of last years off island crop may have been carried foward.

Corn: Non-ensilage corn is generally available as high moisture or dry corn. GEC bought several hundred metric tonnes of wet corn and dried it because in late November, high moisture corn producers found themselves in a position where a portion of their production remained unsold.

Drying corn is an expensive proposition if the variety matures late in the year, as it becomes expensive to dry in cold weather and the GEC equipment is not designed to handle it. Island Corn at the time of writing is currently trading in the $200-$205 per metric tonne range f.o.b. our elevator provided it is graded as a Canada #1 grade.

The production per acre is high with above average yields. However, when fertilizer and drying costs are factored in, it may be an expensive crop to grow. The key is to have a secure market and forward plan for a price point. High moisture is the cheapest way to harvest and store, providing the toxin levels are low and there is access to oxygen limiting storage. GEC may establish a pool price for corn but has strict harvest dates after which time they will be reluctant to handle the product. Close to 1,000 metric tonne will have been marketed in 2009-10.

Crambe/Canola: The P.E.I. Grain Elevators Corporation continues to pursue an agenda which includes the ability to deal in a wider diversity of crops. For example, developing a market for specialty oilseeds may require investments in specific types of drying and handling infrastructure as commercial production targets are achieved.