I hear a lot today about lower grain prices, and the effect it has on farmers. If you spend too much time listening to the rhetoric out there today, you might wonder why you’d want to farm at all! This past year, prices for most of our crops tumbled to a level not seen in many years. And, there seems to be an opinion pervasive among those in the media that the downtrend will continue. Are farmers doomed?
Back in 2005-2006, when I was just finishing high school, agriculture was suffering some very hard times. Making a profit from farming was difficult, to say the least. Perpetually low grain prices plagued farmers during that time, indeed for the past decade. Why bother continuing? Why bother doing all that hard work, just to scrape by year after year?
Fortunately, times were changing. World stocks of wheat, corn and soybeans were quietly dipping lower and lower, and signs of better times were ahead. You see, as farmers, we are directly impacted by the laws of supply and demand. Poor crops in one area of the world makes for better profits for the rest! (Don’t worry, we all get our turn at that spot). Grains and oilseeds were becoming so cheap that people actually had the idea to use them as fuel. Whether that makes sense or not is a discussion for another day, but the explosion in ethanol and biodiesel, combined with a lack of motivation on the part of farmers to really push yields, created the beginning of one of the greatest “bull” markets (upward-trending) in history. From 2007 on, farmers finally were able to make money growing crops again.
Interestingly, my Dad experienced an eerily familiar situation at the start of his farming career in the 70’s. At that time, they were bombarded with claims that the world was running out of food, that demand from growing economies like the Soviet Union would make them rich for the rest of their careers, and that they had to do everything they could to push yields to feed this growing world. All of the sudden, agriculture exploded from obscurity, becoming front-page news. Land prices took off, as everyone wanted to own their piece, be it a farmer down the road or an investor from New York City. Sound familiar? Just replace “Soviet Union” with “China and India” and it fits disturbingly well.
Throughout the latest fantastic run of great prices, starting in late 2006 and capped off by a severe drought in the U.S. in 2012, we were told that it would go on forever. While all of this was great for farmers, and for my farm too, I knew that reality would set in someday. I knew it couldn’t last. Because, just like everything else, agriculture moves in cycles.
This wasn’t the first time grain prices had taken off. In fact, it had happened three times before: after World War I, again after World War II, and in the early 1970’s. Each time grain prices exploded to new heights, and then settled back to reality. This bull market would be no different; and indeed, it wasn’t any different at all. The famous quote, “history doesn’t repeat itself, but it does rhyme,” fits all too well.
But what does all this mean? Well, good times can’t go on forever – but neither can bad times. Even at the worst of the low grain prices in the early 2000’s, when all hope seemed lost, when it seemed like farming would never recover – it did. And, even when it seemed like we could never keep up with a growing world, when it seemed like crazy, volatile weather would forever curtail our ability to grow large crops – we did. “The best cure for high prices is high prices” is one thing I learned from a market analyst I have a lot of respect for, John DePutter. By the way, the reverse is also true.
Agriculture moves in long-term cycles and waves, going from depressed valleys to exorbitant peaks. The good times allow us to take a breath, strengthen our balance sheets, and try to prepare for the bad times, which inevitably follow. But, the bad times in some ways present greater opportunities, with cheaper land, opportunities for expansion, and a better diversified cropping mix to try and capture special crop market swings. Good times push simple, low-maintenance and reliable crop rotations like wheat-canola (or corn-soybeans for those down south) that are really not a great long-term strategy for improving our soils and preventing weed resistance. In the next few years, crops like peas, lentils and flax will return from the background (they are already starting to now) and new, exciting crops will find their way to all corners of the Prairies.
The “good times” for cash cropping may have ended, and may not return for decades. Yet, it is in these “bad times” that some of the greatest opportunities may be found. Since the amazing explosion in agriculture started around eight years ago, many of us realized that it would not last; that we needed to be careful navigating through it. Now, as we enter into a new era of farming, with technological advances unprecedented in the past, with a new generation of farmers passionate about agriculture, I for one am excited about the future of this incredible and vibrant industry.
