Price dip sees farmers review costs

How are farmers going to react to the present prospect of years of break-even returns?

Ask them on Twitter and you get answers like this:

Ron Krahn of Rivers, Man.: “Machinery upgrades likely put on hold. Increased scrutiny on ROI (return on investment) of inputs.”

Southwestern Saskatchewan farmer Pat Kunz: “All machinery upgrades are put on hold.”

It’s the type of attitude long-time farm management consultant and expert Brent VanKoughnet predicted when interviewed about how wise farmers might react to the possible end of the boom in crop farming returns and the advent of a period of little or no profit.

Futures prices out to 2016 show markets think the most reasonable expectation for crop prices for the next three years is similar to today’s prices.

“It makes it less fun. Being less fun changes a lot of things,” said VanKoughnet.

“An optimistic outlook is sometimes a lot more free-wheeling and at worst a little sloppy.… When that mood changes, people start to go back and challenge the expenses of even basic things.”

Spending on almost everything in farming surged during the boom years since 2006, when farmers with average crops were often able to reap huge profits. Farmers not only bought lots of land and new equipment but also began experimenting with exciting technologies, practices, services and products.

Farmers took chances with new practices such as foliar-applied micronutrients, crop scouting by drone, installing remote sensors, hiring crop scouts and experimenting with novel production systems.

VanKoughnet said farmers will still be willing to spend money and take chances on novel ideas, but they will need to be convinced they truly will improve the bottom line. There might be almost no margin to lose with bad decisions.

“Those services will still get used, but I expect to see more scrutiny,” said VanKoughnet.

“If that cost for field-scouting is about all the margin you’re going to get, you’re going to make sure that $10 (per acre) is going to get you $15 back. But (in recent years), $10 out of a $100 margin? You might not have been verifying that very closely.”

VanKoughnet said farmers will be skeptical and demand proof, which should sort out the wheat from the chaff in agricultural goods and services.

“People that provide services that can back up what they’re saying, they’re on stable footing. For those where it’s a lot of smoke and mirrors, it’s going to be a tough ride.”

The problem with a boom like the one that might have just finished is that it tempts some to overspend in the belief that good times are here forever.

For them, a margin squeeze could present real problems. However, VanKoughnet said many farmers took advantage of the boom to prepare them for future lean years.

“For people with a 15 to 20 year plan to stay in farming, this boom put them in a good position to pretty aggressively turn over equipment and put themselves in a place where they won’t have many unexpected expenses,” he said.

“They’re starting on a good cycle here.”

However, the next few years probably won’t be as fun as the past five.

“In good times, you can leak a percent or two and it doesn’t necessarily affect how you run the farm,” said VanKoughnet.

“You can relax a little. When things tighten up you take those situations a little less casually. If you look at your bank balance and it’s the biggest it’s been in years, you think you can have a little fun. If you haven’t paid your operating loan, you don’t go to the wish list as aggressively.”