Farmers need to be alert in turbulent economy

Economic alarm bells are sounding. Even though it’s difficult to identify any immediate threats to agriculture from the financial malaise, it’s best to remain alert in these turbulent times.

Crude oil below $30 a barrel and a Canadian dollar below 70 cents seemed unimaginable a couple years ago. Massive job losses are occurring in the resource sector.

While the oil and gas sector is reeling, agriculture remains relatively unscathed. Despite ample worldwide stockpiles of the major grains, the low value of the Canadian dollar is keeping crop values at reasonable levels. On some of the minor acreage crops, returns are exceptional.

The Baltic Dry Index is at a record low, indicating a slowdown in world trade relative to the shipping capacity available. Bulk grain shipments are cheap, helping the competitiveness of our exports.

For most of the last decade analysts have been warning that interest rates have nowhere to go but up, but it hasn’t happened. Given economic conditions, interest rates in this country are expected to remain incredibly low for the foreseeable future. Farm debt has never been easier to service.

The lowly loonie means fertilizer is much more expensive here than in the U.S., but we’ve survived much higher nitrogen and phosphate prices. New equipment is increasingly expensive, but farmers bought a lot of big ticket items in recent years, satisfying much of the pent-up demand.

In many cases, good deals are available on major pieces of equipment that are just a few years old, the trade-ins from all the new purchases.

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Rail service for grain has been very good due at least in part to the slowdown in other commodities.

If you have investments in stocks, bonds and mutual funds, your portfolio is probably taking a beating. On the other hand, if much of your wealth is tied up in farmland, the value may not be skyrocketing like it had been, but it probably isn’t declining.

So, from a farmer perspective, what’s not to like?

One threat will come from ballooning federal and provincial deficits. Farm support programs could be a casualty of government cost cutting. Plus, it will be more difficult to negotiate exemptions for primary agriculture from the various carbon tax initiatives that are probably coming.

On the world grain market, we need to recognize that many of our export competitors are also enjoying a weak currency relative to the American greenback. Like Canada, farmers in Russia, Ukraine and Argentina are not getting the market signal to reduce production.

Barring weather disasters, grain stockpiles could become even more burdensome. If the value of the Canadian dollar improves in a year or two, grain prices could look dismal.

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The Chinese economy has cooled considerably. Market analyst Chuck Penner says the Chinese stockpile of corn is estimated at 115 million tonnes, with some observers believing it is actually 175 million tonnes. He notes they will need to rewind that stockpile and if they dump it quickly, it could seriously undermine markets.

Does the troubled economy offer any opportunities?

Some of the farm kids working in the oil sector are now probably evaluating opportunities on the family farm. If you have construction projects on the farm, it may be easier to access tradespeople. The slowdown in oil and gas will take pressure off rural roads and some other services.

Are we missing something? With such a troubled world economy, agriculture could be sideswiped by something as yet unforeseen. Keep your head up.

Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at kevin@hursh.ca.

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