Farm investments take many years to pay off.
A short-term market disruption can destroy years of careful management and overturn the best production planning.
Being blocked from a key buyer, or just seeing prices collapse as a result of a market being blocked, can bankrupt a farm.
So how the heck does a farmer today work up the courage to invest big sums in production systems that could be whipped into an ugly mash up by the eggbeater of world trade politics?
I’d suggest three contradictory approaches:
Assume the U.S. market will be there
For all the sturm und drang about trade coming out of the White House, it would probably be a mistake to become paralyzed by the uncertainty.
There might be many threatening sounds coming out of Pennsylvania Avenue and from U.S. trade officials, but people are beginning to suspect they might not end up being more than sounds at the end of the negotiating day.
Holding off on new investments because of the uncertainty about access to the all-important U.S. market might end up being overly cautious. There’s a risk in investing, but there is also a risk in not improving operations out of fear. If U.S. President Donald Trump doesn’t end up killing NAFTA, a years-long delay in executing plans might be rued by a less prosperous future you.
Assume the U.S. market won’t be there
If rather than being overly cautious, you tend to be blissfully relaxed about the risks, give yourself the advantage of at least thinking about “what if?”
What if you’re a weanling hog or cattle producer relying on U.S. buyers? What’s your action plan if a sudden trade action cuts you off from your buyers?
It’s a good exercise to figure out now who on the Canadian or offshore side of the market you could turn to if the U.S. market suddenly ceased to exist for you.
A lot of farmers have already been through this, with country-of-origin labelling and BSE causing massive disruption and many farm failures. However, reviewing Market Apocalypse options is a worthwhile exercise any time, and since it’s a uniquely screwed-up time right now, why not review your options?
Think about Global Competitiveness and Me
What do you do best in the world?
Do you know how you match up to American, Australian, Brazilian, Dutch and Chinese farmers? Are you the lowest-cost producer in the market? Could you be?
Knowing this doesn’t do anything with a short-term market disruption, but it has everything to do with long-term survivability. Farming and commodity production is a long, long game that relies upon surviving multiple bull and bear markets. Investments need to bring a return over a long payback period.
In the long run, you’d better end up running one of the world’s best farms because that’s the only kind there will be 50 years from now, regardless of what happens to today’s trade deals.