Nothing goes up forever. If the grain sector has a downward correction in profitability or even if we plunge into big losses, it shouldn’t really be a surprise. The only surprise is that the relatively good times lasted so long.
Lots of the blame for the current uncertainty and disappointing prices for most grains, oilseeds and special crops are being placed on trade issues. China and canola get the most attention, but the U.S. trade war with China is a huge factor as well. Canadian canola prices have followed the downward trajectory of American soybean values.
On top of that, you have the big tariffs on pulse crops going into India, Italian bias against Canadian durum and a number of other trade-related issues on Canadian grain exports.
But in many ways, these trade disruptions are signs of a world not overly worried about food security. Grain supplies are adequate to abundant with production increasing in many regions around the world.
Throughout the history of grain production in Western Canada, farmers have endured more challenging times than good times.
There are still farmers around who can remember the historic boom of the 1970s. The grain glut of the early 1970s prompted the federal government to come out with LIFT, the Lower Inventories for Tomorrow program. Farmers were paid to increase the amount of land they left fallow.
The program was ill-timed because a couple short years later Russia was hungry for grain and prices shot up to levels never before experienced. The record high profitability of the mid-to-late 1970s faded away in the 1980s, with many clinging to the hope that the golden days would return.
Instead, we had crushing debt levels and an epic scale of foreclosures on land by lending institutions.
There were glimmers of hope along the way. Cropping patterns changed. Summerfallow acreage decreased dramatically. Producers became more efficient with larger scale. But it wasn’t an easy game in which to make a living.
No prolonged period of grain farming prosperity arrived until about 2008. Land prices escalated dramatically and farm equipment sales skyrocketed as producers retooled. Not every producer had great profits each year, but overall these past 10 years will go down in history as an economic boom.
Is it over? Has the bubble burst? History would suggest that challenging times last longer and are more prevalent than boom times, but it’s always dangerous to predict the future.
Some people muse about tougher economics curbing the increase in land prices and perhaps even causing land prices to drop. For those looking to buy land this would seem appealing, but it only occurs if there’s a lot of economic pain. Those hoping for a significant drop in land prices should be careful what they wish for.
If we are headed into an economic slump in the grain sector, the calls will become louder for government to act. Governments have a legitimate role in trying to facilitate trade. They also have a role in farm support programs. However, they can’t insulate farmers from economic reality.
No one owes us a living just because we’re farmers. We’re no longer a bunch of poor peasants trying to eke out a meager living. We’re big business with even small farms worth millions of dollars.
We need to adjust our expectations. For those who have overspent on expensive land and/or shiny equipment, some difficult decisions may be forthcoming. That’s how business works. Good times don’t continue indefinitely.