The challenges from a tightening grain sector economy are obvious, but cycles and shifting mentalities also bring opportunities.
More than 10 years ago, the confluence of increasing demand from both India and China along with the boom in American ethanol production propelled the grain industry to one of its greatest prolonged periods of prosperity.
Now the opposite is unfolding and while we can hope for the best, it appears that multiple trade tensions, rising grain carryover levels and African swine fever could propel the grain sector into a significant downturn.
If that’s the case, what will the impacts be?
Farm equipment sales will be affected in any downturn. In fact, there was evidence of that even before all of the bad news, especially with seeding equipment. You can’t cut crop inputs much before you hurt production levels, but you can run equipment longer and delay major upgrades.
Lenders are going to be more cautious. All institutions are your friend when times are good. We’ll see if some of them run and hide from agricultural lending when things get dicey. That’s what happened in the past.
We could be near the peak of land prices. Price escalation has been slowing and may stall altogether. There’s still lots of pent up demand from farms wishing to expand, so it would take a lot of economic pain to see land prices reverse, but nothing is impossible.
Expect to see some investors exit the farmland game. Logically, they may want to get out while the getting is good. Expect some farmers who appeared to be solid and long-term do the same.
Around Eston in west-central Saskatchewan, all the talk is about former Saskatchewan cabinet minister Bill Boyd, who has sold his farm to an Alberta Hutterite colony.
While some farms are highly leveraged, others have little or no debt. Those with a small debt load may be able to capture some deals on equipment and perhaps eventually on farmland. On the other hand, those with high debt relative to profitability may be in for a rough ride.
In any protracted downturn, calls for government assistance will intensify. AgriStability should have been examined and improved during the good times, not when we’re on the brink of large income shortfalls. This isn’t entirely the fault of governments. Farmer and farm organizations tended to ignore the program during the good times and also deserve some of the blame.
For farmers not enrolled in AgriStability, the opportunity to get aboard has been extended. It’s highly probable that any government assistance will come in the form of AgriStability upgrades. If you’re not in the program, you could miss out.
Maybe the leaders of United States and China will kiss and make up. Maybe the Huawei executive will have her extradition order cancelled and the Chinese will again be our friends. Maybe a low-cost vaccine will solve the African swine fever epidemic. And maybe there will be some major crop production shortfalls that change the balance of supply and demand.
Some of those scenarios are more likely than others, but overall the outlook is not encouraging.