Net farm income has been growing again after taking a few years off for rest and relaxation.
But with that growth comes awareness that the cures for high prices — and margins — are high prices.
Whenever high or, as in the case of 2021, record-high net farm incomes are reported, producers often find themselves saying, “that’s not what happened at our place.” Many are right.
Commodity prices are trending higher now that war in Europe has entered the picture. Given the resulting loss of production among the large agricultural exporters involved, the market likely has supply and demand figured out.
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But while commodity prices are rising, so are costs. In 2021 and maybe 2022, there may be decent margins realized, except for cow-calf operators and the supply managed sides of primary production. But time and costs have a way of catching up with producers.
It seems that whenever the industry manages to make a few dollars, it happens when other industrial commodities are under pressure. For example, energy costs jump and that increases fertilizer production costs.
Then farmers seeking to ensure higher production and profit will use more nutrients and other inputs. That boosts demand and price for those inputs when supply chains are already stressed.
When margins are good for a time, producers are also willing to acquire new assets, often with longer financing windows. Land prices in particular can rise and, unlike fertilizer or fuel, will stay high long after the bloom is off the commodity rose.
Luck hasn’t favoured every sector or every farm equally. Cow-calf operators haven’t seen increases in farmgate gross returns despite high retail beef prices. Hog producers finally had some profitability in the past year and half, but it was a long time coming.
For many, their barns and feed facilities went from underfunded to unfunded liabilities a while ago, so catch-up investing is underway. In the meantime, feed costs are undermining their operating margins.
Dairy and poultry sectors might have quotas and community pricing, but the same cannot be said for feed and other inputs, so even the eight percent increase in gross revenue won’t cover tripled feed bills and doubled energy costs.
For grain farmers, record net income came as a portion of 17 percent higher total receipts, despite commodity price increases of 40 percent or more. This speaks to the effect of drought on production.
Those with average crops earned significant margins. While crop insurance payments are up 89 percent for those hindered by drought, payouts were based on previous years’ prices. Now higher inputs costs arise when they can least afford it.
Net incomes won’t likely set records in 2022, but they will likely remain strong.
And that means producers should be wary of potential cuts to federal and provincial risk management programs, which governments often make when farming incomes are good.
Karen Briere, Bruce Dyck, Barb Glen and Mike Raine collaborate in the writing of Western Producer editorials.
