This morning at the Manitoba Swine Seminar I sat through a great presentation on the long range prospects for livestock producers. It was given by a long time meat industry executive and consultant. And, after skeptically going through what he was saying, I had to conclude that it all sounded kosher.
But I’ve sat through a lot of good-sounding presentations over the years, and this one created the same cognitive dissonance in me. These days, everyone seems to talk about how much the world population is going up by 2050, how a whole bunch extra crops and meat will need to be produced to feed them, and how the long term future for prairie farmers is good. The take-home message was: if you can survive through this down patch, there’s a good future for you to move into.
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That’s a cheery prospect. But I have two niggling doubts about these sorts of projections that tell farmers good prices are going higher, higher, higher – in the far off future. 1) How do farmers actually get there without going broke; 2) Why does the time horizon keep getting pushed back?
How do farmers actually get there? That’s a legitimate question for any farmer having to live in the margin spreads between fertilizer prices and crop prices, between feedgrain prices and live animal prices, between surging farmland prices and weather variability. It’s fine to have great long term prospects, but many farmers survive on a year to year basis between crops or on a cycle to cycle basis in hogs, and a three or four year slump in crop prices can wipe out years of profits and equity buildup. If you believe too much in these long term prospects are you tempted to invest too much, go too big, take on too much debt? If these prospects really turn out to be true, then you’d be crazy to not borrow money to the maximum and set up for this super-profitable future.
But that takes me to the second question: If the future’s so bright for ag, why does that future keep getting shoved back further into the future. In the late 1990s in Saskatoon I sat through a lot of presentations talking about the burgeoning Asian population and the inevitable increase in per capita wheat and meat consumption that inevitably will occur and about how demand increases were not being matched by production increases, yadda, yadda, yadda. Farming finally would become an enriching prospect.
Then the 1998 hog price crash occurred. And the bad crop price years of the early 2000s occurred. And people chattered about that a bit less and farming ceased to seem such a surefire way to make money in the minds of “futurists.”
But then the 2000s commodity market boom began, and all those voices came back, making all the same projections. And those all seemed to make sense again. For the same reasons. But I’ve noticed that now none of these projections are set for the year 2020, which was common in the mid-1990s. Now it’s 2030-2050 the golden age has been pushed back to. Since the mid-2008 commodity-equity slump and worldwide crisis began, many prognosticators have backed off, but the theory’s still intact.
So it all seems to make sense, but still produces great suspicion in people who have to actually get to that future. When you look at century-long world population projections, acreage loss figures, consumption increase estimates and other long term forecasts everything can look bright and shiny. But when you have to live in the volatile markets that farmers live in, the long term can just seem a fantasy that confounds the infuriating present.
To highlight that short term difficulty that is the plight of most farmers, here are a couple of charts showing what happened to the rally were enjoying until it fell off a cliff: (Chicago wheat and Winnipeg canola)
