Farmers are famous for seeding this year’s crop for last year’s market.
In other words, whatever had the best prices last year is likely to be grown most enthusiastically this year.
That’s a problem, because every farmer sees the same prices in the rearview mirror and many grow in the hope of achieving those prices again, causing supplies of those crops to soar and often their prices to plummet.
There’s a flip-side to this coin: farmers who heed the advice to look forward rather than backward and seed for what looks best in present outlooks can also swarm into a good-looking market and destroy those assumptions.
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If they all grow a bit more of the same thing, the future for that crop ain’t what it used to be.
This year, more than most, contains the second danger for farmers. Last year’s rise and fall of prices was so unprecedented that many producers are now studying crop revenue calculators much more carefully to see what’s offering the best chance to make money.
Among the big crops, American farmers look set to seed a few million extra acres of soybeans and cut back on wheat and corn. Canadian farmers still seem determined to seed more canola this year, regardless of the heavy stocks weighing down the system. Tight basis levels aren’t likely to lower that interest.
If the increase is just 700,000 acres of canola in Canada and four million acres of soybeans in the United States, then most of the return calculators that show decent returns for those crops are still a reasonable assumption.
However, if farmers jump onto these commodities, as some analysts worry, and push acreage much higher – say 12 million extra acres of soybeans – then those projections become inoperative because the supply side of the equation has been radically changed.
The situation is more volatile in special crops, which can easily be swamped if even a small number of farmers increase acreage.
What’s going to happen to lentil acreage this year? Some expect more than two million acres will be seeded. If that projection is right, then does the present price projection based on low stocks still hold? Not according to some analysts I’ve spoken with. The tight supply now projected becomes bigger if everyone seeds what they plan to seed.
A couple of weeks ago in Unity, Sask., I spoke to a producer who is planning to grow more barley this year and peas for the first time in 15 years. Those are the two crops most people think have little chance to pull themselves out of the oversupply sewer.
The reason for his seeding choices: his relatives in the U.S. Midwest are all planning to seed more soybeans and his Saskatchewan farming colleagues are planning to grow more lentils. He laughed at himself for his contrarian nature, his choice to seed deliberately against the grain, but said his approach had served him well in the past.
The next day in Vermilion, Alta., I spoke to a woman who said she and her husband were planning to seed peas this spring even though many people are bearish on the crop’s prospects.
The reason: the crop grows well on their land and they’re going to stick with their long-term cropping plans. There may be good market outlook reasons to avoid peas, but they’re sticking with what they do well.
So which approach will produce the best returns in 2009-10: growing for last year’s prices, growing for present price outlooks, deliberately picking unfavourable crops in the hopes of a dark horse victory or sticking to your rotation and focusing on producing a good crop rather than playing with price projections?
Obviously, neither I nor anyone else knows the answer to this question, but if I had to place my own money on the yearly crop gamble, I’d go with the guy in Unity and the gal in Vermilion, just for fun. After all, it’s no fun betting on the favourite.
There’s something refreshing about contrarian tendencies and a decision to not try to outthink the market.
I plan to revisit this topic in October to see if I bet on the right horses.
