Over a few years, wheat prices can yo-yo up and down in an alarming manner, making it hard for farmers to predict their future income.
But over the long term, since 1923, regardless of the short-term peaks and valleys, a couple of price phenomena have become evident:
- The long-term average price of wheat in dollars and cents has changed little.
- A dollar today buys a lot less than it did in 1923.
Farmers have long rued the fact that while grain prices have become steadily lower, relative to inflation, during the last 100 years, input prices don’t seem to be declining at the same rate. As a result, the returns from a bushel of wheat seem to provide fewer and fewer non-farm items than they used to.
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For the past 80 years, some farmers have reacted to the declining value of grain by making their farms bigger, buying more land and larger equipment, and adopting new production methods and high-value crops.
Hundreds of thousands of others have simply left the farm.
Many farmers have held the hope that some day agriculture will settle down, that the perfect size of farm will be found and farmers won’t have to face the continual need for expansion.
Agricultural economist Ed Tyrchniewicz says farmers shouldn’t hold their breaths.
“I don’t see much likelihood of that happening,” said Tyrchniewicz, the former dean of the University of Alberta’s agriculture school and professor emeritus at the University of Manitoba.
Farmers need to accept that commodity production industries such as agriculture will continually face declining per-unit prices.
He said farmers need to understand that they must not only keep up with their neighbours, who are continually looking for cheaper ways to produce commodities such as grain, but also keep up with farmers in other parts of the world, who may have cheaper production costs.
To stay in business, he said, farmers must embrace change rather than resist it.
“From a producer’s perspective, it’s a relentless pressure,” Tyrchniewicz said.
“You have to be innovative. You need new equipment, new methods of doing things to be the low-cost producer.”However, scientific and industrial advancement will inevitably send prices lower.
“Innovations in agriculture tend to be cost-reducing,” Tyrchniewicz said.
“The benefits tend to be passed on to consumers through lower food prices.”
While farmers don’t financially benefit from most scientific advancements in the long run, they will be destroyed if they don’t quickly adopt them.
Tyrchniewicz said the 10 to 15 percent of farmers who adopt new technology early will tend to survive.
“You want to be in that top 15 percent, whether it’s adopting cost-saving innovations or marketing strategies,” he said.
“It enables you to keep up with the downward pressure on prices.”
Kansas State University agricultural economist Bill Tierney said farmers have managed to stay ahead of some of the decline in wheat prices by producing more per acre.
“What is important is the long-term returns per acre,” he said.
“If you judge it by the price of a bushel, you’re totally ignoring all of the things that have increased agricultural productivity.”
Tyrchniewicz said when change finally comes to a production system, it can come fast, sweeping out those who can’t adapt.
“Look at what happened in the hog business,” he said. “There has been very rapid change. The smaller operations can’t begin to compete on a cost basis, and they’re getting out of the business.”
Tierney said governments have tried to stop the continuing concentration of farming, but have been unable to eliminate the long-term trend of lower commodity prices and fewer producers.
“Subsidies have delayed concentration, but when the government has stepped in it has delayed the clock, not stopped it.”
