Prairie farmers wrestle with falling prices, the impact of the carbon tax and storage challenges caused by damp grain
Manitoba’s farmers are struggling with production problems, storage challenges, low prices and increasing costs that add up to a bad reality: an almighty profit squeeze.
That margin compression hung over the Keystone Agricultural Producers’ annual meeting like a cloud, darkening discussions of various topics.
“There are a lot of things squeezing us and I’m not sure there is much else to squeeze,” said Bill Campbell, KAP president.
The problems in Manitoba are similar to those further west, although eastern prairie farmers have generally suffered more from excess moisture and less from drought than those on the western plains.
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Farmers are wrestling with storage challenges from damp crops, including quality downgrades. Many crops are still in the field.
Prices have fallen since China launched trade actions against Canada over a diplomatic dispute.
As well, the impact of the federal carbon tax is beginning to be felt.
“Producers are finally seeing some of these invoices and seeing the bills (including the carbon tax impact),” said Campbell.
Livestock and diversified producers aren’t escaping the margin pressure, said David Sullivan of Global Ag Risk Solutions.
“Margins are thin across a lot of areas,” Sullivan said.
That’s leading to a lot of financial re-engineering this winter, with 2020 not looking particularly promising.
“A lot of farmers are taking a hard look at their business plans, and their banks are taking a hard look at their business plans, to understand how they’re going to make it through 2020,” said Sullivan.
“Hopefully the weather co-operates.”
There are limited steps farmers can take to reduce costs and maximize revenues. Sullivan was part of a discussion about how and when farmers should acquire new machinery and land, with no easy answers in a current market that has high prices for both.
Farmers might be tempted to squeeze input costs or shorten canola rotations, but Sullivan cautioned against that.
“We’re doing things like shortening rotations and cheating on our chemical rotations or chemical groups, but it’s showing up now…. We’re going to have long-term problems to deal with clubroot and glyphosate resistance.”
However, farmers don’t always have much choice, with lenders reducing credit and prices remaining high.
Adding to the pressure is the high cost of today’s machinery, as well as escalating land rent.
Sullivan said the most important element leading to farm profitability is gross revenue, so scrimping on inputs or relying on inadequate machinery can be self-defeating.
“It’s a symptom of some thin margins where guys are trying to cut some costs, but it does have a long-term impact on a farm’s long-term viability,” said Sullivan.
That’s why Campbell said KAP is trying to get relief from the federal government on the carbon tax. It might not yet be a major increase to the cost of production, but when there are thin or no margins, it can steal all that remains.
The same goes for water management regulations, pesticide restrictions and other impediments on normal farming operations.
“How do we deal with government regulations that impede our ability to get that gross revenue to where it should be?” said Campbell.
