Boom times bring with them unique challenges

Farm equipment has been hit by a double whammy. The demand for new iron is strong at a time when the pandemic has caused component part shortages limiting the supply of new units. | File photo

Economically, the grain sector has rarely been more buoyant and optimistic. Grain prices have surged and drought worries have been reduced by the recent widespread rains.

This comes as grain sector income levels were already showing significant increases. It’s the best of times, but that comes with ramifications.

The most recent data on land prices shows a steady increase in the five percent range nationally, far less than the astounding 15 to 20 percent annual increases from the 2011-14 time period.

When data becomes available for 2021, expect the rate of price increase to again escalate. It’s a bullish, competitive market fueled by strong profitability and the possibility of even better times ahead.

Farm equipment has been hit by a double whammy. The demand for new iron is strong at a time when the pandemic has caused component part shortages limiting the supply of new units. As well, it takes manufacturers time to gear up when demand suddenly takes an upswing.

Depending on make and model, if you were to order a new seed drill today you might not get it in time for seeding in 2022. It might well be a purchase aimed at the 2023 season.

Naturally, that is putting price pressure on late model used equipment. Many dealer lots are scant on inventory. It’s a great time to be a farm equipment salesperson, except if you don’t have much to sell.

Fertilizer prices usually decline after seeding, creating buying opportunities in the latter part of the calendar year. Will that happen this time around? So far, fertilizer does not appear to be showing any seasonal softening. A bullish grain market fuels a bullish fertilizer market and this could trump the normal seasonal price trends.

When profitability is good, it’s easy to get sloppy and let costs get out of hand. This applies to inputs, equipment and even personal living expenses. Bad decisions and bad habits can come back to haunt you when the boom subsides or reverses.

For young producers, this should be a great time to make advancements, but buying land and equipment has quickly become more expensive. It’s a costly time to expand an operation.

For highly leveraged farms, this could be a great time to pay down debt and put the operation on a more stable footing. However, the tendency is to double down and push the gamble even further.

Decisions would be easy if we could forecast the future with accuracy. Are we into an unprecedented extended boom or are we on the precipice of difficult times ahead?

After a year and a half, the effects of the worldwide pandemic should eventually ease. What will the new normal look like? How will the huge government debt be addressed, provincially, nationally and internationally? What are the economic shockwaves we can’t anticipate?

Depending upon the analyst you listen to, the Canadian dollar is either going to surge even higher or it’s going to fall back significantly. More analysts than usual are warning about the threat of higher interest rates, but borrowing is still amazingly cheap.

While we like to gripe about rising equipment costs and expensive fertilizer, the increase in grain prices has outpaced overall expenses. Canola at $10 a bushel, peas at $7, wheat at $6 and barley at $3 seem like ancient history. We’ll never drop to those depths again, right?

Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at kevin@hursh.ca.

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