Is it time to grow the farm? In a recent conference call, agriculture managers at the Bank of Montreal and Ron Bonnett, president of the Canadian Federation of Agriculture, discussed the opportunities and challenges facing farmers.
All three panel members were quite positive about the immediate future: BMO’s forecast for agriculture in 2012 is growth of two percent.
The forecast includes strong commodity prices but challenges coming from high input costs and a high Canadian dollar. Opportunities for farmers include increasing economies of scale and embracing technological advances.
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Economies of scale is also known as bigger is better. Whether you agree with that philosophically, there’s certainly a strong argument to be made that larger farms can weather storms – climatic or financial – more easily than smaller farms.
If you believe that’s true, is this a good time to expand, considering the height of land prices (and rents)? It depends on whether you also believe the following:
• Export markets will grow, so that Canadian food will reach the stomachs of people living in countries where populations are soaring. There are significant hurdles, the panel noted, among them that pork and beef are still not getting to South Korea and Japan, both important markets, and that some importers remain sensitive about GMO levels.
• Interest rates will remain low for the foreseeable future. Considering the economic news out of the European Union, it’s quite likely that rates will not spike for some time. Indeed, rates fell slightly in Europe last week. Even the economic news in Canada is not entirely stellar, with the loss of 54,000 full-time jobs in October. Bonnett warned farmers to keep a close eye on capital costs in case interest rates spike.
• Commodity prices will remain strong. Prices are good, but there has been substantial volatility this year, as well as in inputs, which jumped 20 percent over the growing season.
• Research funding will improve.
• Rents are high. Glen Snyder, BMO agriculture manager for Saskatchewan, said with the rent increases in the last two years, it might make more sense to buy land rather than rent it, if it cash flows.
To buy or not to buy. That is the question in 2011.
