Current grain rally has ramifications; be prepared

The seismic shift in grain prices over the past few months has wide-ranging ramifications, some of which we’re already seeing and others that are likely to materialize.

While many factors have combined to generate the rapid rise in fertilizer prices, strong grain prices are front and centre. When corn, canola and wheat prices all increase there’s a predictable impact on the demand for nitrogen and phosphate.

How crazy will the fertilizer market become this spring? Will supply become an issue on some products? Most years, fertilizer is the most expensive around seeding time, but sometimes the increase leading up to spring isn’t significant. In this instance, early purchases might end up saving hundreds of dollars per tonne, particularly on phosphate.

Of course, the newfound grain prosperity will no doubt put additional upward pressure on land prices. Land rental rates that may have been relatively stable are also likely to push higher as contracts come up for renewal.

It’s also reasonable to expect increased farm equipment demand across North America. In addition to attractive grain prices, American farmers received billions of dollars in COVID support so they are in an especially good position to upgrade equipment.

Will there again be waiting lists for certain types of new equipment? We’ve seen that in other boom periods.

Economists talk about a K-shaped recovery from COVID where some sectors go up and others go down. The grain sector never really missed a beat from the pandemic. Now the outlook has rarely been brighter despite a pandemic battle that’s likely to last much of the year ahead.

For a few farm inputs such as diesel and gasoline, the ongoing pandemic will mean relatively low prices. However, if you’re building anything with lumber, costs are up dramatically due to so many people doing home renovation projects rather than taking warm location holidays.

Don’t expect canola seed to drop in price. Ditto for most crop protection products.

Auction sale season is just around the corner. Online auctions have taken over from the in-person gatherings that used to draw large crowds and be social events.

If anything, auction competition is more brisk than ever with the new format. It may be more difficult to get full value out of some smaller items like shop tools, but bigger ticket items were strong in last spring’s online auctions and that’s likely to be the case this time around.

However, American buyers may be less competitive due to the stronger Canadian dollar as compared to last spring. As well, travel restrictions could make it a hassle to move equipment across the border.

While grain profitability has seen a major improvement, returns in the cow-calf sector remain mediocre. Expect breeding herd numbers to continue to decline. Watch for more conversion of tame hay to annual crops.

The new administration of United States President Joe Biden with recycled agriculture secretary Tom Vilsack would love to re-implement country-of-origin labelling that would further hamper the Canadian beef industry. If you have a choice, doing grain rather than cattle looks enticing.

Sharp price rallies in grain are often followed by even steeper declines. Nothing is assured, but when the rally occurs to some degree across all the commodities and extends to new crop pricing, it has the makings of more than a short-term blip.

It’s the good times that can get producers in trouble because markets don’t remain strong indefinitely. For now though, growing a good crop is the ticket to a profitable 2021.

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

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