Long-range economic predictions are always interesting, but more often than not they miss the mark.
Rewind to a few years ago and remember what analysts were saying about oil prices. Oil was said to be in short supply. It was going to become so scarce and expensive that major economic adjustments would be needed around the world.
Guess what. Oil is unexpectedly cheap and abundant and that seems to be the scenario for the foreseeable future.
Ethanol production, particularly in the U.S., has been a major contributor to strong world grain prices. At best, current ethanol production levels will be maintained, but the economics will be difficult with oil so cheap.
Read Also
Proactive approach best bet with looming catastrophes
The Pan-Canadian Action Plan on African swine fever has been developed to avoid the worst case scenario — a total loss ofmarket access.
There were many promoters of both sides of the border who thought ethanol had guaranteed long-term profitability. It doesn’t look like such a fun business anymore.
Remember when the Chinese economy seemed unassailable. We should have guessed that such a rapid rate of growth would not be sustainable indefinitely. Suddenly there are warning flags in the world’s second largest economy.
As a major market for many of our agricultural commodities, what happens in China could have large ramifications on market returns.
Fortunately, there are counterbalancing forces helping agriculture. Who would have guessed that interest rates could stay so low for so long? It’s been a great time for farms to expand. Money has been on sale.
The dramatic drop in oil prices has dragged down the value of the loonie relative to the U.S. greenback, shielding Canadian grain producers from the full effect of softening world grain prices. If our dollar was at par, you can bet that canola prices would be a lot lower than $10 a bushel. And calf prices wouldn’t be looking so buoyant heading into the fall run.
On the flip side of the coin, the low loonie is making fertilizer more expensive and it will also have an impact on new equipment values.
How many times did you hear the story told about the rapidly expanding world population and the growing purchasing power of millions of people who now had money to spend on food? Farmers weren’t going to be able to keep up with demand. The future was so bright you needed sunglasses.
The story isn’t recounted with as much regularity anymore. Economic and geopolitical twists and turns are complicated and regularly defy such linear predictions.
Civil wars, political strife, changing taxation policies, changing consumer expectations, unexpected trade barriers, unforeseen weather events and transportation bottlenecks regularly change the course of agriculture.
Are the good times over in the grain industry or are we seeing a temporary lull in a continuing long-term bull market? There are many opinions, but no one really knows for sure. Analysts that correctly predict the future are often right for the wrong reasons anyway.
There are some warning signs flashing. Should we take heed or just ignore them? Knowing the future would make a lot of decisions really easy.
Perhaps the party will continue, but the grain industry boom of the past decade no longer seems to have quite the same trajectory.
