Usually when I got off for a week or two of holidays, the markets sharply rally.
I take that as the gods’ sign to the masses that my presence keeps prices low and conditions dreary. Fortunately, that phenomenon does not appear to have occurred in the past two weeks, most of which I was off. If I’m looking at the charts right, canola’s been flat as people think Saskatchewan is (it’s not really that flat, except where the major highways run), soybeans have been flattish, wheat has been cheery but not eruptively so, while corn has been bulling upwards. So a mixed bag but nothing for me to feel offended by. I don’t cover corn, so I can’t take that crop’s rally as a personal attack on me. (It’s nice to see five buck corn again, isn’t it!)
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Worrisome drop in grain prices
Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
It’s a beautiful day here at Portage and Main, with blue skies and crisp dry air. It would be a lovely day for a funeral, and with that thought in mind, I recall the memory of the 2008 financial collapse – which killed commodity prices including crop prices – which began exactly two years ago today. On September 17, 2008, Lehman Brothers joined the dodo bird, the Studebaker, and Conan O’brien’s hosting of the The Tonight Show as Things That Just Didn’t Work Out Too Well.
So, in light of this grim anniversary today, it’s a good thing that the markets are flattish to gently rising, especially at a time of year when there’s a lot of harvest pressure on the market.
But regardless of whether or not the market is doing well right now, there’s little question that the raw commodity that farmers produce is worth a heck of a lot less than the prices charged for the finished products for which they are the main constituent. This is nothing new to anybody. The only reason I bring it up today is that I covered a “Farmer’s Share” event today that is being promoted by farmers’ groups like Keystone Agricultural Producers to draw attention to the sliver of money that farmers shave off the price of the consumer’s food. This small share is farm revenue, which after a pile of costs are deducted, becomes farm income. Which is often less than zero.
It seems a smart and effective strategy for farm groups to get this idea out in the front of consumers’ eyes, because cityfolk are becoming more and more divorced from the farm and where their food comes from.
But what do you do with the fact that farmers get a small share of the food dollar? No one wants to pay more for food and attempts to add regulatory hoops to food production in order to increase prices for consumers aren’t going to go very far in any advanced country today. The supply management system has been in place for decades, so that farming system is able to restrict supply, keep prices up and give farmers a consistent and relatively good income. But I can’t see any government ever agreeing to do the same thing to any other widely-consumed ag commodity. Why help a few thousand farmers at the cost of millions of city-living consumers? That’s the question that no political party would want to face.
And who would really want that kind of regulatory intervention? Most of our crops are exported. Supply management doesn’t work in that situation. If you try to rig prices, foreign buyers just turn to other sources. The Canadian Wheat Board makes a good argument that it is able to squeeze higher prices out of some markets at some times by controlling a large proportion of certain types of wheat and barley, but that’s about as far as supply control can go in the world market. It’s a marginal thing. The loony idea of an international grain reserve gets occasionally floated, but that’s just pie-in-the-sky silliness.
The event today did a good job of highlighting a local business that sells Manitoba-grown fruits and vegetables. It’s a very popular place. And it charges high prices for high quality local stuff. I know this to be true because I go there and pay high prices for local saskatoons, strawberries, etc. And they’re worth it. KAP’s president Ian Wishart pointed out that selling to the local market through specialty stores often brings better money than selling into the bulk commodity market, so that seems like something that should be further developed.
But still, we live in a population-poor land that is capable of producing massive amounts of agricultural goods that have to be exported. Which brings us back to the fundamental problem for which there is no simple solution: how can farmers become more consistently profitable and get a bigger share of the food dollar? Or do they just need to focus on the profitability issue and forget what share they get? Lots of food companies have had struggles in recent years, with some going bankrupt, so I don’t think there’s a pile of money in making and selling most food products anyway. Food processors and retailers have their own problems with margins.
I think the best thing that can come from highlighting the farmers’ thin share of the food dollar is to heighten sympathy for the farmer, and increase the consumer’s appreciation for our extremely-low-cost farm production system. The eating public should be delighted farmers can produce crops and meats so cheaply, and that they therefore pay less at the grocery stores than they would if farmers were not as efficient and skilled. And that should make them hold back from over-regulating the industry or messing with it in ways that would make it produce more expensive food. There are more and more regulatory pressures being dumped down onto farmers. It would be nice if the dumpers were more aware of the potential cost to consumers if this goes too far.
Here’s the lesson I think consumers should get: FARMERS PRODUCE CHEAP FOOD FOR YOU. TRY TO LEAVE THEM ALONE IF YOU DON’T WANT TO PAY HIGHER PRICES.
