“Sherman, set the Wayback Machine for 2006.”
Only middle-aged people like me probably know that reference. Go check it out here and here. (Yes, I know it is officially WABAC. Whatever)
But let’s imagine we could get into a time travel machine and go back to a time in which farm profitability was low, each year brought the real risk of losses, and long term asset purchases like farm machinery and land were scary to take on. Like, way back to 2005 or 2006.
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We’d enter an alternate reality compared to the 2007-recent period, in which farm profitability has been sky-high and high prices for farmland and machinery has penciled-out beautifully.
Way back in the early to mid 2000s, and all through the 1990s, and for 80 percent of the 1980s, farmers were always scrambling to squeeze break-even returns and avoid losses. They tried to protect their balance sheets rather than focus on maxxing profitability. Our present forward grain farm profitability outlook looks a lot more like the early 2000s than the 2007-to-2013 period.
But the mood in farm country is still optimistic and positive, which is nice. Agriculture was an often morose industry for many years, and the post-2006 world has been a wonderful tonic to years of pessimism and negativity.
However, now’s the time to focus on careful marketing, hedging and spending. Profits for 2014-15 can’t be assumed, and really aren’t likely – if land and other fixed costs like machinery are included. At St. Jean Farm Days last week Manitoba Agriculture’s Dan Caron presented Red River valley farmers with a sobering assessment of the 2014-15 profit outlook and what kind of land prices are justified by long-term returns. He’ll make a similar presentation at Manitoba Ag Days in Brandon next week, something any of you going to the show should check out.
And a dozen or more marketing advisors and analysts I’ve spoken to since the new year began have given me similar outlooks. Concepts that used to be batted around constantly a few years ago, but have been seldom heard in recent years, are back at the forefront: selling on rallies, locking-in break-evens, using every hedging and pricing tool possible to get access to break-even prices and delivery, staying cautious and focusing intensely on any marginal gain in production efficiency – that’s what I’ve been hearing a lot about in recent weeks. Anyone got lots optimistic to say about basis levels, growing demand, commodity prices offering rock-solid support for crop prices? Nope, didn’t think so. That’s yesterday’s crop market.
It’s stunning to see how quickly the mega-bullishness of the last few years has been replaced with hopes for break-even, but it’s something many farmers will be able to grudgingly adjust to, since it’s what they were used to for most of their careers.
It hasn’t been a pleasant return to the mood of a former age. We can’t revel in this feeling of nostalgia.
Everything could turn on a dime here, of course, with some sort of massive crop failure somewhere. As a man behind me at St Jean said at the end of Caron’s presentation: “Mother Nature, she’s always the boss.”
Indeed, true. But that’s nothing that can be counted upon, and for the next year at least a lot of farmers are likely to be getting into the Wayback Machine and re-experiencing that mood of the former world that prevailed until 2006. Hopefully we’ll get back to the future sometime, but by then, the future may have changed . . .
