As farmers, we make important decisions according to what we think will be best for our operations. Taken together, those individual decisions often change the overall economic conditions for the industry.
As financial returns tighten in the grain sector, do we try to grow less as a way to decrease the supply and support prices? We certainly might be more prudent with our level of inputs based on lower grain price prospects, but everyone wants to grow as large a crop as possible to compensate for low selling prices.
History shows that it takes a prolonged period of unprofitable grain prices before there’s much evidence of reduced production. Farmers will, however, switch from one grain to another in an effort to find something more profitable.
Coming into this growing season, red lentil prices had declined dramatically due mainly to the tariffs imposed by India. Producers in Saskatchewan and Alberta cut their red lentil acreage, with some of that acreage migrating to large green lentils where prices appeared more attractive.
Based on the power of individual farms making an apparently rational decision, the price outlook for large green lentils has dropped dramatically.
A similar situation has developed with kabuli chickpeas. For years, the seeded area in Saskatchewan has been less than 200,000 acres. Problems in the lentil and pea markets and very strong chickpea prices in 2016 and 2017 convinced many growers to increase their chickpea acreage or even to try the crop for the first time.
Producers in other chickpea-growing regions around the world no doubt had the same rationale. The result is an absolute crash in chickpea prices. New crop price indications are less than half of what chickpeas were worth in the fall of 2017.
If you can recognize trends in producer decisions, there are ways to benefit. Both large green lentils and kabuli chickpeas had new crop price contracts that now look very attractive relative to market prices.
Mustard is another example. Compared to other cropping options, brown, yellow and oriental mustard penciled out pretty well with 2018 price contracts available starting in October and November of last year.
Those contract prices could very well be the best mustard prices available, as acreage is up substantially. This is what can happen when many individuals make the same cropping decisions on a minor acreage crop.
The power of individual decision is even more apparent in the farmland market. When someone pays above the perceived market price for a block of land, it affects the market mentality for subsequent sales. The hot land market is the result of many farmers making the decision that they’d like to expand.
Cash rental rates are not usually as transparent as sale prices, but word still tends to get around, especially if the cash rent is higher than expected. If one or two farms in an area are aggressive with their cash rent offers, it tends to influence the entire region.
As farmers, we often have predictable reactions to emerging market conditions. What you face on your farm is likely to be similar to what your neighbours face and any differences in your outlooks become clear as you chat and compare notes.
As farmers, we’re in the good position to predict the decisions producers will make collectively. There can be power in that knowledge if you can interpret it correctly.