Canada’s Agriculture: Recoiling After the Boom, Interest Rates Key

IMG_0769     This afternoon I dipped my combine into my standing wheat.  It is that time again; combines are rolling across southwestern Ontario in a somewhat staggered harvest.  It seems that wheat is like that these days.  White wheat tends to get harvested first and wheat that is sprayed with fungicide tends to be a little bit later than you might think.  I did just enough wheat to take a sample.  When I looked in the tank, I knew I was too early.   My wheat tested 21%.

I’m old school when it comes to wheat.  Wheat at 21% doesn’t even flow down spouts properly.  While some Ontario researchers are encouraging people to harvest wheat that wet, I prefer to wait to get it down to a better moisture level.  In fact, I think my wheat had yet to properly mature.   Needless to say, I will take my chances next week.  My experience tells me I will be okay.

Of course, as farmers many times we live under dark clouds.  Our existence is always tempered by Mother Nature and the volatile nature of commodity prices just makes it that much more interesting.  There is so much talk these days about quality when it comes to wheat.  It makes me wonder how we ever used to harvest anything of value.

I have asked that question publicly to many farmers over the years.  Back in the day, in southwestern Ontario everybody harvested soft white wheat.  The biggest problem was always sprouting.  In fact, I can remember delivering wheat with long sprouts on it.  If it wasn’t sprouted, it was okay.  I’ve been told that nobody was really worried about disease way back when.  Now, the specter of fusarium in wheat makes grown men shudder.  Yes, it is a problem, especially when the fusarium designation for your crop is done from a visual inspection, usually a part time harvest employee.

So things change, and with that change we must change with it.   For instance, this year I again sprayed all my wheat with a fungicide to prevent fusarium infection.  Back in the day, we would’ve never thought of that.  Needless to say, I think my wheat crop has some pretty huge potential.  While my father might have got 40 bushels per acre, I’m always striving for 100.  Multiply these management practices by everybody around the world and it could lead to some very bearish times ahead.

Or is it the new normal?  Slowly many farmers are starting to realize that $7 corn wasn’t the new normal and new crop values between 4 and $5 are their new nightmare.  Where once the United States was the price setter with corn exports, last year’s drought put their corn exports at only 20% of world corn trade.  Yes, that happened because there wasn’t much corn to export out of the United States, but it also happened because so much more feed grains have been grown around the world.  Add some of the new biotechnology into the mix and our feed grain supply situation is trending toward a global renaissance.

What’s this mean?  In many ways it is a testament to our production agriculture.  Just like applying fungicide to wheat in Ontario has shown some huge production benefits, it has been transferred to many other different parts of the world.  Add the demand destruction for grains that $8 corn gave us and we’re moving into an agricultural economic environment more akin to the 1980s minus the exorbitant interest rates.  Adjusting to that new reality will take some doing.

Some of you might argue that changes are the only constant in agriculture and 2013 represents more of the same.   I would concur with that, agriculture has always been an up-and-down business and with benign weather forecast for the next 2 months, maybe a big price drop will come to fruition.  That will surely change the paradigm for cash rents and land prices at least in the short term.

But before I really yell fire in a crowded theatre regarding our future agricultural economy, take time to remember interest rates.  They will remain low into 2015 and will surely not spike much after that.  That is the gospel according to US Federal reserve chairman and Bank of Canada governor Stephen Poloz.  It will remain true that low interest rates will be a stimulus to Canadian agriculture.

So is the great “ag boom” of the last few years really over?  I don’t think so.  It might recoil, but without interest rate spikes, the road ahead won’t be too rocky.  Add agricultural productivity gains to the mix, and the way forward remains on a focused foundation.  The hard part is always taking less than last year and calling that a success.  Remember what a reader told me last week, this is farming, if it was easy, everybody would be doing it.