The hardest part of this spring is figuring out what’s really going on. I read with interest on one DTN blog about an Iowa farmer who has 10,000 acres of corn to plant and is currently held up because of wet fields. So with me having 70% of my corn planted as of tonight, maybe that’s an omen of what’s yet to come in Ontario. Of course the hard part will still be figuring out what’s going on.
If you think hard, you all know what I mean. When I read that Wal-Mart and Sam’s Club are restricting the amount of rice customers can buy, it’s like I smell smoke in my tractor cab from an errant fire. You know something isn’t quite right.
Then I read CIBC World Markets (Canadian Imperial Bank of Commerce) Chief economist Jeff Rubin who says crude oil is headed to over $200 within the next five years pushing the price of a litre of Canadian gas upward to $2.25 litre. This is from the same guy who scooped me last year, saying the loonie would reach par by Christmas. At the time the loonie was just breaking through 90 cents US. At the time I thought that was one of the most irresponsible statements ever made by a Canadian economist. So when it reached $1.1009 on November 7th, my price tag as an agricultural economist got a lot cheaper.
Clearly, we are in unprecedented times when it comes to commodities and basic food production. As many of you know, I’ve had the opportunity to publicly lampoon Canada’s cheap food policy many times over the years. However, even though Canadians spend less of their disposable income on food every year, it’s pretty obvious this food inflation/burgeoning food demand equation is hitting pay dirt big time globally. In my lifetime I’ve never seen a North American retailer rationing food.
How this will play out, I don’t know. However, what cannot be ignored is an agricultural world gearing up to meet this challenge. In every nook and cranny of this agricultural world, farmers are doing what it takes to meet this challenge. In short farmers like myself with dirt firmly embedded underneath our fingernails hold the key to boosting agricultural production. It hasn’t been talked about much, but you can bet within the next three years world agricultural production will rise significantly. Nothing boosts agricultural productivity like the whetting of a farmer’s profit appetite.
So when you think about boosting agricultural production think Brazil, India, Russia, China and of course the United States and Canada. Much has been said during the last 18 months about what the world needs and is willing to pay for. For many farmers like myself it’s put us into price territory many of us had never thought of before. In many ways it’s like the 1970s re-visited. Demand driven markets are producing prices which could not be imagined just a couple of years ago.
To meet this challenge I’ve boosted productivity on my own farm. In southwestern Ontario one of the biggest productivity boosts come from tile drainage. So I’ve done that in spades. I use GPS guidance. I employ the methods of no-till and my proverbial favourite, “the stale seedbed for corn planting.” Add some of the newest corn hybrids and wheat varieties into the mix and my productivity has improved significantly over the last few years. Who knows what’s next on the productivity treadmill.
Translate this to every other farm across North America and the world. It means more food will be produced even if acreage remains static. However, we know that won’t hold. Countries like Brazil still hold vast amounts of land just ready for the signal to open up. Russia can do better and will. Translate all of this and you have a global agricultural world, which is posed to meet the current food challenge.
Nonetheless, what makes this so interesting is it is not the end of the story. All of this needs to take place in a world where according to CIBC economist Jeff Rubin energy prices are set to double from where we are today. If you ordered fuel like I did today, that realization will surely put a fly in the ointment. Commodities prices might have to move even higher to sustain the production levels which may be needed.
World agricultural policy has had a hand in this. Canadian agricultural policy completely missed what’s happening now. Regrettably all of that is in the rear view mirror. So as my planter monitor burst to life tomorrow, I’ll hope for the best. In 2008 its come down to this. Drought and severe production problems are unlikely, but this year for the world’s sake they better not happen. Adding to the uncertainty going forward within this global economy, may surely come back to bite us.