Farm Management Counts Especially if the Loonie Takes Off

Spring is a bit reluctant here in southwestern Ontario.  Near my farm I have had a little bit more than my fair share of rainfall making it difficult for me to get things done.  Even my wheat crop, which was planted last October is showing some damage from too much water this spring and past winter.  That’s why I had to chuckle when I read my colleague Darin Newsom’s column this week.  Darin has often referred to wheat as the cockroach of grains.  It seems to live through just about anything.

I certainly hope that’s the case for me.  In the past I have often seen wheat look a little brown coming out of winter only to see green shoots emerging after the weather warms up a little bit.  So I’m hoping for some good things in my wheat fields.  If only the price was a little bit better.  Of course, that is quite a different story.  There seemingly is wheat everywhere.

The current price for soft red wheat delivered to a terminal in Ontario in the summer of 2017 is approximately $5.50 a bushel as of last Thursday.  That is about one dollar higher than it was a year ago.  Yes, wheat futures are slightly higher than a year ago, but the Canadian dollar is making quite a difference to our cash price. Needless to say, its not enough.  Those brown spots in my fields don’t give me confidence of 100 bushel/acre.

Let’s hope I’m wrong.  In Ontario and Quebec, as I’ve said many times, we are the benefactors of a Canadian dollar induced farm price mirage, which is making things a little better than they really are.  Our American friends are seeing some extremely low prices for both soybeans, corn and wheat.  Our optics are so different, but our purchasing power is about the same as theirs.

It makes me wonder about the health of the Canadian non supply management agricultural sector.  I was contacted by a banker this week asking me about the financial health of farmers.  He told me that if senior bank management had read my articles about the farm “price mirage” effect on Canadian farms, they should be very concerned and react.  He said that our Canadian dollar has helped insulate Canadian farmers from the problems in the US and margins are reasonably positive.  He went on to say that some farmers may get a surprise when they discuss their annual credit requirements with their local banker this year.  He implied that change will be driven by the credit/risk management function which would come out of the bank head office.
It was a bit of an interesting take.  In fact, it almost harkens back to a culture long past, that being the farmer vs. the banker.   It would be delicious for me to follow that tact, as that was part of my early life as a farm leader.  However, this is 2017 and even though it might make great sense that low prices will spawn hard times and tight credit, it’s almost hard to imagine.  This past week the Bank of Canada governor Stephen Poloz announced that the Bank of Canada lending rate would remain at 0.5%.  Credit is still free and easy and I cannot take the bait that our current cash grain prices in Ontario, although a mirage, are putting us back into the time of 1980s farm gate fence.
For some people reading this they have no idea what a 1980s farm gate defense was.  I would say just Google it, maybe with Ontario in the phrase.  The simple truth is that for many farmers today they really do not have a good appreciation for that credit/risk management function, which my banker friend was talking about.  When credit is free and easy, like it’s been for the last few years, it changes the psychology
That psychology may last a very long time in Canadian agriculture.  I have often said that just because something might’ve happened to me with regard to “bad farming times” in the 1980s doesn’t necessarily mean it will happen again.  The crunch for us in 2017 and 2018 might happen when the Canadian dollar decides to go back up to $.90 US?  That would have the opposite effect of the last two years sending our Ontario and Québec cash prices lower.  Maybe that would get everybody’s attention!

Of course, nobody knows, but there usually are lots of people that will tell you they do know.  Needless to say, there is a big difference between that and having good vision of the risk management factors that lie before you.  In 2017 it doesn’t look so good.  However, that means we’ve been here before just like those brown spots in my wheat.  Farm management counts and in 2017, its more of the same.