You all know I see things through an agricultural economic lens. It doesn’t matter what it is, I simply see things thru a lens where I have that economic way of thinking. My professors at the University of Guelph always told me agricultural economics was a science and was an all-encompassing genre that takes into consideration all facets of the production process with profit maximization as its goal.
I thought of that last week again when a young farmer asked me to join a zoom meeting with him and some of his colleagues who get together to discuss different aspects of farm management including soil health from around the province. He had asked me to be involved to give an overview of grain prices over time. I was glad to help him out but didn’t really know what to expect. I have great respect for the young people of today involved in agriculture. I try and honour every request to help, there is always something an old dog can learn from the young kids on the block.
This young farmer produced a spread sheet shared on my zoom screen, which included about every known price of grain seen over the last 50 years and had projections out into the future for another ten. He had his farm broken down into different revenue projections based on every possible outcome. He had his discount rate chosen. Clearly, he must have an agricultural economic background. No, he told me, he was from an architectural background. Needless to say, his use of powerful spreadsheet technology and his command of revenue and costs impressed me thoroughly. However, to him, it was second nature.
He was trying to figure out how to service the debt on a possible purchase of a farm. I cautioned him to not consider grain futures prices from 50 years ago, giving him the suggestion that he might use prices since 2007 based off agricultural economic conditions in the post ethanol era. I also cautioned him on making extensive data mining into the past and the future as technology is changing so fast. He had to start somewhere. He started demonstrating while I was on the call, what he could do by changing the discount rate so easily.
I had mentioned to him that 50 years ago, farmers might have been happy to get 100 bushels per acre for their corn. Today, as we all know, things have changed so much, and that change is almost exponential. Fendt now offers a combine where there is no steering wheel! At the same time, John Deere announced today they are acquiring Bear Flag Robotics, which is a company that develops autonomous driving technologies which work on existing machines. It’s just another way of saying as we move ahead, we’ll see fields of amber waves of grain, but with tractors and combines moving throughout, bereft of any man power. Dial that into your computer spread sheet. It’s hard to imagine even with a 2021 agricultural mind, how that can be done.
Ditto for many other innovations currently in the works. Agco, which owns Precision Planting just signed an agreement to buy “Headsight”, a company which develops harvesting row guidance and sensing technology. Take this and all those swarms of drones I told you about a few weeks ago and you have an agricultural planning horizon almost difficult to imagine. How do I tell my young architectural farmer friend to take all of that into consideration?
It’s tough to do because where do you start with the breadth of your imagination when it comes to new agricultural technology? However, in fact, its not so hard to figure it out because despite all his new technology buzz, it still depends on the fundamental profit maximization rules within agricultural economics. It’s about ROI. (Return on investment) How much capital is available to you and can you project your marginal revenue will cover your marginal costs of any new investment?
It’s all kind of heavy stuff, especially for a young farmer considering buying a farm in his Ontario neighbourhood. Back in 1981 when I was paying 23% interest rates, I couldn’t even imagine a combine with no steering wheel or guidance in a field. Spreadsheets weren’t even invented then, so my projections would certainly be more mundane. I can’t even imagine thinking about it.
However, my young farmer colleague was keen, which is a very good thing. He also knows, soybeans can be the great liars, but in the end always tell the truth. He knows, there are good years and bad years. He knows, if he chose to move to a lower cost locale, it might be easier. However, his spread sheet is the right idea. He’s trying to find a way to make it all work.
Every farming generation needs toimagine the dream. Sure, it’s the agricultural economics, managing that scarce capital, but it’s also about so much more. The only constant we can count on in farming is change. Looking out into 2030 and beyond will take some ingenuity.