With A 62 Cent Loonie, Would We Have Gnashing of Teeth?

As spring gets closer many things on the farm get closer focus.  In the United States many farmers are not only going to the fields, some of them are already planted.  There is also the group risk income protection (GRIP) and group risk plan (GRP) crop insurance to buy.  That among other things makes US agriculture unique compared to their Canadian counterparts.

In Canada cropland remains silent waiting for the end of the great white north.  There is no agricultural safety net unlike our American friends, so crop choices will be shifting.  Some land especially in western Canada will surely be left out of production.

On the Canadian political front, new funding ($125 million) by the Ontario government last week was met with disdain.  The following is a quote from the press release from Ontario farm groups.

“Ontario’s 29,000 grain & oilseed farm families have been suffering a farm income crisis with inadequate relief from either level of government.  “This year Ontario grain & oilseed farmers lost more than $500 million,” says Peter Tuinema, Chair of the Ontario Grain & Oilseed Safety Net Committee. “Yesterday’s funding announcement provided a $16 per acre band aid for a $102 per acre wound.”

“After more than a year of lobbying for a long-term price insurance program to help them compete with heavily-subsidized farmers in the US and EU, grain & oilseed farmers are outraged that their proposal for the Risk Management Program (RMP) was ignored by the McGuinty government.”

The end to this episode is still not over.  Federal agriculture minister Chuck Strahl still has to come up with something to either match the Ontario money or come up with something else.  It’s a tough job because he is responsible to all farmers in this country, not just the Ontario farmers who in effect got the Conservatives elected along with some of their Quebec counterparts.

Strahl also has it tough because the previous Liberal government, which eliminated the safety net, brought all this about.  Now, with one Ontario farmer camping out at the seat of Ontario government, Queen’s Park, the temperature is sure to rise again.  With Ontario grains and oilseed farmers meeting in London Ontario as I write, the next few days will be very revealing to see what they do.

For my American readers this must all seem very strange.  With corn futures retreating to the $2.teens and soybean futures retreating quickly, the Canadian scenario playing out in the US seems preposterous.  I can’t think of the last time I have heard of an American agriculture protest movement.  Yes, R-Calf is what it is, but for the most part the American farmer has an agricultural policy they can work with.

It’s hard to know what is going to happen.  In my own case I have crop priced for both the 2006 and 2007 crop year.  In the world of the high Canadian dollar, cash prices don’t have the natural testosterone they once did.  Pricing opportunities will likely be painstakingly short lived and much lower than we’ve seen before.  When futures do break out, farmers may have to discipline themselves to price deep into the future.  It will not be a marketing environment for the faint hearted.

Much will depend on the value of the Canadian dollar and the price of oil.  Many of you have challenged me this winter saying the dollar is going to par with the Americans.  Some say oil prices will go to $70 and $80 a barrel.  Add interest rates into the mix and it creates a toxic soup for Canadian cash grain prices.

A grain elevator operator asked me about this again last week.  I cautioned him that even though all the economic data is supporting a higher dollar, it might not happen.  With oil having retreated from last summer’s highs and the Bank of Canada being overly cautious, our loonie might have peaked.  He looked at me as if I was crazy.  I told him it was easy to say the dollar was going to go higher.  What took more chutzpah as an economist was to predict a return to an 80-cent dollar.  Or how about 78 cents?  Or how about 75 cents?  In March of 2006 nobody is talking about that.

If I could snap my fingers and bring back that 62-cent dollar we had in August of 2002, would we have such gnashing of teeth regarding Canadian agricultural stabilization policy?  Cleary the answer is no.  I believe that because I was saying all the same things in August of 2002, which I’m saying now.  Back in those days I couldn’t get farmers to take it as seriously as they do now.  Perception is reality.  However, when it comes to cash grain prices that is not necessarily the case.  In August of 2002 I didn’t stand up and speak at three different farm rallies within the space of six weeks.

It might seem very bleak now, but keep in mind the cyclical nature of our agricultural economy.  It will turn around.  No, that doesn’t negate the acute farm losses we are suffering now.  No, that doesn’t excuse both levels of Canadian government for putting us in a position where we have no safety net.  No, that doesn’t excuse the whole sorry mess Canadian grains and oilseed producers find themselves in.

The key will be to get an agricultural safety net policy, which will be well-funded, consistent and long term.  If we had that these price valleys wouldn’t matter as much.  If we had that, when good times return the policy would remain in place and build up when the inevitable happens again.  It’s the key.  The faster our Canadian governments realize that the better.