These Are Not the 1980s: Canadian Ag’s Rough Spot Just a Speed Bump

IMG_4525  In terms of hype this is a very big week.  Today, was Twitter day, as the social media site had its initial public offering at the New York Stock Exchange.  The stock quickly traded up from $26-$45 and raised 1.8 billion in capital for Twitter.  The financial world was awash in this information, the hype reaching levels hardly seen before.  Next up of course is the USDA WASDE report tomorrow and thanks to deadlines beyond my control, there’s not a lot of sense in me writing about that tonight.  Needless to say, it will be another mega report for North American agriculture.

Those implications from the WASDE report will certainly be far reaching and probably the subject of next week’s column.  Twitter on the other hand, is not so far reaching for me.  Yes, I am a very heavy user of Twitter as I think it gives us the best agricultural market intelligence in the world.  However, I don’t quite get how it is significant to the global economy.  I’ve got 50 acres of corn yet to harvest and the vagaries of world commodity and financial markets will probably have a great effect on that than any tweet flying into my universe.

Of course as farmers we have heard all of the naysayers this past year.  It is going to be a huge crop and the Bears are solidly in control.   It has led many farmers to think both in the coffee shops and on twitter that we are going back to the future, 1980s style.  Having been there and paid those high interest rates I certainly don’t want to go back.

It was interesting to note this morning, as Twitter got ready for their initial public offering, the President of the European Central Bank, Mario Draghi dropped a bit of a bombshell.  Our European friends have been on the slowest moving train wreck for quite some time now with regard to sovereign debt.  They have stemmed that too some extent but are still dealing with an economy that has been sputtering.  Mr. Draghi announced a .25% rate cut in the main refinancing rate for European banks.  This put interest rates in Europe to their lowest level on record.  The hope of course is to nudge the European economy into greater productivity and employment growth as well as to stabilize prices.  Unbelievably, the European Central Bank is fighting deflation, or the extended lowering of prices, which at times can be dangerous.

I was aware of the European Central Bank schedule and I was surprised by their decision to cut rates.  When it happened, the Euro dropped like a rock and the US dollar gained.  The Canadian loonie fell on the news down to .9564 US.  Of course the question I had is how will this affect Canadian agriculture and what might we have to look forward to?  I was thinking about this amid all the speculation by many that with lower grain prices we might be headed toward another great agricultural rationalization.

Of course that is interesting to think about but unlikely in my estimation.  With the Europeans having the lowest interest rates in their history, it added to the narrative that even in Canada you might see the Bank of Canada cut interest rates soon.  In the United States we might also see the US Federal Reserve taper back their quantitative easing on the interests of boosting economic growth.  Of course higher interest rates or much higher interest rates are not even on the radar screen.  That puts the 1980s style agricultural rationalization so out of the question.  Of course the specter of any type of price deflation would be a whole new scenario talk about.

So we move ahead gingerly.  I do not expect double digit or even much higher interest rates any time in the next 5 years.  However, I do expect lower prices for grain and possibly some price inflation for some farm inputs.  It will make our farm management journey a little tougher but without much higher interest rates it will be a speed bump compared to the bad times of high interest and high costs of the 1980s.  $8 dollar corn was delusional.  All of us just need to forget about it.

The Canadian economic growth is starting to be buoyant again.  In Western Canada, specifically Alberta it’s almost unreal.  On the contrary, the Canadian grains economy will be set back to some extent this year, but livestock will surely expand.   There are not hard times, not even close. The “TwitterIPO” serves as a lesson to Canadian farmers who produce a tangible commodity sometimes value makes no sense.  As we move ahead, Canadian agriculture might be hitting a rough spot, but the road ahead is still bright.