By Evan Shout, Farmer Coach, Jan. 22, 2023
“Life is like a roller coaster; it has its ups and downs, but it’s your choice to scream or enjoy the ride.”
Never have I remembered a year that saw the term “volatility” used in every sentence. At the start of 2022, I would have used the word “opportunity,” but as we move into 2023, I would summarize the year more like “that was interesting.”
For many, 2022 may go down in the books as the most profitable and wealth-changing year they have ever seen. For others, it was a ride at the amusement park that ended with their head in the garbage can.
When writing this blog, I felt the need to cover a whole bunch of different topics, as there wasn’t just one area that could be identified as the main culprit of the number of ups and downs in 2022. Here are my top five areas of volatility in 2022:
I always like to comment that “farmers have short memories”. This is not derogatory, it is just something I have identified over the last couple of decades of working hand in hand with primary producers. Two years ago, most producers were selling canola for $12 per bushel and saying thank you as the cheques were cashed. Today, I can’t get most of my farms to book $18 canola off the combine or out of the bin. The current commodity markets have made Dr. Kohl’s “sell to a profit” mantra obsolete, and this will not be good for the industry going forward. As we know, what goes up must come down. The year it comes down I truly hope we remember what profit looks like.
I never would have imagined making crop plans and fertilizer decisions the month after I seeded last year’s crop. Welcome to our new reality. We cannot effectively hedge fertilizer input costs, so we must purchase in a price dip, find storage or float and store in the soil, and be prepared for multiple applications throughout the year. If anything, this surprised even me, who is a glowing pessimist at times (meaning I always plan for the worst).
Working capital has always been discussed on farms, but if the bills got paid, most were happy. Now, I need enough working capital or operating room to cover 100% of the input costs of next year before combining this year’s crop. Not to doom and gloom, but during a year of wild commodities, when the price softens, be prepared for inputs to fall much more slowly. Preparation and planning are now the name of the game.
I may not gain many friends with my next few sentences, but the truth hurts. We have often said that farmers created the word sustainability, and only now have governments and consumers made it a buzzword. I am in total agreement with conversations taking place on Twitter about sustainability in some aspects – give the regulators an inch, they will take a mile. I am not in disagreement with a 30% reduction in emissions as I agree with many that our environment is important in all aspects for our future generations. The issue is that hitting the 30% will not be that difficult, so what is the next ask?
Now for the unpopular opinion. We, as producers, have pushed that we are doing everything possible to be conscious of the environment. However, less than 50% of the industry has picked up certain technologies such as soil sampling, variable rate application, and sectional control, which may be surprising but have been available since the 90s (22 or more years ago!). Due to efficiencies and logistics, 62% of acres in Western Canada utilize the same blanket blends of fertilizer each year. Not to ruffle feathers, but both sides have a lot of work to do to use the word sustainable.
As I write this, my wife is driving around the city looking for children’s Advil. For the last three months, we have had to scrounge and pray that we could find medicine for the common cold and flu. Welcome to the new reality.
Now apply this to agriculture. We have seen massive logistical issues that are causing widespread effects on the industry and food supply. How many farms were short Liberty last year? How many equipment dealerships could not deliver X9s? How many farms waited months for parts or pickup trucks? This might have been one of the few aspects of agriculture I never thought I would see – having the money to buy items that you could not get.
Many of the producers I have worked with realized that infrastructure has become more important than ever before. Whether it is fertilizer bins, fertilizer sheds, heated shops for chemicals, or parts trailers that are massively overstocked, the industry has had to adjust for this volatility. My only concern is that I don’t believe we are out of the woods yet. If the common Tylenol or food is not available to consumers, is it a stretch to believe that crop inputs and parts will be available to producers?
For those farms now saying, “well, I don’t have hired employees, so this does not apply,” please read on. Human resources do not have to reflect a labour force. Two spouses, a dad and son, a dad and daughter, a family of four, all represent human resources. Unless you are going it alone, you have human resources on your operation. Why is this in my top five? Well, let’s follow the data.
In 1965 the average birth rate per family was 5.1 children. Today it is closer to 1.6. So what? Well, anybody born in 1965 is now past the age of 55 – retirement age for most industries (in primary producer agriculture, we might as well say 100 as this seems to be the age of retirement of most farmers). The labour issues we see in ALL industries will continue.
The baby boomers are exiting the industry, and the next generations did not have enough kids to fill the void. This is a simple math equation, not the laziness of the next generation as Twitter likes to spread. So, in an industry where human resources have been done very poorly because it was not necessary, how does agriculture recover at a time when all other industries are fighting for the same outcome? My concern is that we don’t – for many operations, this will be the biggest risk factor for the future decade.
Enough doom and gloom going into the new year. My positive moving into 2023 is that for those who are prepared, opportunities are here:
- Commodity prices are still high, and for those that were to capitalize futures right now will lead to profits on EVERY farm I can calculate.
- Many farms bought inputs during the dip, and as such, I still foresee some of the highest gross margins available for this fall.
- Land prices are at all-time highs, making purchases more difficult. However, high rent amounts are still not high enough to outgrow the margins I am calculating, so short-term opportunities exist for those that are comfortable giving land back after a shorter term (and yes, even at $200 per acre rent, most farms can punch out profit for the next couple years).
- Interest rates are high, but are they really? Ask your parents about high-interest rates and most opinions will change. Yes, grouped with high land costs, this creates a cost of production and cash flow issues. But nobody is forcing you to buy.
- Equipment costs are out of control – agreed, but never in history has equipment appreciated or made you money. So again, pulling back during these few years and making large profits with older equipment is not always a bad thing.
Lastly, we need to remember optimism and positivity. Agriculture has always been about helping others, but lately, the tables have been about attacking those that achieve and succeed. We need to get back to where we are happy for our neighbours’ success and away from looking over the fence and throwing stones.