In Western Canada, 2013 will be a year long remembered – but maybe not for the reason we expected. This was a crop larger than any in history for the provinces of Alberta, Saskatchewan and Manitoba, with improving genetics and fertility plans coinciding with a growing season that would make Iowa jealous. Our farm participated in this, with a crop unlike anything we had ever seen before rolling off the fields at harvest (click here for more on this). It was one of the most exciting harvests I have ever been a part of, with an incredible crop coinciding with some still-good prices to generate profits surpassing any in our farm’s history.
Too much of a good thing?
As the realization began to dawn on grain buying companies like Viterra, Richardson Pioneer, Cargill and others that this was going to a true monster of a crop, the proverbial sh*t began to hit the fan.
Picture your local professional football team. Say the stadium has seating capacity for about 45,000 people, which usually gets filled for home games. Every game, traffic getting out of the stadium is slow, but liveable, because it is largely expected. Then the announcement comes that the championship game, say the Grey Cup or the Superbowl, is going to be held at you home stadium. Awesome!
So, to draw in more fans and more revenue, the seating is expanded from 45,000 to 60,000. Suddenly, traffic goes from slow to stopped. Getting out of the stadium after this game with an extra 15,000 people, or another 33%, is a huge problem. People get mad, people get frustrated, and things just generally become difficult (especially if you have a few fans who have enjoyed too many beverages). Why didn’t the event planners think of this? Why didn’t they do something ahead of time to prevent this traffic jam?
That is the grain movement situation this year. Too much grain has to move in too short of a time. So what happens? You get a backlog. A traffic jam. Things slow to a crawl, and frustration grows (but without the inebriated fans, I suppose). So again, why didn’t the line companies (our grain buyers) or the railways do something about this ahead of time? Put simply, because a) they didn’t know the crop was going to be this big (who did?) and b) the system is designed for an average crop, not a record crop.
Who’s to Blame?
Does that excuse the railways of responsibility? No way. Over the past 10 years, farmers have been applying more and more fertilizer and seeding better and better genetics. This crop was coming; it was only a matter of time. Records are made to be broken, and a record-breaking crop like this was only one good growing season away.
Our rail system in Canada is almost exclusively controlled by two companies, Canadian National Railway (CNR) and Canadian Pacific Railway (CP). Yes, there are a number of scattered short line railway companies, but they all have to work around CNR’s or CP’s schedule. These two big guys have an oligopoly (market controlled by a small number of players – think smartphone operating systems: Apple, Google, Windows) so they can pretty much haul what they want, when they want, regardless of what farmers and line companies want them to do. Our country is huge, and our grain has to go a long way to move it to one of the coastal port facilities, such as Vancouver, Churchill or Thunder Bay. Far enough that movement by truck is horribly uneconomical. We rely on the railways – heavily. And, frankly, they are failing us.
Falling Prices and Falling Profits
The result? The price is not good – really not good. Last year at this time you could sell your canola for about $12 per bushel. Today, if you can even find a price, you might be able to sell it for $8.60 per bushel. That`s nearly a 30% loss in market price. The worst part is just being able to get it sold at all and get it moved. We are already looking into 2014 and 2015 crop years to figure out how we are actually going to be able to move it.
Is this another case of farmers always finding a reason to complain? Maybe. But selling canola at $8.60 per bushel today and not being able to move it until July presents serious cash flow problems, not to mention the fact that this record crop has suddenly become little more than a breakeven year for many farms. Running the farm business suddenly became much more complicated.
Fortunately, we sold most of our crop ahead of time, when prices were still pretty decent. We have also sold much of the 2014 crop. There are risks to selling this far in advance, but this year the benefits far outweighed them. We were lucky to have made this decision, but we also carefully considered that selling durum at $6.75 per bushel early last fall was still very profitable, so why be greedy and wait for it to go to $7?
Just the Tip of the Iceberg
We have had good times in agriculture for many years now; it has been since 2007 that prices have been very strong (excepting 2009) and it is time for the cycle to swing the other way. Can we afford it? Can we survive a trend to lower prices, a trend that, if history teaches us anything, could last for 25 years? Exacerbating this long-term trend is the very real threat that if we grow another decent crop in 2014 on the Prairies, how will we move it when we are still overloaded from the 2013 crop? Put another way, can we host the Grey Cup two years in a row?
The 1980’s through the early 2000’s saw some pretty tough years for a lot of farms. In all likelihood, these are the times we are returning to. Did we build enough net worth to survive it? Or, did we learn enough to prosper in these upcoming lean times?
Time will tell. I will never lose my optimism and my faith that agriculture is the best industry in the world, and is the best way to raise a family. We will find a way to survive, even prosper, no matter how tough things get. We are farmers; survival is what we do, in spite of the odds.