Grainswest - Spring 2026

Spring 2026 Grains West 48 Many farmers are hidden from their true cost of production by support payments, trade barriers and other political realities. BY NEIL TOWNSEND Grainmarketing versus time, uncertainty and cost of production MARKET IN MARKETS, NO PLAN CAN control time. There is a marketing adage that in the long run, we’re all dead. Broadly speaking, the longer the time frame, the greater the market uncertain- ty. By its nature, farming is challenged by both liquidity and time concerns. Many farmers make operational plans that include the next generation. The im- mediate growing season has wider impli- cations for the future because the goal is to sustain the farm. This translates more often to “stay in business” than “prepare to thrive.” Through the ’70s and ’80s, a persis- tent low price regime made it difficult to cover rising costs, and farmers incurred operational debt merely to sustain their operation. Inevitably, smaller farms were rendered uneconomical and the pace of farm consolidation hastened. The new century birthed the ethanol era and commodity prices increased. For several years, profit was attainable. Farmers bought new equipment and many ex- panded their land holdings. The prices of inputs, land and machinery have since increased, and the cost of production has never been higher. It stands to reason farmers are reluc- tant to sell below their cost of produc- tion. Over time, the market should adjust to this reluctance and allow cost of production to be covered and farmers to break even at worst. This corresponds to economic theory that profit and loss are zeroed out in an efficient market. Cost of production is unique to each farm. Everything from farm practice, soil type, weather conditions and even the local price of diesel can affect a farmer’s bottom line. Yield outcomes make a huge difference as well. Assume two farms have the same costs, but one yields 40 bu/ac and the other 50 bu/ac. The second farmer’s cost of production is 25 per cent below that of the first farmer. This is a significant difference based on actual re- sults. Arguably, cost of production based on yield outcomes is the more important number for farmers—the difference be- tween cost of production and the revenue that could be generated by selling the output. This number is known as profit or loss. Many farmers are hidden from their true cost of production by support pay- ments, trade barriers and other political realities. Make or break may rely upon a government cheque. Higher cost farmers who should reduce their efforts fail to do so. This has a detrimental effect on prices. The grain market can be slow to respond and characterized by pricing that is lower for longer. This, in turn, can cause prices to persist below cost of production for a large portion of farmers without having the necessary impact of reducing output, absent weather failures. Acres stay in production that otherwise should be re-allocated. MONITOR Hiddenfigures From a farmer’s perspective, it would be foolish to believe the market will sta- bilize around cost of production. Whose cost of production would be shouted from the mountaintops? It is nonetheless greatly beneficial to know your own cost, which allows you to calculate against potential market outcomes. A farmer is a price taker, and individual actions will not establish your prices. Every farmer has had a year in which local weather negatively impacted harvest, but prices were pressured by global production success. The assumption of risk must be bal- anced with a realistic outlook on poten- tial outcomes. There is no guarantee the market will deliver breakeven or profit. The market can be “wrong” longer than your bank balance can stay in the black. Farmers who believe cost of production will be the bottom line are involved in a risky venture. Indeed, in the long run, we’re all dead. Neil Townsend is chief market analyst with FarmLink Marketing Solutions.