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By Jeff jackson
Rolling
FORWARD
WhatGoesUp
Agricultural returns tend to be
cyclical—a few years of good
returns are followed by a few
years of lower returns. This is the
inherent nature of agriculture.
Over the past several years
,
high cereal and canola prices have brought
growers a good return on their invest-
ment. The prices have been better than
what growers could have even imagined a
decade ago. As a result, net farm incomes
have been higher and growers have en-
joyed the benefits.
However, as the saying goes, what
goes up must come down. On the heels
of a massive crop in nearly every pro-
duction region of the world, crop prices
have been falling, Lowering revenue for
growers.
This is nothing new for producers. Ag-
ricultural returns tend to be cyclical—a
few years of good returns are followed
by a few years of lower returns. This is
the inherent nature of agriculture. It is a
competitive industry and it has become
globally competitive in almost every
major crop.
So the big question is, “When will
the cycle start to move upwards again?”
Certain analysts talk about seven-year
cycles, while others favour a different
number. There are even cycles within a
crop year. Regardless of each grower’s
theory on the length of these cycles, the
market can only go up when it has hit
the bottom.
I think we are at, or very near, the
bottom right now. The good news is that
prices will go up, but it is unlikely that
this will happen on a steep curve. There
are more than issues of supply and de-
mand to look at this time around. In the
past, the markets saw a mild rally in fu-
tures prices. The driver for this is demand
from Bangladesh and China, negative
weather stories in parts of Ukraine and
the United States, and a lower-than-ex-
pected stocks report from Statistics
Canada. All together, this should have
resulted in higher prices for commodities,
and more profit for growers.
Unfortunately, the effects of that
rally never really reached us in Western
Canada. Basis levels generally consumed
the futures increase. This kind of market
activity could be the trend for a while,
because stocks have the potential to linger
in Canada while the industry struggles
with transportation issues. Even if rail
service begins to improve, the backlog in
the shipping supply chain will still take
months to move. By then, growers will be
looking to sell and ship a new crop. Even
an increase in demand may not be enough
to significantly boost growers’ profits. And
this spells a market that may be at the
bottom of the cycle for a while.
So what strategy should growers follow
in the meantime?
First, having just come from a period
of good farm revenues during which mar-
keting decisions were almost error-free,
growers must now refocus on profitable
prices as opposed to price alone. It may be
difficult, but try to leave emotion out of
the picture, or you may second-guess your
marketing decisions and miss an opportu-
nity to maximize your revenue.
Next, know in detail your cost of
production. This will help you make wise
marketing decisions when prices rally.
Finally, try incremental marketing.
Make a plan to market production in
increments throughout the year. How and
when you will do this will largely depend
on your cash flow needs, but make a plan
that works and stick to it.
The downslope of marketing cycles are
never fun, nor are they easy from a crop
marketing perspective—especially as the
good times of recent years are fresh in our
memory. But with good planning, growers
with a sound strategy can find the most
effective path through the lows. Eventual-
ly the markets will climb again—growers
just have to be patient!
Jeff Jackson is the interim operations
manager and markets manager of the
Alberta Wheat Commission.
Spring
2014
Grains
West
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