As storm clouds gather, farmers urged to batten down the hatches

Experts say current grain prices are normal, knowing your cost of production critical, and hope is not a marketing strategy

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It was standing room only at every FarmTech market outlook session, and the faces told the tale: anxious-looking producers leaning forward, hanging on every word, searching for rays of hope as the storm clouds roll in.

But the message was blunt — there will be no quick bounce-back from the steep fall in grain and oilseed prices.

“This is normal,” said Errol Anderson, a commodity broker and president of ProMarket Communications.

“You say, ‘I’m getting taken to the cleaners’ — and you are. But markets are savage.”

It was the same ‘face the facts’ message at the presentations by FarmLink Marketing Solutions.

“If you’ve only been farming for a few years, that’s horrifying,” said Brenda Tjaden Lepp, chief analyst and co-founder of the Winnipeg-based company.

“But most of us realize that’s just the way it goes… for the most part, that’s how farming has always been.”

Her message was no surprise for Lee Markert, who grows wheat, barley, peas and oats for seed on his pedigreed seed farm north of Vulcan, as well as commercial crops such as canola.

“I had an idea going in what I was going to hear and it was pretty much what I heard,” he said. “We’ve got quite a challenge ahead of us in getting all this grain moved.”

Markert counts himself lucky on some fronts. Although he grew more commercial grain than normal last year, he was able to contract some canola in the fall. He expects to move some in March and some by July.

“We’ve been quite fortunate that deliveries on the canola side have been pretty well up to date,” he said.

An open-market supporter, Markert turned to the CWB’s pool to sell his low-protein hard red spring wheat. It graded No. 1, and will be delivered by end of July.

“Our cash flow is tightened a little bit,” he said. “In that case, we were at the mercy of the market. We didn’t have what the market wanted, so this is our best option for a net return.”

It’s a fiscal juggling act that will stretch out for this growing season and likely far beyond.

But Markert says he knows farmers who are in dire need of cash to pay the bills, noting the Canadian Canola Growers Association — in its role as an administrator for the federal agriculture department’s Advance Payments Program (APP) — has been pushing through record numbers of cash advances. The APP provides advances of up to $400,000 (with the first $100,000 interest-free).

“From the cash flow side of things, we are in OK shape,” said Markert. “We had opportunity to take advantage of a bit of a basis premium locally here and we moved a little bit of canola just this last week. That will give us a little bit of cash flow, and we’ll move a little more in March and that will help us get the crop in.”

The message from the marketing experts at FarmTech was to be nimble and take advantage of selling opportunities.

“If you can move your grain, move it,” urged Anderson.

“There is so much grain that is looking for a home — any windows that open up (will) get filled up quickly,” said Jonathon Driedger, FarmLink’s senior analyst.

“Sitting on your hands and hoping for things to get better isn’t an answer to our problems.”

It’s critical to be realistic, added Tjaden Lepp.

“Emotions have no place here,” she said. “This is a math-based business. Math and emotions don’t care about each other. The market doesn’t care that you wish you sold more 2013 crop because now you’re worried about profitability.”

Tjaden Lepp and Anderson frequently apologized for being so blunt, but none was needed as far as Gordon Reynolds was concerned.

“What I appreciated about both presentations is that they didn’t sugar-coat anything — it’s not going to be rosy in grains and oilseeds,” said Reynolds, an agronomist and marketer for Dale Thacker Specialty Crops, a family-owned business near Bow Island.

The farm, owned by Dale and Natalie Thacker, has 3,400 acres of irrigated land, and 2,600 of dryland. The couple and their sons grow spring wheat and canola, but the primary focus is essential oils along with dill and spearmint for specialty markets.

So it was no surprise Reynolds agreed with Tjaden Lepp’s call to check out specialty crops and see if they are viable.

“We see opportunities in some of those specialty crops,” he said. “There are still some upsides in the specialty crops and even some of the pulse crops.”

This year, the farm will be adding three new crops — hemp, flax and faba beans — to the rotation to replace some wheat acres.

“We’re big on rotation as it is,” Reynolds said. “Farms that have smaller rotations are really going to be challenged to be in the black. You don’t like to see any one of your crops carried by the rest of the basket, but sometimes that does have to happen.”

Hybrid seed canola, presuming it makes hybridity, is another bright spot, but Reynolds said he can’t see how a crop like wheat is going to work.

“It’s going to be pretty tough to hit the break-even on spring wheat at current projected prices and projected input prices,” he said.

With prices for most grains and oilseeds down 30 to 40 per cent from a year ago, going over the numbers is depressing work. But this is not a time to put off that task, said Charlie Pearson, provincial crop markets analyst with Alberta Agriculture.

“It is a year when farmers are going to have to warm up their pencils to look at all the crops,” he said. “All the crops have come off to some extent, so all farmers are going to have to do some pretty hard-core calculations as to which crops work best for them.”

Farmers need to look closely at cost-of-production estimates, decide how intensively they want to farm, and adjust inputs accordingly, he said.

From the Grainews website: Farmland prices and net farm income

“Farmers will have to adapt to these new sets of prices as best they can,” said Pearson, who predicts that, barring a weather wreck somewhere, producers will be looking at the same grain prices a year from now.

If there’s a silver lining, it’s low interest rates, said Reynolds.

Farmers will find ways to lower costs and find efficiencies, but debt leaves them totally exposed, he said.

“If you’re leveraged at all, and those interest rates take off on you, there is absolutely nothing you can do. It’s totally out of your control then. It’s a matter of hoping you don’t have to turn over the keys and walk away.”

However, interest rates are low and cash advances mean unsold grain is not a financial millstone. But as farmers look at their full bins and hear about empty grain vessels racking up demurrage bills in Vancouver’s port, the blood pressure shoots up.

“If you talk to farmers right now, there’s a whole bunch of angst and anger out there,” said Pearson. “Price isn’t even the main issue this year. It’s finding someone who’s willing to take it.”

CORRECTION, Feb. 25, 2014: The original version of this article incorrectly stated that Farm Credit Canada is offering cash advances of up to $400,000 (with the first $100,000 interest-free) to qualified grain producers. In fact, the advances are being offered by Agriculture and Agri-Food Canada through its Advance Payments Program.

About the author

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Alexis Kienlen lives in Edmonton and has been writing for Alberta Farmer since 2008. Originally from Saskatoon, Alexis is also the author of two collections of poetry, a biography, and a novel called "Mad Cow."

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