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Inputs and iron: Relentless price hikes squeeze producers

When crop prices soared, so did costs — and they stayed high 
even as farm revenues fell back to earth

Record-high grain and oilseed prices are a speck in the rear-view mirror, but they’ve left a legacy of higher costs.

“When we see higher grain prices, we can expect to pay higher inputs,” said Scott Keller, a mixed grain farmer near New Norway.

“All the companies selling crop inputs look at farmers’ margins and then basically increase their prices to see what the market will bear. They gobble up a good chunk of that extra profit when we see those higher grain prices.

“We can pretty much bank on that happening every time we see an increase in commodity prices.”

From 2013 to 2016, barley prices fell six per cent, wheat went down 15 per cent, and canola dropped 18 per cent, according to provincial statistics. During the same period some inputs also fell (urea by 11 per cent and wheat and barley seed by three and five per cent respectively) while others rose (an 11-51-0 fertilizer blend is up by 10 per cent and Roundup Ready canola seed costs eight per cent more).

But it’s over the longer term that you really see the effects of price creep, said Keller.

“In 2008, InVigor canola seed was just below $6 a pound, and you could buy some Canterra Roundup Ready for $5.60 a pound, and those were hybrid varieties,” said Keller.

“For your clubroot-resistant varieties — which is what we grow around here — and any of your other hybrids, no matter what the company is, they’re in that $11-a-pound range. They’re almost double. That’s over eight or nine years.”

On his grain farm near Fort Macleod, Stephen Vandervalk is welcoming the rare sight of price drops for a few of his inputs.

“This year was one of the first years where we saw fertilizer had decreased quite significantly. Even some of the canola seed packages have come down in price from last year,” said Vandervalk.

“But in a 10-year period, there’s no doubt costs have gone absolutely through the roof. Since 2006 to now, you used to buy urea for $240 to $250 a tonne, and in general, we’ve been sitting around that $500 to $600 mark for urea in the last three or four years.

“That’s up double or triple from 10 or 15 years ago.”

“Lots of farm equipment has doubled or tripled in cost over the last 10 years,” and that’s just not sustainable, says Stephen Vandervalk.
photo: Supplied

Equipment prices

But it’s the cost of iron where producers are noticing the biggest jump. Over the last three years, new Class 7 combines have risen in price by 21 per cent, while tractors have increased between 29 and 40 per cent, depending on the model.

“Farm equipment is probably the worst increase — lots of farm equipment has doubled or tripled in cost over the last 10 years,” said Vandervalk. “When’s this going to end? You can’t just keep going like that.

“You can’t have 20 per cent inflation on equipment over the last five to 10 years, because you’re not seeing 20 per cent inflation on your commodity prices. It definitely can’t continue. It’s not sustainable for sure.”

Vandervalk last bought a new combine in 2011, with a price tag of $287,000. In 2016, that same combine was around $470,000, and while some of those costs are a result of improved emission controls, the machines “haven’t really had many differences over the last five years,” he said.

“It’s not quite double in five years but almost, and you can argue that that combine isn’t all that much different. It’s a little nicer inside, but as far as capacity, it’s definitely not more than five per cent higher.”

Swathers have also more than doubled in price, he added.

“You could buy a swather 10 years ago for $60,000 or $70,000, and when they hit $100,000, we thought that was ridiculous,” said Vandervalk. “Within three years, they were at $160,000 and now, they’re close in at $200,000. They’ve almost tripled.

“They are quite a bit more productive than the old ones, but some of those old ones are pretty good yet.”

For Kevin Steeves, who’s been farming for five years, “the sticker price is more of a sticker shock.”

“We’re on the used market, and that’s gone a little bit higher,” said Steeves, who has a mixed farm near Rimbey.

“We went to replace our loader tractor, and it was $200,000 to replace. For 100 cows, that just wasn’t feasible, so we ended up going with a smaller tractor and buying a used loader to kill two birds with one stone.”

Now that cattle prices are off their record highs, Kevin Steeves figures he’s making the same money as his dad did prior to BSE.
photo: Supplied

And while the equipment costs have risen quickly in the short time Steeves has been farming, revenue hasn’t. Before BSE, calves were fetching around $2 a pound, and following the short-lived highs of the past two years, prices are back down to around $2 a pound.

“When you look at it that way, we’re not really getting that much more from our cattle than what we were getting prior to 2004,” said Steeves. “But when Dad bought his last loader tractor just before BSE, we didn’t pay no $200,000.”

Young and indebted

But as long as the resale value stays up, “it’s not the end of the world,” he added.

“Depreciation is what’s scary. What is that piece of equipment going to drop in value in the five or 10 years that we own it? Is the depreciation worth it?”

Saving some money — whether on equipment or any other cost — is extra important for younger farmers, especially now.

“With reduced commodity prices, it gets a little bit harder to get financing,” said Steeves. “The lenders are just a little more careful than they were when we started.”

He and his wife both work off-farm jobs, which helps with cash flow, but they’re still “heavily financed.”

“We’ve got way more financing now than we did when I first started out, and the increments get harder to get,” he said. “The first $50,000 was fairly easy to get. Now if I went to the bank and asked for another $50,000, it would be a different ball game.

“We get by with our little bit smaller equipment and work a little bit harder to get it done.”

For many young producers, the only option is to “take what the bank will give you for equipment and find the best you can run,” he added.

“There’s lots of opportunities for young producers to jump in on a piece of equipment or go custom, but there’s also opportunities to run some smaller, older equipment and make it work.”

Managing costs

But it’s not all “doom and gloom,” Vandervalk said.

Improved equipment is making farmers more efficient and there’s also a lot more money passing through farms, he said. Not much of it sticks around, but it still makes life a lot easier, he said.

“There’s absolutely no doubt there’s been a huge increase in cash flow on farms — especially from 15 years ago,” he said. “Back in the ’90s and even the early 2000s, it was a real grind.

“I’d rather be here today trying to figure out if I should buy new equipment based on how much money I’m making, versus 15 years ago when prices were low and equipment was low.

“Even though things are much riskier today and things on the equipment side have got a little out of hand, it’s still better than it was in the past.”

But higher costs and more risk are also upping the importance of farm management.

While Steeves keeps watch on the used equipment market, Vandervalk looks to get “the biggest discounts possible” by pre-buying inputs.

“A perfect example is urea. In July, it was $360 a tonne, and by spring, it’s going to be $500,” he said. “You’re talking a full 30 per cent difference in price or $20 an acre difference. On an average-size farm, that could be $100,000 difference in your costs.”

For Keller, the increasingly expensive business of farming means spending more time with spreadsheets.

“Now more than ever, you need to know what your costs are and track that,” he said. “You need to know which crops are making you money.”

But the goal needs to be long-term financial viability, he added.

“It’s quite easy to focus on one or two crops that make money and just steer all your acres towards those ones. But in the long run, that’s going to bite you in the ass.”

About the author

Reporter

Jennifer Blair

Jennifer Blair is a Red Deer-based reporter with a post-secondary education in professional writing and nearly 10 years of experience in corporate communications, policy development, and journalism. She's spent half of her career telling stories about an industry she loves for an audience she admires--the farmers who work every day to build a better agriculture industry in Alberta.

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