Speaking at the Manitoba Agronomists Conference, Brian Beres, senior research scientist in agronomy with Agriculture Canada, said that while his discussion focused on wheat, the yield gap isn’t limited to cereals.

“Most cropping systems operate well below what’s biologically possible,” he said.

WHY IT MATTERS: Understanding the difference between yield potential and profitable yield can help farmers make better decisions about inputs, variety selection and management.

Yield gaps across Prairie crops

Research comparing potential yields with average farm yields suggests the gap remains substantial across several major crops.

For wheat, potential yields can reach about 75 bushels per acre under ideal conditions, while average Prairie farm yields are closer to 48 bu.per acre.

Those differences reflect the interaction of what agronomists describe as genotype, environment and management, often abbreviated as GxExM. Genetics and weather establish the biological ceiling for yield, but management determines how close farmers come to reaching it.

However, Beres said maximizing yield is not always the right target.

Balancing yield potential and profitability

Research suggests farmers should aim to achieve roughly 70 to 80 per cent of a crop’s theoretical yield potential. That range generally represents the point where strong yields can be achieved without the sharply rising input costs required to chase the final portion of theoretical yield.

That balance between agronomy and profitability was also a theme in a presentation at the same conference by Jochum Wiersma, a small grains extension specialist with the University of Minnesota, who examined how management intensity affects wheat yield, protein levels and economic returns.

In field trials comparing different management systems, increasing inputs generally produced higher yields and higher grain protein levels. High-yielding wheat varieties responded most strongly to additional inputs, while lower-yielding varieties showed smaller gains.

Protein levels also rose with higher nitrogen rates, although the economic benefits eventually plateau.

“Quality increases up to about 15 per cent protein,” Wiersma said.

Beyond that level, additional protein provides little additional market return.

Modelling risk and management decisions

Wiersma’s work also explored the economic implications of different management systems. Traditional economic comparisons often assume fixed grain prices and input costs, which can make lower-input systems appear more profitable.

However, farming rarely operates under such predictable conditions.

To better reflect real-world uncertainty, Wiersma used simulations that generate a range of possible outcomes by incorporating variability in grain prices, nitrogen costs, yields and protein discounts.

When that variability was included, more intensive management systems consistently produced stronger expected financial returns than low-input approaches.

The analysis also examined which factors had the greatest influence on profitability. Variety choice and grain price had the largest impact, while management decisions affected returns primarily through their effect on yield.

For Beres, the key is translating research into practical on-farm management strategies, and he says the GxExM framework provides the answer.

“Genetics really do set the ceiling, but management unlocks that potential. If we can do that properly, I really do see this as a frontier, and I think the Canadian Prairies could lead the way.”

Brian Beres
Senior research scientist in agronomy
Agriculture Canada

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Coming off the heels of being PepsiCo Foods’ Global Farmer of the Year and its first-ever North America Potato Supplier of the Year award winner for the 2024 crop, recently spoke at the World Economic Forum in Davos, Switzerland, where he presented as part of a panel.

WHY IT MATTERS: Having a voice for front-line farmers among 130-plus countries helped recognize the overall value in the food chain in production.

Normally a place for presidents, chief executive officers and the power broker elite, farmers were invited to the event as well.

“PepsiCo did invite three farmers to come. One was myself from Canada, another was from Brazil and another was from France. It was around regenerative practice — big picture, how do you support a farmer? It was an authentic investment and invite to have a farmer’s voice at the table,” said Perry.

The agriculture panel focused on the pillars of regenerative agriculture: corporate risk/reward investments, data ecosystems, circularity with value-added agriculture and blockchain/tokenization.

“Soil health is the foundation of so much, adding resilience into the soil so that it can withstand some of the climate change pressures that are there,” said Perry, who is part of the Perry Farm near Chin, Alta.

“That is absolutely a global focus. That is not just a North America piece or a Europe piece. That’s really on the tables of a lot of the food systems and across all the big players in the food industry.”

He said farmers are the ones who carry the challenges of climate, biological/disease, yield and increasing contractual and liability risk, while downstream margins are typically more stable.

If regenerative agriculture increases scale, it needs to become economically investable for the long term, he added.

Farmers have very little influence in the food supply chain despite being squeezed at the front end, he said. They must operate under tight margins while facing input costs such as steel, fertilizer, herbicides and seed.

• READ MORE: Alta. potato farm family relish their time on TV

“The returns across the food system, thinking about that in a more fair way — should the farmer be making a two per cent return when everybody else in the food system is making double digits, for example,” said Perry.

“When you’re hanging out with the corporates, you see how many boats are on the ocean. What is all going on, and the energy inputs and resources that are are at play to get food across the world and thinking about the returns across the food system.”

He said farmers aren’t rewarded enough for the environmental value they produce, be it biodiversity, nutrient efficiency, avoided emissions or soil carbon gains.

High-quality farm data can be translated into verifiable units that support corporate Scope Three reporting and improve farmer economics by rewarding best practices, he added.

“A lot of big players, the Pepsicos, the Nestles, the Louis Dreyfus Corp., the Bunges of the world, are taking this climate where, how do you incentivize soil resilience or climate-aware practice,” he said.

“With blockchain and tokens and the ability to decentralize that, taking the cost out of the system, so you can incentivize some of the front-line farming, from a two-acre farm in India to a 6,000-acre farm in Alberta, that really landed to be honest (with the audience).”

Turning carbon into an economic market is often bogged down by bureaucracy.

“If money is feeding into that system right now, there’s so much of the middle bureaucracy that costs the system. If the world’s giants want to put in $100 into a carbon, better-practice idea, anywhere from 30 to 50 per cent of that is getting eaten up by the bureaucracy, it’s a centralized system. This is not the method to incentivize something like that,” said Perry.

“Whereas blockchain, you have the ability to build the trust in the system, but it’s really a minimal cost for that. Eliminate that cost in the middle to get money in the hands of the fringe edge of the farmers without it costing the system extravagant amounts.”

Perry was at Davos for the buzz surrounding Prime Minister Mark Carney’s speech, which received a standing ovation, one of only three among world leaders in the forum’s history.

• READ MORE: Alberta farmer invited to World Economic Forum

Perry said artificial intelligence dominated many conversations at the conference, but the 3,000 delegates also focused on the challenges of an aging workforce in agriculture and the need to attract and retain young people.

Perry said he was proud of how many hats he wore on the world stage: Albertan, Canadian potato farmer and proponent of regenerative agriculture.

“I’m not scared to shout out to PepsiCo, saying they are really investing in the farmer in this. How do we get the voice there and make sure they’re a part of what we’re trying to achieve?” said Perry.

“We got a phenomenal industry of agriculture and farmers across Canada, none of us are better than others. We got different ways of doing good things. When I look at Alberta and the family farm, the heritage of that, that’s a powerful thing.”

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“We’ll probably have another two years of this,” said Steve Nicholson, global strategist of grains and oilseeds with Rabobank.

Grain prices are unlikely to rally much due to a global glut of the major crops.

“We have monster supplies,” he told reporters attending the bank’s Fall Harvest Outlook webinar.

WHY IT MATTERS: Grain farmers need to know when their operations will be profitable again.

Nicholson said it is hard to come up with an outlook for the sector in an environment of trade spats, tariffs and shifting government policy.

“With all the things swirling around, I’m back to the fundamentals,” he said.

He looked at U.S. corn prices dating back to 1900 and discovered that every 25 to 35 years, prices bump up to a new plateau.

Nicholson believes the grain sector is in year 17 of the current plateau, where corn prices have a floor of US$3 per bushel and a ceiling of $7.

Current prices are closer to the bottom of that range than the top due to the large supplies.

He also noted that the price range in the current plateau is a whopping $4 per bu., when in previous plateaus it was $1 to $1.50. That means there is more price volatility.

Nicholson suspects it will be a supply-side shock that jolts the market out of the current doldrums rather than a demand-side shock.

There have been 18 year-over-year declines in global production of the four major crops (corn, soybeans, rice and wheat) since the 1960-61 crop year, most of which were caused by drought.

There have only been five times since 1960-61 where domestic consumption of the major crops has dropped and that was by a fraction of a percentage point.

“Any shortfall in production can move the market very quickly,” he said.

Nicholson pointed out that while global stocks are in the top 10 per cent of all time, the stocks-to-use ratio has been falling every year since 2018-19, a sign that the increase in stocks is not keeping up with the increase in demand.

He also noted that while the volume of stocks has increased, the amount of corn, wheat and rice in the hands of the major exporting countries is low.

“Free stocks are not highly available,” he said.

Soybeans are the exception to the rule, with exporters holding 56 per cent of the stocks.

Nicholson said North American farmers are at the bottom of the typical row crop cycle, where operating capital is drying up.

Farmers are drawing down their operating lines of credit by more than 50 per cent per year, compared to the usual 20 per cent.

They are cutting back on inputs and machinery purchases and attempting to renegotiate land rents.

However, Nicholson said there will probably be two more crop years of losses before farmers once again break even in 2027-28.

That is partially because input costs have been “stickier” than usual. They are coming down, but not fast enough.

U.S. farmers are not doing enough to cut back on inputs, partially because they will be receiving about $40 billion in government payments in 2025, which will be close to the largest subsidy program on record.

Owen Wagner, Rabobank’s grains and oilseeds analyst, thinks current market conditions favour U.S. farmers increasing soybean acres and decreasing corn plantings next year.

However, that could change if trade talks between the United States and China fizzle.

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Signs of these financial impacts are already emerging. Bayer shares fell sharply to a 20-year low on Tuesday, after the chemical company warned that weak global agricultural markets and a slumping U.S. farm economy are likely to pressure profits further.

Agrichemical competitors Syngenta, Corteva and the agriculture unit of Germany’s BASF could also face challenges in the sector, analysts said.

Nearly one-third of all the pesticides and fungicides that Paul Butler uses on his Illinois soybean and corn farm are generic to help him cut costs in a tight year, he said.

Fellow Illinois grain grower Jeff O’Connor is doing the same. “It’s like if you grew up eating Fruity Pebbles and now you go to Dollar General and get Fruity Bites,” he said.

Despite the cost savings, farmers say there can be drawbacks to downgrading. Manufacturers of generic chemicals typically do not cover the cost of respraying if the product does not work, said Caleb Hamer, an Iowa corn and soy farmer.

Still, Midwestern distributors and grain elevators say they have seen customers cutting back their spring pesticide and herbicide budgets.

Some farmers are shifting away from branded products, said Matt Carstens, chief executive of farm cooperative Landus and agricultural financing company Conduit. Others are investing in equipment that targets and treats weeds and pests in their fields – allowing them to buy less herbicides and pesticides altogether, he said.

“It comes down to this: What does the farmer really need? Do they need a name brand, with protection insurance and complaint policies backing it? Do they need to pay for all of that?” Carstens said.

Off-patent chemistry

When it comes to chemistry, a farmer’s buying decisions often are rooted in the seed.

Farmers typically base their chemical purchases with trait-specific seeds they want – such as ones that produce a drought-tolerant crop or can withstand herbicide applications that kill weeds without harming the plant.

If there is a generic option to brand-name herbicides, and the seeds that a farmer purchases can tolerate it, then it can makes sense to go with a less expensive product, said Mac Marshall, founder of agriculture advising firm Balcony View Consulting.

The number of generics available to farmers is growing. The patent for glyphosate, the active ingredient in Roundup and the world’s most widely used herbicide, expired in 2000, according to Rabobank agricultural analysts Owen Wagner and Sam Taylor.

More than two dozen active ingredient patents have expired in the past five years – spurring a boom in off-patent use, which now accounts for about 80 per cent of the agrichemical market share, they said.

Now, with farmers facing weak margins this spring, they’re more likely to look for cost savings among their fertilizer or crop protection chemicals, Taylor said.

— Additional reporting by Karl Plume in Chicago

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“In this environment, I do think that management skills are absolutely critical,” said J.P. Gervais, vice-president and chief economist with Farm Credit Canada (FCC).

“Any two, three, four or five per cent that you can get in terms of efficiency, in terms of productivity, will help on the bottom line because there’s a multiplicative effect when it comes to lowering your costs and the impact on the overall profitability of operations.”

That said, Gervais is “cautiously optimistic” about Canadian agriculture this year.

“I’m optimistic because we’re going to get relief when it comes to interest rates. We know that (input) costs for some sectors are going to be coming down. So that’s going to help profitability,” he said at FCC’s 2024 economic outlook January 23.

“But I’m being cautious as well because consumers are under a little bit of pressure. And it all starts with consumers.”

From a broader economic perspective, Krishen Rangasamy, principal economist with FCC, noted a recent downward trend in inflation in Canada created by economic slowdown. This may result in interest rates dropping in 2024, he said.

“We’re forecasting growth to be below potential. In other words, you can expect inflation to keep trending towards the Bank of Canada’s two per cent target,” said Rangasamy.

“Our own forecast is for the Bank of Canada to start cutting interest rates in the second half of the year. But the Bank of Canada is going to do that only if they become comfortable about inflation sustainably going down,” he said.

“So that’s why we think they’re going to wait a little bit.”

Beyond 2024, Gervais envisions health for the overall ag industry.

“I think the long term outlook for the industry remains extremely positive. I think we know there is a very, very strong demand for what we can grow and produce as food. That’s the reason why I think we’re still very optimistic about the long term,” he said.

—Jeff Melchior writes for the Alberta Farmer Express.

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