Seed 2022 comes into view, after the snow blows, grain train pain

Each seeding season comes with a fair bit of excitement for farmers, but this year also comes with more than a fair share of uncertainty. Craig Klemmer with Farm Credit Canada discusses some of the risks facing producers and what factors could make 2022 the most expensive crop on record; Bruce Burnett of MarketsFarm offers his outlook on prairie moisture conditions, spring seeding forecasts, and the efforts of Ukrainian farmers to get a crop in the ground as war rages around them; plus, Manitoba Co-operator editor Gord Gilmour shares his thoughts on the importance of rail service to grain farmers, and Western Canada’s economy as a whole. Hosted by Gord Gilmour.

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Gord Gilmour: [00:00:06] Hello and welcome to another edition of Between the Rows, the podcast of Glacier Farm Media. I’m your host this week, Manitoba Co-operator Editor Gordon Gilmour. This week, we’ve got a pair of guests that will help us try to part the veil of uncertainty as seeding season looms. Market Farm’s Director of Weather and Markets Bruce Burnett will give us his most recent thoughts on the factors that could affect the grain markets.

Bruce Burnett: [00:00:31] We’re probably on slate for maybe the smallest crop since the 1950s.

Gord Gilmour: [00:00:38] And Craig Klemmer of Farm Credit Canada will tell us about why this spring is a particularly risky one for farmers in.

Craig Klemmer: [00:00:44] In terms of how much money farmers are putting out this year to get the crop in the ground, it’s going to be one of the most expensive crops.

Gord Gilmour: [00:00:50] But first, here’s a message from our sponsor.

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Gord Gilmour: [00:01:27] And we’re back. Craig Klemmer is principal agricultural economist with Farm Credit Canada. He joins us now from his office in Regina. Craig, thanks for being here today.

Craig Klemmer: [00:01:38] Thank you very much for having me, Gordon.

Gord Gilmour: [00:01:40] So we seem to be in some pretty volatile times. What’s your assessment of the operating environment for Canadian farmers and the potential risks they’re facing as we’re headed into the spring season?

Craig Klemmer: [00:01:52] Yeah, you know, I think you’re correct. You know, if we look at what’s happening in the agriculture environment, there’s a lot of news coming in, a lot of conflicting messages. And it’s really difficult to make sense of everything that you need to kind of follow going on. You know, we take this, you know, right at the beginning, we talk about supply chain challenges and the access to inputs, the availability of supply computer chips and the impact on farm equipment. You know, the reality is what we’re sitting here is we got very strong demand for agricultural products. We’ve seen some major exporting nations that have low supplies and low global stocks here. So that’s really strong demand. We have economies around the world that are, you know, in general that are opening up. We have seen some recent challenges that in general, the Canadian and the world economies are opening up, and that’s increasing demand for food and continuing to put some more opportunities. But, you know, high inflationary pressure has put our crop inputs up and overall farm inputs up. So, you know, I guess I’m going to take a step back and look at where we are. Risk in agriculture is very high. We probably going to have the most expensive crop in history put into the ground this year. So that means farmers are going to have a lot of money invested in the ground. Commodity prices right now are supportive of the high inputs and the higher costs. But if we do see production challenges or, you know, reductions in overall output, we could see some some very tough margins for some producers in Canada this year.

Gord Gilmour: [00:03:27] You know, I’m kind of relieved to hear you say what you did about the relative risk level in the prices of the inputs. Because I was looking at this spring and I couldn’t help but think it looked like a very risky spring for farmers. Would you say it’s in one of sort of one of the most risky springs that they’ve faced?

Craig Klemmer: [00:03:45] Yeah. You know, it’s really tough to measure what we’re going to define as riskiness. But in terms of how much money farmers are putting out this year to get the crop in the ground, it’s going to be one of the most expensive crops. You know, we’ve seen higher fertilizer prices this year. Fuel prices have gone up quite a bit this year. Crop inputs, whether it’s glyphosate or, you know, other chemicals that we’re we’re purchasing right now for the upcoming season here, the prices have increased quite significantly. So, you know, farmers are going to have quite a bit of money invested in the ground this year, probably the most expensive that we had. So from that perspective, if we don’t see a favorable production season, that the margins are going to tighten up quite a bit, given how much money people are putting, how much money farmers are putting in the ground and not even on top, you know, not even considering the higher cost of equipment coming into play as well.

Gord Gilmour: [00:04:40] Now, when it comes to risks, some risks are unavoidable. And I’m thinking of like the weather and some are just totally out of your control. And I’m thinking there of the war in Ukraine. But does that make it even more important to have a solid plan for the things that one can influence?

Craig Klemmer: [00:04:57] Well, I mean, it reinforces the need to have a solid plan. And, you know, I guess even with the challenges that we saw last year, sticking with that plan is very important. So, you know, having a good business plan, having a good marketing plan, having a good risk management strategy, all or portions of them are really going to be important. So, you know, what is your view in terms of producing products, selling products, whether that’s forward or contracting, having a solid plan that works best for you and what you’re comfortable with? There’s also, you know, the volatility on interest rates. You know, we’re seeing interest rates rising, you know, quite rapidly here. And that’s going to put upward pressure on interest costs. So how do you manage that? Are you have a good business strategy in terms of, you know, how much you want to lock in, how much you want to leave floating and just what is that risk tolerance of your operation overall? So, yes, absolutely. When we see times like this, we see the amount of volatility in the market, we see the risk being out there. It’s important that we consider: what risk can I control? What risk can I partner with people on to mitigate some of my risk or at least be very well informed on the risk tolerance that I’m taking or the risk that I’m taking for my operation?

Gord Gilmour: [00:06:09] And have there been a bit of like a change in the economic winds? You know, we’re coming out of an era where it was low inflation, low interest rates for four decades. Really? Is that party over? And what does that mean to a farm sector that’s carrying a lot of debt and what can farmers do to manage that kind of risk.

Craig Klemmer: [00:06:28] Yeah. So I mean, that’s a really complicated question. Are we in the world, you know, out of the world of low inflation? You know, I guess the general hope is, is that measures that are being taken by central banks will get inflation under control. And, you know, that’s one of the big conversations that’s out there is are we in a in a world of accepting higher inflationary pressure, given that, you know, we see that future expectations, or is there an opportunity to scale that back, get this inflationary pressure under that three percent number? That’s the target of the Bank of Canada and the target of so many of the central banks around the world. So, you know, I guess I’m not ready to say that we’re away from that type of period, but it does mean we’re going to see very sharp increases in interest rates right now. You know, and that we continue to see some strong rate increases moving forward to help control that inflationary pressure to bring down that overall demand for the agriculture sector. Yes, we have been taking on more debt. We’ve been making significant investments in our operations. And I think at the end of the day, it’s having a balanced approach. The investments that we’re making have led to significant productivity gains. They have improved the output of the farms. And, you know, from that perspective, it’s been a good investment and taking on that debt. So it’s just kind of balancing what are these debt payments going to be? What kind of interest rate products am I locking into or choosing not to lock into and just assessing that overall risk tolerance of your farm and just making sure you take that long term approach, that long term balanced approach for risks and opportunities on the farm.

Gord Gilmour: [00:08:03] And how important is the mental attitude of a farm manager in times like this? I guess what I’m really asking, is there a mindset for success during these kind of challenging times?

Craig Klemmer: [00:08:14] Well, you know, I think that there’s two sides of that story. Mental health is going to be extremely important. We’re dealing with a time where, you know, we came off a year for so many producers in western Canada with production was weak. We’re seeing it enter, you know, we’re entering the new crop year with different levels of moisture conditions and, you know, making sure you have strong mental health is going to be so important and investing that time to take care of yourself. Because at the end, you know, at the end of the day, your operation can’t be healthy if the CEO of the company isn’t able to be fully present. And, you know, from that perspective on mental health, I think it’s really important. The other side is just mentally strong and being resilient is having trust in the game plan that you have. Don’t be afraid to ask for help. Whether that’s working with your financial institutions, whether that’s working with your accountant, your crop input supplier and your partners, and having those open dialogues. And if things are not working out as well as what originally was planned, having conversations early is going to be really, really important in terms of getting things back on track and finding opportunities to work together and partner. Because, you know, FCC and so many of your partners are invested in your success as well and you don’t have to go it alone. So being mentally strong and making sure you’re taking care of yourself is going to be very key to taking care of your operation and those around you.

Gord Gilmour: [00:09:36] And is there any sort of key concept or crucial bit of information that you’d like to impart to farmers at this economic juncture?

Craig Klemmer: [00:09:44] Yeah, I mean, you know, take you know, it’s important to run the numbers for yourself and just to finance understand the financial position that you’re in, but also play with some scenarios and see, you know, to better understand what kind of tolerances you have for risk and how is that going to impact your operations? You know, it’s going to be important for considering future investments in the operation, whether that’s new equipment or new infrastructure or adding land into your operation. But it’s just important to consider those scenarios that it’s going how it’s going to impact your operations. We’re at a time coming off a very, very low interest rate. So what does this, you know, going out to, you know, a hundred basis point, 200 basis points and possibly even 300 basis point increase going to do to your operations just so you have an understanding. And does that change your philosophy on some of the investments that you’re looking at or how you’re looking to, you know, invest in your operations overall?

Gord Gilmour: [00:10:41] Well, thanks for taking the time with us today, Craig, to run us through this.

Craig Klemmer: [00:10:44] Thank you very much, Gord. Have a wonderful day.

Gord Gilmour: [00:11:00] That was Craig Clemmer, principal agriculture economist with Farm Credit Canada. You’re listening to Between the Rows, the podcast of Glacier Farm Media. I’m your host this week, Manitoba Co-operator Editor Gordon Gilmour. We’re joined now by Bruce Burnett, MarketsFarm Director of Markets and Weather. He’s here to tell us his view about the fast changing spring, the sector’s face. Bruce, thanks for joining us.

Bruce Burnett: [00:11:27] Good to be here.

Gord Gilmour: [00:11:29] So let’s start with the elephant in the room or more accurately, the storm raging over parts of the eastern prairies right now. What’s this going to mean for the affected farmers in that area?

Bruce Burnett: [00:11:40] Well, I guess there’s probably a couple of impacts. Again, these late season storms in terms of early spring, late winter, whatever you want to classify it as. Again, for livestock producers and these are really not the best of times to have a storm like this. But for farmers who are grain farmers, really, it looks like we’ll probably have some planting delays caused by this. But it’s that’s for a good reason because we’re going to get moisture along with this storm. So I think the benefit of having the additional moisture outweighs any of the negatives on that front. Even for cattle producers, the pasture conditions certainly will be helped by this late season snow as well. So I think it’s good news. The second piece of good news is as the storm approaches, it appears as if it’s moving slightly westward. So in reality, we’re getting more of the western parts of Manitoba, eastern Saskatchewan, involved in the heaviest amounts of precipitation here, which is good because those areas are dry and do need the additional moisture. So all in all, I think it’s a good thing here. The amounts are going to be between 20 and 40 centimeters of actual snow that falls maybe up to 60 centimetres in some isolated locations. And the largest amounts are going to be close to the US border between, let’s say, the Trans-Canada and the US border.

Gord Gilmour: [00:13:28] So flipping the script a little bit. Let’s go to the other extreme on the southern plains. I know that there was a recent report out on the hard red winter crop, and it was not good, to say the least. It looked like a lot of it was in trouble. What can you tell us about that and what it might mean for markets in the next few months?

Bruce Burnett: [00:13:48] Well, we’re actually already seeing a boost to the wheat markets because of the concerns about the conditions. Again, there’s a lot of things that are happening in the world, wheat market, obviously external factors. But the first crop that is a major export crop of wheat to hit the markets is usually that hard red winter wheat crop in the US and conditions are very bad in the southern plains. Kansas conditions are about 34 percent good to excellent. But let’s take Texas. Texas conditions are only seven percent of the crop in good to excellent condition, with over half of the crop in very poor condition. And this has been caused by what usually ails winter wheat crops, just a dry winter and frequent high winds and no precipitation. This spring has really caused the conditions to deteriorate in that region. There certainly is a need for rain, especially over the next, I would say two to three weeks are absolutely critical in helping preserve any of the yield prospects that we have in that region. So. But as it looks now, we’re probably on slate for maybe the smallest crop since the 1950s. Now, that would be quite a thing. We’ll get the first USDA estimate in the second week in May. But certainly right now, that’s what it’s looking like.

Gord Gilmour: [00:15:32] Wow. That’s huge. There was also another USDA report that came out since the last time you were on the show. What insights can we glean from some of those numbers?

Bruce Burnett: [00:15:44] I think the main insight we can gather from that plant acreage report, the prospective plantings, is that the fertilized crops really matter. We saw the USDA project from a farmer survey, a overall area of close to 91 million acres of soybeans, which is a record a fairly sharp drop in corn area from last year down to around 89 million acres. And a lot of I would call them lower fertilizer, use crops in the northern plains being put in, be them pulses, barley, oats certainly stood out in that report and a drop in wheat area, which everybody was expecting to increase. So I think basically the USDA sort of the numbers essentially tell you that these high fertilizer prices have changed some farmers planning options. I think, secondly, it’s also just the fact that prices for all commodities are very good right now and farmers have a large selection of crops that they can plant for this upcoming year.

Gord Gilmour: [00:17:04] And actually that piece about the high fertilizer prices kind of ties in nicely to the next question that I had for you. Even with this storm that’s raging. There’s still a big part of the prairies that are dry. And it looks like there’s some big numbers attached on the input side of the of the balance sheet this year. Isn’t this like it just feels and looks to me like a very risky spring for producers with those big numbers that they’re talking about putting into the ground this year and pretty uncertain moisture.

Bruce Burnett: [00:17:36] Yeah, certainly. And I would say again, aside from the parkland in the eastern growing areas of the prairies that have received more snow than they normally would this year, and we still have dry subsoil moisture conditions across the prairies. The risks remain very high in a lot of growing areas, but it’s particularly acute in southern Alberta, central Alberta, over into western Saskatchewan. Those regions are extremely dry right now, no subsoil. And so I think, again, farmers, of course, are looking at these good prices and would like to produce a great crop this year. But certainly they’re aware of the risk going forward. And I think again, we will see some changes in the planting decisions this spring depending on how the moisture evolves during the spring season. For those farmers out in those western areas, it’s too bad the storm didn’t move into central Saskatchewan and providing moisture for Alberta and Saskatchewan, those dry areas. But certainly I think we’re going to see a cautious note in those regions in terms of planting this upcoming year. And again, the USDA report also indicated that the the planting expectations of Montana, which has similarly dry conditions, were remarkably different than those for, let’s say, Minnesota in eastern North Dakota.

Gord Gilmour: [00:19:09] To bring up the other major market factor. That, of course, being war in Ukraine. Do we have any further insight now that it’s not sort of I mean, it’s certainly ongoing, but it’s not something that’s sort of hitting us in the face unexpectedly now that it’s worn on a while. Are we getting a little bit further insight into how that’s going to shake out in terms of production in the region, the global grain trade? Or is it all still very much up in the air?

Bruce Burnett: [00:19:38] I would say it’s still up in the air because it’s just a very volatile situation. I think the things, though, that we’ve learned, first of all, a lot of people were anticipating a fairly quick war. Obviously, that’s not going to happen. Secondly, there were some concern, concerns about food supply globally. And I think those are quite warranted right now, especially since Ukrainian exports are not really being allowed from their ports. The there are some exports going on via rail down into Romania as well as up into Poland into the Baltic region. But those are quite minor compared to what they would typically export at this time of year. The other big question that still is under way is how much of this year’s spring crops are going to be planted? The winter wheat crops are planted, but the crops like sunflowers and corn and spring barley, has still yet to be planted. And how much of that area can be covered, especially seeing as some of those crops, especially the corn and the sunflowers, are pretty much in parts of the territory that have been recently invaded and then vacated by the Russians or are still under active conflict. So again, farming is difficult at the best of times, let alone war is raging around you. The Ukrainian government is trying to get fuel supplies and fertilizer to and seed to the to the farming community to get crops planted this year. But I think, again, it looks like production is going to be down significantly just because they’re not going to be able to plant their entire area this spring.

Gord Gilmour: [00:21:40] Thanks Bruce. Next, I want to make a note here. A modest fellow that you are, you might not toot your own horn, but you were the first analyst I heard predict that it wasn’t going to be the fast war everybody was expecting. It was right after it happened. So I feel like I should acknowledge that. Bruce, thanks very much for taking the time to run us through this and make some sense of these markets.

Bruce Burnett: [00:22:00] Thanks, Gord.

Gord Gilmour: [00:22:11] That was Bruce Burnett, director of Weather and Crops for MarketsFarm, making sense of the fast changing landscape farmers are facing this spring. I recently had the opportunity to take in a panel on rail service. It was very interesting, and it made me realize just how dependent our economy is on railways. When it comes to Western Canada’s economy, success is inextricably linked to the railways. The Fathers of Confederation knew this. That’s why completing a rail link to British Columbia within 10 years was a condition of it joining Canada in 1871. Today, railways are the circulatory system of our economy, primarily bringing manufactured goods in and shipping bulk commodities out. But lately, those arteries have been clogged and shippers are increasingly complaining of poor service. Here are four things everyone in agriculture should know about our major railways. Number one, they are, in practice, monopolies. There may be two of them but there isn’t much overlap on their networks. One runs straight south, across the bottom of the prairies. The other in an arc across the top of the prairies. If you’re shipping grain on an elevator on one of these lines or the network that connects to them, you really don’t have any choice who you’re shipping with. Number two, there aren’t any options that aren’t railways. Trucking is cost prohibitive. We don’t have a natural waterway like the Mississippi River, and we’re an exporting nation.

Gord Gilmour: [00:23:53] If you’re growing grain on the prairies, most of it’s moving to port position on a railway. Number three, because there aren’t any alternatives. Railways don’t have to worry about service. They know they’ll get to move that grain sooner or later. So instead, they spend most of their energy keeping their costs as low as possible, which is what their shareholders demand. Unfortunately, that means there’s no surge capacity to recover if there’s a flood, bad weather or a labour disruption. Number four, the latest rejiggering of the rules regulating railways attempted to deal with this. But in practice, a number of things like penalties for non-performance just haven’t materialised. It seems the problem that regulators are facing is how to stimulate competition in a fundamentally uncompetitive environment so customers get the benefit. Government and industry have tried just about everything to resolve this except treating those ribbons of steel like highways. It’s time running rates got to go ahead and other rail operators got to run on them, injecting real, actual competition into the system. Because after a century and a half, it’s clear that this problem isn’t going to solve itself. 

And that’s another edition of Between The Rows, the podcast of Glacier Media. We hope you’ll join us again next time. And in the meantime, stay safe during the busy spring season.

Commercial: [00:25:41] AGI Westeel manufactures the highest-quality galvanized grain bins on the market. With over a century of experience our quality designs and storage options deliver the right solution to suit your needs. Visit AGGrowth.com/wessteel for more information. That’s AGGrowth.com/wessteel.

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