All Things Considered: June 2006

Field of Nightmares

If crop production was run by one big company rather than by thousands of independent farmers, the producers would be laid off, the tractors idled and virtually nothing would be planted this spring because the chances of covering input costs –  let alone making a profit – are virtually nil.

Farmers have been saying this for months and now the Manitoba Agriculture Department has joined in.
Each spring Manitoba Agriculture produces a forecast of crop prices for the year and calculates the yield needed for a farmer to break even on a crop.

This year none of the 17 crops covered by the survey have even a remote chance of returning a profit. In fact, the yields required to break even are so high that in many cases they appear to be beyond the genetic potential of the plants.

The Manitoba survey covers all that province’s major crops – wheat, barley, corn, oats and canola – as well as what are called special crops – lentils, buckwheat, canaryseed, mustard, peas and others.

While this survey applies to Manitoba, it is reflective of the rest of Canada.

For example, on hard red spring wheat the losses are set to be in the range of $40 per acre, even if the yield is a bit better than average. For a prototypical 2,500-acre Manitoba farm that grew only spring wheat, the losses would be in the $100,000 range.

And those losses are just on production costs. If the farmer is carrying debt they could be even higher.

The results are the same right down the list. For canola, a farmer would need to produce 43 bushels an acre to break even this year. Unfortunately, the long-term average yield is in the 30 bushel an acre range. For lentils, production would need to be more than 1,500 lb. per acre while expected yields are about 1,000 lbs. per acre.
Buckwheat, which was a bit of a money-maker, paints an even grimmer picture with break even yields of 27 bushels an acre versus probable yields of under 15 bushels an acre.

Even malting barley (the stuff used to make beer) has hit tough times. It used to be that if a farmer produced a barley crop that met the stringent requirements of the brewers the price he received was good enough that he was set for several years. This year, a crop of malting barley with an average yield won’t cover its production cost.

If it was just Manitoba facing this situation it would be bad enough, but it’s not. Right across Canada the story is the same. If there is a crop that shows the potential to make money this year, it is being kept secret.

If it was not a secret then everybody would try to grow it, flood the market and drive prices down to the point where even it was unprofitable.

One would expect that faced with losing money on every bushel of whatever they produce farmers would idle some land and cut production. Unfortunately, they can’t afford to do that. If they produce they at least have cash flow, which they can use to service some debt. If they don’t produce they don’t have any cash flow, and the hole gets even deeper.

All of this puts the federal and provincial governments in a severe bind. The existing CAIS program can’t cope with this kind of collapse. Providing money to compensate farmers for taking land out of production could be somewhat effective, but only if the United States, Europe and others joined in and they are unlikely to do so.
Shovelling money out of the federal treasury would certainly help and is necessary, but it won’t do anything to restore the health of commodity markets and bring crop prices back to realistic levels.

It can even cause future problems. High production subsidies in the U.S. and Europe are the cause of much of worldwide overproduction and collapsed prices. They have also made U.S. and European farmers dependent upon government cash and political whims.

But playing the Boy Scout won’t work either.

This is such a mess. Ottawa can and should ease the pain, but it can’t cure the disease.

The cure must come from Brussels and Washington, D.C., but the cure would inflict pain on their own farmers and it is unlikely they will rally the political will to do it.

This is shaping up to be a very bad year in the fields.