Stealth Like Change: 2012 Farm Environment Seems Surreal

SurrealThe agricultural economic winter of 2012 is like no other.  And I’m not talking about the weather.  Over the last little while I have had the opportunity to speak on the grain markets across Ontario.  I’ve got a bit of a trend going on.  Many farmers have come up to me after I delivered my address openly questioning the future.  It would seem that many of us have seen the present and for whatever reason, we think we’ve seen it before.

I have been talking about the grain markets over the last couple of weeks and have about 5 more speaking engagements within the next 2 weeks.  It will be interesting to see if the trend continues.  I have had several people come up to me and ask about farm real estate prices, interest rates and the lofty expectations of farmers under the age of 40.  I have found myself left to be looking into the crystal ball a little more than usual.

It is been a long journey reaching the ripe age of 53.  Of course your loyal scribe was 26 when I 1st penned this column.  Back in those days there was no ethanol demand, in fact demand was almost half of what it is today in the corn market.  The world was awash in supply and we were on the continuing cycle of trying to ride out the hills and valleys.  We were just coming off some of the highest interest rates in history. The 1st farm demand loan I ever had was at 23 1/4%.

When I say that during my speaking engagements it touches a nerve.  For instance I’ve had several people come up and tell me they paid the same interest rates, almost like it is a badge of honor.  The conversation soon turns into some of this $10,000/acre farmland, which is being traded in places like North Oxford County Ontario.  Many cash crop producers in that part of the world are losing their rental acres to dairy producers looking to put their cash into a tangible asset.  Add the super low interest rates into the mix and you get a combustible agricultural economy, which is buoyant beyond what we could’ve ever imagined.

For some of us I think it is difficult to adjust to.  I count myself in that group.  For instance I have led farm rallies on Parliament Hill as well as throughout Ontario farm country.  During those times we were faced with prices that were less than the cost of production.  We faced an uncertain future relying on a flawed government policy, which is even more flawed today.  So 6 years later, this new farming environment, in many ways seems surreal.

It was brought home to me again today when I was asked to speak next week at a producer meeting east of London Ontario.  Usually I am asked to speak about the grain markets or some type of economic happening.  This time I was asked to speak about why we are paying so much for land rental?

I was also questioned recently about the younger people in Ontario farm country. Specifically I was questioned about all the younger farmers at a recent planter clinic.  These guys were buying new planters with all the bells and whistles, guidance systems, etc.  There seemed to be no end to the optimism.  Meanwhile land was trading in the neighborhood at $11,000 an acre.

Phil, what do you think about this?  That’s the question I get.  Of course, I think, who the heck am I to answer it.  Then I started thinking that if interest rates go way up, it’ll be a disaster.  I could go on and on.

Despite those thoughts, sometimes I think I am all wrong.  Sometimes I feel that I am a captive of agricultural economic times in the rearview mirror.  Realizing that, maybe I should embrace these new agricultural economic realities without the memories of hard times in the past.  Or does history tell us, that we are doomed to repeat the failures of the past?

I find it a hard call.  For instance the old question I used to get about corn was whether to would get to $4.  The new question I get about corn is whether it will get to $7.  The interest rates I used to pay on the farm were double-digit plus, last week the Bank of Montréal made 5-year house mortgages available for less than 3%.  One farm property appraiser recently told me that he has never seen anything quite like it, with regard to farm sales.  The last time he saw it this way was in the late 1970s when land prices were exploding and agricultural optimism was everywhere.

We all know what happened then.  Interest rates exploded upward and the agricultural economic damage was tremendous.  Agricultural bankruptcies and farm failures were everywhere.

But for now in 2012 is it that time again?  Are some of us captives of agricultural economic times past?  Or should we be asking the question will these optimistic agricultural times last and get even better?  Are we on the cusp of something much bigger and better?  Do all those young people in agriculture, brimming with confidence have the right idea?

I dunno.  I hope all those young people have the right ideas.  I don’t want to be a naysayer.  As this winter of 2012 moves on, I’m sure I’ll hear a lot more of what farmers are truly thinking about.  It’s almost stealth like, but it’s happening.  Considering it has got me thinking overtime.

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