When I start my tractor up every spring there is always great anticipation of what is before me. Of course, when I put it away in the late fall, it’s not quite the same. I have often said farmers are the great riverboat gamblers, throwing all kinds of money into the soil come spring and hoping something happens. 2012 was surely the quintessential year with regard to that risk management paradigm. Who knew we’d have the worst drought in modern American history.
Of course that was the biggest story of 2012 and for those of us who had tremendous crops this year, it was a very good thing. At the same time it changed the supply paradigm all across the world. Around the world, where they could grow corn, they are growing more of it now. Our South American friends are ramping up production like no tomorrow. Be careful what you wish for. When the US agricultural economy gets hit, it comes back to bite you long-term. That, in essence, is what the 2012 drought did. It caused much short-term pain but there will be long term ramifications for agricultural supply and demand in the future.
I think we’ve heard just about enough about it. Yes, it was the worst disaster to hit the supply side of the grain equation in years. However, it’s all history now and it is time to shift gears for 2013 and beyond. It is likely that we will have a complete recovery in grain stocks this year. Think about what Brazil and Argentina are doing right now. Think about what North American farmers are going to produce this year. Over 14 billion bushels of corn is not out of the question. There are completely new fundamentals in new crop grains. The January 11th USDA report will surely give us a road map for what is ahead in the new year.
There were also quite a few of other things that happened in 2012 which may manifest themselves into 2013 and beyond. Increasingly, there is a debate within Canadian supply managed circles regarding the expansion of the industry. This is completely different than criticism from the outside by those who do not like supply management. I’m talking about the debate among quota holders who want to produce more milk and are unable to under the current rules. Or, let’s put it another way, maybe not fast enough under the current rules.
I don’t like to take sides in the debate, mainly because I don’t have any skin in the game. I do think it’s important to realize that there is a movement for change on both sides of debate. It just so happens that I believe our federal government is actively wanting to be engaged in the transpacific free-trade debate and the price for that is a more open supply managed sector in Canada. I do believe that having an agriculture minister from Western Canada makes this more real. I do not believe he has an appreciation for how much it means to Eastern Canadian agriculture.
Will all of this come to fruition in 2013? I don’t think so, but you never know. In Ontario in 2013 we will be facing another provincial election with every politician lining up behind supply management. On the other side of the ledger you will have the federal minister who is saying the same thing, but I believe does not have political support for that at the federal level. When you combine this issue with the debate within the industry internally, it’s pretty obvious to me that change will be coming to the Canadian supply management system.
In 2012 the ground continues to shift underneath Canadian agriculture. What I’m talking about is the increase in farmland values over the year. In places in southern Ontario you actually had farmland trade for over $20,000 per acre. Farmland prices are running from about $7000 an acre to over $20,000 in areas where there is strong competition from farmers in the Canadian supply managed arena. Usually, this type of buying activity ends badly, but this time around its mostly cash-based offers, which makes it very different from the bad times in the 1980s.
So as we go into 2013, we do so with some game changing economic events in the short-term rearview mirror. How they will continue to manifest themselves in 2013 is a mugs game. US Federal Reserve chair Ben Bernanke has promised not to raise interest rates, but at the same time the US economy is showing life in front of the fiscal cliff. Odds are we will avoid the big agricultural production pitfalls of 2012. Odds are we’ll have a much bigger crop in 2013 then we did last year. Odds are, we’ll all be optimistic when we pull the tractor out of the barn in the spring.
That’s our nature. I haven’t even talked about the ” unexpected Tuesday” which may rear its ugly head. Of course this is farming and that’s how we roll. 2013, in many ways is just another year.