Managing Scarcity: Perspectives Change and So Must We

Wburg Protest 510     With age you get perspective.  That’s a nice way of putting it; a lot of other people might put it a little bit differently.  Needless to say, when I started writing this column every week for the last 29 years, my perspective was quite different.  I don’t plant corn the way I used to.  In fact, I plant it much more efficiently.  However, the world has changed and over time perspective can be a real asset.

I say that for a number of reasons, but always thru an agricultural economic lens.  With commodity prices currently at very low levels, it harkens back to many other times in my career when I have planted based on hope.  Yes, I have said many times that hope is not a risk management plan.  Needless to say, when interest rates were over 20% in my younger days you had to have hope just to keep going.  Thankfully, those days have never returned and in fact, may never again.

I actually marvel at the new things I have on my farm to help me gain even greater efficiency.  I have auto steer on everything and I use variable-rate technology for my fertilizer.  I always look at new technology as a way to drive down costs.  It can also be a way to the future.  However, it doesn’t matter whether it’s 2015 or 1986, if something doesn’t pay, then the agricultural economics tell you it makes no sense.

Essentially, agricultural economics is managing scarcity in the agricultural realm. On the farm that is very easy to understand.  When I look at my farming operation in 2015 I have to manage it within a finite budget.  In fact, many of the pieces of equipment I have are all based on managing scarcity through the years.  Of course, one of the greatest factors on Canadian farms has been managing the scarcity of capital through the years. However, in 2015 with interest rates so low I rarely see capital mentioned as a hindrance to farm growth any longer.

There are reasons for that.  Of course, the biggest reason that scarce capital is not as much as hindrance as it used to be is because money is so cheap.  Capital is not scarce on the farm.   The nearby corn futures month is $3.62 a bushel.  If interest rates were double-digit or 20% like they were earlier in my career, that futures price would be a farm killer.  Today, we do not hear as much about that because in many cases farm debt, although enormous is almost a nuance because of low-cost capital.

Earlier in my career you could always point to Canadian banks as the bad guys, especially when it came to calling in loans.  Now in 2015 interest rates have become so low that the spread between what banks are taking in versus lending out is not as healthy as it once was.  So banks are increasing fees on the most bizarre things to keep their profits healthy.  For those of us who lived through the era of high interest rates, it is such a culture change.  Ditto for on line banking and depositing cheques via a picture from an iPad.   Learning to adapt in this environment continues to challenge me.

Of course we all want to be successful.  I’m included in that for sure.  Being successful in this low interest rate era has taken a different type of management.  I missed part of that.  For instance, I never saw farmland prices going as high as they have, but in the rearview mirror some of it makes sense especially in a low interest rate environment.  Add new technology to the mix and the successful operator in 2015 and beyond will have to be much more adept on striking the right balance between acquiring assets and paying down debt.

I say that because experience gives you perspective.  Over a career, I like to think that I’ve seen about everything happen to me on the farm.  I’ve had too much rain, too much drought, too much frost, too much disease, too much bad luck and at the same time some really good fortune.  Agriculture is cyclical and the last five years have been tremendous for many crop producers.  Of course the question is will the uneven times of the past come back to challenge our management like they have many times before?

From my perspective there is no doubt, but it might not be imminent.  When I started farming there was no Internet, guidance was something you had in high school and eight track tapes were the rage.  In 2015, you fill in the blanks.  The big issue this past year was bees not crop prices dropping 50%. In the world of cheap money, I guess you can get away with that.  Perspectives change and so must we.

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