By Toban Dyck, Burr Forest Group and Lyle Wiens, IntelliFARM
Pulse Beat 96, Fall/Winter 2022
I’D LIKE TO introduce you to Lyle Wiens. He lives and works in southern Manitoba as a marketing advisor with IntelliFARM. He is no stranger to farming. He was raised on a farm, where he worked and gathered insights into the unique business that is primary agriculture in Canada. He understands the financial stresses and considerations of running a farming operation. He understands the family conflicts that such duress can create. He understands global commodity markets. And he has a clear grasp of the many other nuances that affect how we, as farmers, make financial decisions and/or find ourselves in financial predicaments. He gets it. I know him and I can vouch for this.
I asked Lyle to walk Pulse Beat readers through the wild and irrational year that was 2022. He did that in his write-up below, but he also went the extra mile and gave us some insight into how he sees 2023 playing out.
Side note: Lyle Wiens is also an expert fabricator and makes custom bicycles under the banner LT Wiens Fabrications.
The world of marketing is a scary and confusing one, especially right now. Wars, COVID lockdowns in China, rising interest rates, inflation, government policy and a looming recession are just a few of the things muddying the waters. I don’t like the word unprecedented, because my memory is unreliable and I’m not nearly old enough to have the experience needed to use it. But, cliché or not, it is a word many use to describe the world today, and it certainly seems like a suitable descriptor.
As a marketing advisor, I am regularly asked to make sense of the markets and predict where they’re headed. I sympathise with the people asking this question, because I, too, would like an answer. Unfortunately, I can’t say with any certainty where exactly the markets are going. All I can do is offer a little insight.
The last two years have given farmers a crack at what may be once-in-a lifetime prices for their crops. After years of slim margins for farmers, prices climbed so much in 2021 that revenues per acre grew exponentially. Many of you have just experienced the most profitable year your farm has ever had. I am sceptical about these prices and I don’t think they are here to stay. In other words, and to dump a bucket of cold water on some of your hopes, I don’t think the high prices we see today will become the new normal.
While the last year has been good for commodity prices, we’ve also witnessed farm expenses increase. Inflation continues to ramp up, and with it, the cost of just about everything. Interest rates are climbing in order to reign in inflation and it doesn’t appear they’ll be slowing down any time soon. I heard one analyst predict that interest rates will have to climb above the rate of inflation before they stop – close to 9 per cent using today’s rate of inflation. Equipment, land rent, crop insurance, fertilizer and labour costs are all on the rise, too.
As of today, prices are high and holding, and expenses are on the rise. Another thing we can safely assume is that expenses aren’t going to decrease anytime soon. We don’t know what commodity prices will do, but we do know they have the potential to drop and, at some point, they likely will.
So what should you do as a farm business owner? You should hedge for a future of higher expenses and commodity prices that may drop by locking in profits right now. Forward sell some of next year’s crop and/or use a hedging tool like an option, as well. You have an opportunity to sell grain for the 2023 crop year at VERY high prices. Don’t miss out.
Consider these scenarios:
- You choose to not sell anything today and prices go lower in the future.
- You choose to not sell anything today and prices go higher in the future.
- You choose to sell some crop today and prices go lower in the future.
- You choose to sell some crop today and prices go higher in the future.
In which scenario are you most upset? Believe it or not, my clients usually pick scenario 1 and not scenario 4.