Diversify for Resiliency

Heading into the 2024 growing season, farm margins for conventional commodity crops face bleak prospects. Long-term growth strategies for success must create diversity and natural resiliency.

Managing farmlands profitably depends on many economic influences, like:

• Interest rates

• Commodity prices

• Input costs

• Land and equipment values

All of these are shapeshifting for the worse for grain farmers right now. Cycles – while never precise timing indicators – are one of the most reliable indicators in market forecasting… suggesting 2-3 more bad years ahead.

Today we consider several different perspectives on planning into a cycle of weakness, for a traditional grain farm. In western Canada, competing with Hutterites and investors to chase operational efficiencies is no longer economically viable for family farms.

Current Economic Context

Today’s farmers have enjoyed low interest rates and rising land prices for the past several decades. It kept coming up in yesterday’s webinar featuring Fractal, and a strong showing of U.S. farm advisory professionals, that future farm management decisions are going to matter a lot more in the absence of that fallback on equity and cheap money.

Interest rates are up sharply, and expected to move higher yet in the years ahead. Grain prices continue to tumble, while world supplies build and demand wanes within entrenched trends.

Between 2020-2022, commodity markets were buoyed by surprise influences like the pandemic and the Russia/Ukraine war. In 2023, with the infrequent exception of some weather-related scares, markets ground steadily lower.

Looking ahead now, all of the potentially bullish news has been factored into current prices, and the remainder of influences are bearish. The immediate cause of panic for a grain farm today might be unsold inventories, but the real test of resiliency will be its strategic business growth plan for the next 3-5 years.

Calling It: Economies of Scale are Over

In light of all the shifting economic influences on farmland management decisions, said 3-5 year plan must take into account new revenue streams. Otherwise, i.e. for farms planning to keep doing what they’ve always done, projections should include increased taxes, market price discounts, and other unsustainable financial penalties.