The Need to Diversify - Now

A medium-sized family grain farm without a strategy to diversify out of canola, wheat, corn and soybeans is facing long-term, deep financial risks.

Background

Grain marketing works differently now than it used to. In previous generations, western Canadian grain farming businesses were wholly price-takers, beholden to a small number of local elevators and brokers (and until 2012, the Canadian Wheat Board (CWB) marketing monopoly), to turn production into revenues.

‘Marketing’ is the process of turning a business’s production into revenues. On a diversified farm operation today, there are a lot more of new revenue-generating options.

In the past decade, following the end of the CWB monopoly, new private grain company investment flooded into western Canada creating ample competition for commodity grain. At the same time, domestic biofuel policies established solid new demand for corn, soybeans, wheat and canola.

As a result of these dynamics, and a few shocks like Covid and climate-related weather disruptions, commodity grain production saw windfall profits for a few years. But along the way, grain company margins turned negative, the railways doubled export market rates, repeated eruptions in global insecurity and disruptions to trade, have outpriced grain exports from the world’s most important import markets.

Looking Ahead

No one can predict the future, and it is human nature to avoid change, but let’s assume for a moment that current commodity farm marketing dynamics are here to stay for a while, say a political term or two. In other words, that:

• Farmland values and interest rates will remain elevated;

• Synthetic chemical-based crop input prices will continue to rise; and

• Cash bids for commodity grain will remain depressed for longer than today’s family grain farms can remain solvent.

No matter how much money the canola industry can throw at lobbying for a bailout, it remains true that Canada is in an asymmetrical trading relationship with the U.S. and China and facing prohibitive tariffs. Not unlike the auto industry, the government has to face some tough tradeoffs.

With political economists noodling sacrificing supply management to restore trade access to the U.S., industry stakeholders in every sector need to think in new and different ways about Canadian agriculture policy. If indeed cash bids remain depressed for longer than family grain farms can remain solvent, and there’s no federal bailout or restored export market access, then what?

Conclusion

The question is actually this: if not from grain companies, how and where can family grain farms generate improved margins and stay afloat? Sadly, many farmers don’t know where else to turn following multiple generations of marketing monocrops into the bulk export handling system.

Prairie Routes’ farm advisory business exists to help farmers out of the corner that industrial agriculture has them painted into. Typically, our clients have already figured out how to replace biological substitutes for most expensive synthetic crop inputs, lowering the burden of operating expenses considerably.

Many have also already reintegrated rotational grazing into their crop rotations, another strategy that immediately qualifies farms for new grant program payments, not to mention the strongest commodity cash beef prices on record.

Next Steps

Let’s be honest - most farms have a gap to fill somewhere in their business. There are opportunities right now to improve cash flow management, stabilize team dynamics, plan for long-term financial stability, and have more fun faming.

If you’re determined to keep farming profitably, but not sure where to start, just reach out to Ty Sylvester, Prairie Routes’ new Business Development Manager to learn more. We’ve built a team of professional experts to transfer knowledge to farm clients in marketing, HR, succession planning and financial forecasting.