For some time I’ve been planning to write a column about how the global grain market is returning to the state of burdensome or near-burdensome supply which has been predominant for most years since about 1950 – notwithstanding so-called ‘expert’ opinion that this time it is “really different.” I remember hearing the same words from about 1973 through 1981, and then experiencing first-hand the price depression and damaging effects which occurred for both developed and developing world farmers during most of the 25 years which followed. Then I saw this recent editorial written by John Morriss, Associate Publisher/Editorial Director of the Manitoba Cooperator which said exactly what I wanted to say. So with his permission, I am republishing his column here. The only change I would make is that his reference should be to all Canadian grain farmers. Thanks, John.
The original column is at http://www.manitobacooperator.ca/2014/01/23/different-this-time-again/
Different this Time —Again
This line in a Reuters story last week certainly put things in focus. “Ukraine is likely to be the world’s second-largest grain exporter in the 2013-14 season with the shipment of more than 30 million tonnes, according to the U.S. Department of Agriculture.”
We’d seen the figures before, but considering that Ukraine and its former Soviet partners used to be Canada’s largest grain customer, putting it that way still comes as a bit of a jolt. At times in the 1980s, the Former Soviet Union was importing 50 million tonnes of grain a year. This year it will export that much.
The FSU’s massive entry into the world market and the “Great Grain Robbery” of 1972 sparked a price rise to unprecedented levels. The wheat price of $6 per bushel then equalled $27 today. The resulting prosperity sparked much optimism that good times were finally here, and here to stay. It was “different this time.”
Well, for a couple of years anyway, and soon things were back in the doldrums, with grain price wars and a series of ad hoc “Special Grains Payments” and programs with four-letter acronyms WGSA, GRIP, NISA, CAIS, etc. The doldrums were periodically interrupted by a short crop somewhere in the world, and then a brief price rally 1980, 1985 1993, 1996, 2006 and then in 2012-13.
During each of those blips we heard this “The world’s population is growing. It’s getting more affluent, so people will eat more meat. They aren’t making any more land.”
All true, to a point. But we’ve been hearing that same line in speeches for 40 years now, and those who were around will remember that in the 1960s and 1970s, the big concern was “feeding the starving millions” in India. That brings us to another bit of news from last week, which is that India’s wheat exports are at 6.5 million tonnes so far for this crop year, and there is plenty of room to export more.
And which country was the world’s largest beef exporter last year? India.
The latest variation on the, “It’s different this time” was that it was “a new paradigm,” accompanied by the statistic we’ve heard so many times in the last couple of years that the world has to double food production to feed nine billion people by 2050. That may or may not be true, but the Indian example shows that part of the goal will be met by countries feeding themselves.
A year ago at this time, crop farmers were in an upbeat mood, with a combination of a big crop and record (nominal) prices. Today, despite a record crop, the atmosphere is subdued at best. As we report this week, and which most farmers had figured out for themselves, Manitoba Agriculture’s production budgets show that the only major crop to “pencil out” this year is winter wheat, and it’s a bit late for that. Meanwhile crop farmers are in a cash flow crunch, with a combination of low prices, slow transportation and a wide basis. Imagine the pickle farmers would be in if they had a small or low-quality crop.
So it wasn’t different this time again, which raises the question of how farmers and the industry should react next time there’s a price spike which gets everyone excited about a “new paradigm.”
That’s a tough one. Those who are asked to give presentations at farm meetings don’t want to be a wet blanket, especially if they have something to sell or money to lend. “Now listen everyone, times are good now, but we know these price spikes always fizzle after a year or two, so you had better keep your money in your jeans.” Who wants to be the one to say that?
And who wants to raise some of the tough questions about where Western Canada fits in supplying future world grain demand? What if U.S. winter wheat yields, currently averaging under 40 bushels per acre, start to approach those in Europe, currently over 100 bushels? What if genetic modification allows European wheat to produce high protein?
Now that most Canadian exports are being handled by the same companies that operate in the Former Soviet Union, U.S., South America and Australia, what are the implications for Western Canada, especially since it has the highest transportation costs?
This is not to say that western Canadian farmers can’t adapt to future challenges, as they have done so well in the past. But they will be able to adapt much better if they have a long-term view which realistically considers their inherent strengths and weaknesses.
Farm organizations. particularly the ones emerging from changes to the wheat board, need to think about this, not just breeding for more yield. “The world is going to take every bushel we can produce” is no basis for an industry strategy. Next time that you hear that it’s different this time, remember it won’t be.