Winnipeg Free Press - PRINT EDITION

Food for thought as farm commodity prices fall

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The meteoric rise of Twitter's stock price must be a little galling to farmers who have watched farm commodity markets fall like a stone as reports of this year's bumper crops here and elsewhere keep rolling in.

How is it that the microblogging medium built around delivering short bursts of inconsequential information could attract $25 billion in its initial stock offering when it hasn't turned a profit -- not even once -- since it was formed seven years ago? In fact, it declared a $70-million loss in its most recent quarterly report.

You can't see Twitter, you can't hold it, you can't make it into something else and you certainly can't eat it. If tweets disappeared tomorrow, life would go on as usual, except for the 230 million users worldwide who get a buzz from sharing random thoughts and observations on the 21st century equivalent of the telephone party line.

Unlike tweets, food is tangible. We need it to survive. Yet its intrinsic value bears little relation to the vagaries of the marketplace.

It's not easy running a business when expenses continue to rise and the value of what you produce can plummet from one year to the next --just because farmers collectively pulled off a good crop.

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Last year at this time, Minneapolis wheat futures were almost $9 per bushel. This week, they were around $7, a drop of 22 per cent. Canola futures are down 15 per cent and corn has nosedived more than 40 per cent.

Dan Basse, president of AgResource Co., recently showed a Winnipeg outlook conference data indicating returns per acre for corn in the U.S. could fall from a high of about $420 in 2011-2012 to about $30 in 2013, less than farmers received 20 years ago.

Basse said historically high crop commodity prices have drawn an additional 72 million hectares of land worldwide into production in the past decade. Much of that increase is in South America, the former Soviet Union, Africa and Asia.

OK, so high prices encourage farmers to produce more. That's to be expected. But unlike manufacturing, where the assembly line can be tweaked or even turned off if the market signals oversupply, no one is expecting that extra production to cease now that stocks have rebuilt and prices are backing off.

It seems counterintuitive, but farmers react to low prices with more production, looking to yield to make up the difference.

Also weighing on prices is a drop in demand. Forget the rhetoric flying around about the world's insatiable demand. Last year's corn shortage sent livestock feed costs soaring, prompting meat producers to downsize their herds. They don't rebuild overnight, and they may not rebuild at all as aging baby boomers consume less meat.

Demand for ethanol is also tapering off, partly because U.S. consumers are driving less and partly because they are gradually abandoning gas-guzzling vehicles.

In a rare divergence from historic market trends, wheat prices haven't fallen as far as corn, but that too could be short-lived. Corn prices are so low U.S. farmers are looking at sowing more wheat for the first time in decades.

And what good is a bumper crop if it has nowhere to go? While last year's crop moved to market with few hiccups, we're only a few months into the shipping season and a shortage of railway capacity has plugged the handling system.

More production only adds up to one thing in farming -- slimmer margins. Some would say that's a good thing; it explains why farmers tend to be fanatical about anything that promises to increase their production efficiency.

But as much as farmers are the butt of jokes for whining about their lot, sometimes they're entitled.

A factory manager that boosts production is likely to get a bonus. A "plant" manager who produces more ends up with a pay cut. That's some reward for a job well done.

Laura Rance is editor of the Manitoba Co-operator. She can be reached at

204-792-4382 or by email at laura@fbcpublishing.com.

Republished from the Winnipeg Free Press print edition November 16, 2013 B11

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