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The last few years have been
extremely positive for the grain
sector, but now there’s a new
Grain prices have dropped significantly
since the summer, and there is
no indication that they will rally
soon. Projected crop returns for this
year are much lower than desired,
with some crops projected to have
negative returns for the first time in
At the same time, land prices and
rent have rapidly increased to historical
highs, and the high grain
prices of the past led many producers
to make significant investments in
their operations. Some borrowed
substantial amounts to make these
Having made these long-term
investments based on short-term
prices, these producers are now
faced with having to pay back loans
with significantly less cash flowing
into the business.
In light of these changes, grain producers
need to start playing defence.
If farmers want to weather this period,
they need to start planning now
how they’re going to do that.
If you are in this situation, the first
thing to do is a good old-fashioned
reality check. Take a close look at
what’s happening inside and outside
of your operation so that you know where you stand. This may be
uncomfortable, but discomfort is a
clear sign that it is something that
must be done immediately.
Look at your external situation.
Farmers sell into commodity markets,
and sometimes there are periods
when they are forced to sell for a
loss. That is simply how commodity
Take the time now to look at the
commodities you produce and the
factors influencing their markets. Is
there relief in sight or do you need to
work with the current price levels for
the next few years?
Next, look at your internal situation.
Do an annual projection, including
all fixed expenses, to determine
your cost of production and
cash requirement to run the farm this
If it is showing negative returns
and negative cash flow, you need to
think about the implications and
understand the magnitude of the
Do you have the equity and cash
resources to handle the losses? If not,
it’s time to start looking at what you
can change in your operation to keep
Once you have a clear picture of the
reality of your situation, including a
strong understanding of the fundamentals
of your markets, you can
start planning how you are going to
As every producer knows, markets
dip and eventually come up again. By
actively managing the farm and making
the right decisions for the new
reality, producers can mitigate the
impacts of today’s lower grain prices
and position themselves for success
when prices rise again.
This article was origianlly published in the Western Producer on January 30, 2014.
Related Topics:Primary Producers; Farmers
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