Submitted by: Tracy Myers, Eastern Valley Regional Communication Coordinator
It is no surprise that COVID-19 has sent the world into turmoil. Not only does this apply to our everyday existence, agricultural commodity markets have been hugely impacted as well. Making sense of this impact is not easy. It is, however, understandable, when we know the what if’s and why’s affecting these fluctuating markets.
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At a recent annual meeting, Philip Shaw, Agricultural Economist, provided some insights into why some of this turmoil may also be occurring in the commodity markets. Philip knows, first-hand, how this type of fluctuation can happen. Farming 865 acres of various crops near Dresden Ontario, he has witnessed the many ups and downs associated with the commodities.
One thing is constant in agriculture and that is change. Agricultural commodity prices play an important role in the production decisions of farmers, including the number of acres that are planted or the amount of land that is acquired or sold.
Selling grain on the foreign exchange vs. futures prices will involve a new way of pricing, and, going forward, may break beyond ranges that we are used to. We have to look at the value of the U.S. dollar and need to implement a balance. In other words, a lower U.S. dollar is good for Canadian grain prices. Many crop producers were hesitant during the pandemic, to plant more acreage, not knowing what the markets would yield. It seems, however, that there is a potential for big 2021 crops and that supply and demand is tight. Are we at new levels for a while? No one really knows, yet future spreads are inverted right now with high prices being paid for old beans.
History has shown that change in the values of Canadian farmland is directly impacted by farmgate returns, interest rates and exchange rates. COVID-19 reduced some crop returns, which directly impacts the value of farmland. Commodity markets work in a similar fashion, although the pandemic did not seem to alter returns in a way that was expected. Ontario producers did not vary drastically in the acreage of crops planted and the demand for product did not vary substantially from the previous year.
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Philip stressed that we cannot be sure of anything at all. There is much variability in the markets. No one really knows what the prices will do, but currently they are high. As with anything, we have to weigh the positive aspects with the negative. In the positive column we can see that the lower Canadian dollar combined with low interest rates may work to our advantage. On the other hand, COVID-19, high prices and rationing demand could put us at a disadvantage.
The best advice that we can take is to measure our own farm risk management protocol and decide what is best for our individual farm circumstances.
“Agriculture is the most healthful, most useful and most noble employment of man.” George Washington
If we can remember this during these uncertain times, we will most certainly weather the storm of fluctuating markets.