What's on your mind in 2005?
Inside the strategic priorities of some top Canadian producers.
In a more typical year, Gary Pike's members make modest adjustments to their farm business strategy. Following the ups and downs of an unusual 2004, however, they're considering their next move with even greater care.
Pike Management Group, a farm management and agri-coaching firm based in Lethbridge, Alta., serves large-scale producer members across Western Canada whose farming operations total 1.7 million acres. In working with these members on their 2005 plans, Pike felt that several trends in thinking were clearly evident among producers.
Learning to live with a robust dollar. Not long ago, the Canadian dollar traded well below 70 cents U.S. RBC Royal Bank expects the dollar to trade in the 80-cent range through 2005, with other economists seeing the loonie moving closer to 90 cents this year. For producers of U.S.-dollar-denominated commodities, a rising dollar means lower returns, a reality partly offset by lower prices for U.S.-made inputs and equipment.
"The Canadian dollar has not finished going up," says Pike, "and producers want to manage this currency risk at a higher level. They're looking at taking a position in the currency market."
Suddenly, the WTO matters. Years can go by before meaningful information emerges from World Trade Organization talks. Today, however, signs of change are evident and that has Pike's members taking notice.
"You're seeing real progress on reducing trade quotas in areas like textiles," says Pike.
"This is the first real move we've seen in ages, of any size. This gives us a higher degree of confidence that something will get done in agriculture in 2005."
If so, Pike and his members view it as generally good news for Canadian agriculture, since tradedistorting subsidies and tariffs effectively lower the price received by farmers for their crops. In the case of wheat, for example, Pike quotes a figure of $54 per tonne that's missing from world wheat prices due to international subsidies. Restoring that amount to farmers' incomes – as a WTO deal could do – might be just the tonic the industry needs.
More forward-pricing. At one time, the concept of selling a commodity before it was ready for market seemed unusual. No longer. In fact, Pike's members are planning to pre-price an ever-greater proportion of their production, as a way to manage price risk. "Right now, we're focused on having 30% of any crop sold before seeding," he says. "That figure could be heading to 50% this year and next."
Pike also expects that producers will access futures and options markets more and more. "As an industry, we're getting much better at risk management," he says. "Producers will use futures and options at a higher level for grains, oilseeds and livestock."
Getting to like CAIS. Pike reports that many of his members like what they see from the Canadian Agricultural Income Stabilization program (CAIS). So far, they're prepared to believe that CAIS could stick around awhile. Without having the CAIS tail wagging the business dog, they're now factoring in CAIS as part of their long-term risk management plans.
Rates uncertain? Spread the risk. Interest rates are expected to rise gradually in Canada during 2005. When and by how much is a subject of debate among economists.
"We see rates rising, but not at an accelerated level," says Pike. "We're encouraging producers to move their debt to multiple, staggered maturities."
Land will sell. Many of Pike's members bought land in the fall of 2004, and he's constantly fielding requests for analysis and advice about land purchases. "We're running more plans, and larger plans, than we've seen in many years," he says. "Many producers are using the problems of 2004 as an opportunity to take on more land and spread their fixed costs over more acres."
Wanted: answers on equipment. Is the ownership of high-capacity, expensive equipment a drag on farm profitability or a boon to it? Pike is conducting a detailed study on this for his members. What he knows for sure is that producers are looking for better ways to access the use of equipment.
"As large producers have grown and become more profit-oriented, they're considering sacrificing some of their equipment independence in order to get a better bottom line," says Pike. "They're looking more at sharing equipment, or even taking equity in large custom planting and harvest operations."
Above all, Pike believes, his members are looking to the future with confidence. Not content to sit back and take what comes, they're making plans to create the future they want. While some see only risk in agriculture, they see vast opportunity.
"When I speak with our producer members, their confidence is obvious," says Pike. "They know that with the right management, and the right scale, there's good money to be made in agriculture."
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