Diverging prospects for grain and cattle

A shift is occurring in farm economics. Grain price prospects have weakened substantially while cattle prices are some of the highest ever.

What can you realistically expect for a canola price in the fall? Based on the November futures, a cash price in the $15 a bushel range has been available for fall delivery. Historically, that’s still a pretty good value, but it’s come down a long way from earlier projections.

Just look at the crop insurance price for canola. It was set at $18.83 in Saskatchewan based on projections last December.

Let’s say your crop insurance yield guarantee on canola is 35 bushels an acre providing total coverage of $659 an acre. Assuming a market price for canola of $15 a bushel, you need to grow a 44 bushel per acre crop to have the same gross return.

In the regions where soil moisture is low and yield results look questionable, does the crop insurance coverage factor into fertilizer decisions? Crop insurance prices dramatically higher than market prices creates the potential for moral hazard. It feels like the bad old days when some producers farmed for crop insurance.

Only a small portion of the 2023 canola crop has been priced. Opportunities to lock in much higher prices through either deferred delivery or options contracts were largely ignored. We can hope for a price recovery, but that certainly hasn’t been the price direction for the past few months.

The ambitious plans for new canola crushing capacity point to a strong domestic demand in the years to come, but that doesn’t guarantee profitable prices to growers if the entire grain complex ratchets lower.

Many other crops have also lost their luster. Oats are in such oversupply that sales are being made into the feed market at bargain basement prices. Flax acres are going to be down dramatically because of disappointing price prospects. Mustard, which was a shining star for profitability has seen old and new crop prices tumble based on the expectation of a large increase in seeded acres.

The war in Ukraine which shocked grain prices more than a year ago is no longer a major market factor. Production problems exist in various regions of the world, but prospects look good elsewhere. Overall, the market seems destined for continued softening.

The opposite is true for cow-calf producers where price optimism is running high. Returns for too many years have been horrible for all the work and expense of raising cattle. While input costs remain very high, the profitability picture has improved substantially.

It’s been a long time since cattle were the shining star. Unfortunately, cow-calf production continues to be hampered by an ageing producer base and labour issues. Even with good profitability, it’s difficult to envision much of an increase in the breeding herd of Western Canada.

As for grain farmers, the days of astoundingly high grain prices may be over, at least for now. Fortunately, input costs have moderated on fertilizer as well as some of the other crop inputs.

Unfortunately, equipment costs are going the other direction. Whether it’s new equipment, used equipment or equipment parts and repairs, costs have skyrocketed. For new equipment, we’re now in the age of million dollar seeding outfits, tractors, sprayers and combines.

While no one can see the future, trends are a valuable indicator. At this point, the trend is tighter economics for grain producers and improved profitability in the cow-calf sector.