Falling crop prices and sky-high fuel and fertilizer costs combine to hammer growers. 'It's just a huge squeeze' PAUL WALDIE
October 13, 2008
David Start was keeping a wary eye on wheat prices as he planted his winter wheat crop last week on his farm near Woodbridge, Ont.
He's already paid for fuel and fertilizer - all he needs now is a decent price for his crop. For months, that wasn't a concern, because prices for wheat and other grains hit record levels on commodity exchanges. But all that has changed.
The global financial turmoil that has roiled stock markets has also torn through the commodity markets, pummelling the price of wheat and other food products.
On Friday alone, the price of corn and soybeans dropped 7 per cent on the Chicago Mercantile Exchange to $4.08 (U.S.) and $9.10 a bushel, respectively. Both are down more than 40 per cent since hitting record highs in July. Wheat closed at $5.69 a bushel, down nearly 60 per cent from its high last February, and the price of canola has been cut by about 40 per cent in just a few months to $414.40 (Canadian) a tonne.
Meanwhile, the cost of fuel is still about double that of last year and some fertilizer prices have nearly tripled. And because grain prices were so high earlier in the year, farmers around the world planted record crops. That is expected to push prices even lower once everything is harvested. Last week, the United States Department of Agriculture said global wheat inventories will be 21 per cent higher this year.
"It's just a huge squeeze," said Mr. Start.
Manitoba farmer Ian Wishart said the credit squeeze hurting many big companies has also hit farmers. Many bought fertilizer for next year's crop during the summer, much earlier than usual, because they were worried the price would be higher after harvest. Even then, some farmers saw their fertilizer bills double, some to well over $100,000. Finding that amount of money in the middle of summer wasn't easy, Mr. Wishart said.
"There are a few guys who have had trouble getting access to extra credit," said Mr. Wishart, who grows canola, peas and corn on his farm near Portage la Prairie, Man. "I've talked to a few guys where the banks have said, 'You have your line of credit, that's all you are getting.' "
Mike Wilson, chief executive officer of Calgary-based Agrium Inc., a major fertilizer company, acknowledged in an interview last week that "there will be a few people with some credit issues." But he said farmers are "making a lot of money this year. The farmer is going to come out of the year quite healthy."
Farmers aren't alone in confronting the new reality in agriculture markets. The Canadian Wheat Board, which sells most of the wheat and barley grown in Canada, recently cut its outlook for the price it expects to get this year.
"Recent extraordinary events are creating high levels of volatility and uncertainty in all markets," the Winnipeg-based board said in an update last month. "These conditions are expected to take some time to stabilize and have the potential to significantly impact overall pool returns."
Bruce Burnett, CWB's director of market analysis, said price volatility and credit issues have caused some buyers to hold off on purchases. "They are just waiting to see how far prices will go down," he said.
He added that these are tricky times for farmers who are trying to figure out what to plant next year.
"Farmers are very wary right now about what kind of crops they are going to plant and what kind of risk they are going to take forward," Mr. Burnett said. Prices are getting down to levels "where farmers are going to find it difficult to make money."
Ian McCreary, a Saskatchewan farmer, said the credit squeeze has meant that some small trading firms, companies that buy and sell crops such as peas and lentils, have been forced to delay payments to farmers. "What they are saying right now is movement has been slowed by credit issues," Mr. McCreary said.
The drop in grain prices is having an impact on everyone's planning for 2009, he added. "People are looking at next year's crop, saying this is going to be a tight margin situation," he said.
