by Terry Daynard

(The views expressed below are those of the author, and not official OCPA policy)

As virtually every reader of the Ontario Corn Producer knows by now, global and Canadian grain prices have been depressed in recent years by the effects of U.S. grain subsidies. A recent Agriculture and Agri-Food Canada study estimates the effect at more than $25/tonne (above 60¢/bushel). Canadian grain growers are fully justified in asking governments - federal and provincial - to offset this loss, to restore a level playing field between U.S. and Canadian support programs. An enhanced Market Revenue Insurance program is the vehicle for doing so in Ontario. If this additional support is provided, it will relieve the short-term financial stress for many farmers. But it is also critical that growers look at the longer-term picture.

Graph 1 shows average annual Ontario corn prices since 1950. The red markers show prices per bushel in current dollars, which have trended upward for 50 years. But more important are the green markers, which are the same prices converted to 2001 dollars (adjusted for changes in the Consumer Price Index). The line of best fit show real prices to be declining at about 2% per year.

The line of best fit projects a price of about $3.50/bu in 2001/02. Calculations over the period since 1914 (not shown here, but available on OCPA web site, www.ontariocorn.org/trends.html) suggest a 2001/02 trend-projected price of about $4/bushel.

However, the critical point is not the precise price estimate or formula for the curve. Indeed, there is no agronomic or economic reason why prices should follow the same smooth curve over many successive decades.

The key point is that real prices are going down. And given the steady improvement in technology, stable human populations (and food demand) in the developed world and a surge in grain and oilseed production in other countries outside North America and Western Europe, there is no reason to expect the direction of the price-trend line to change.

True, low prices have been offset in part by higher yields. Graph 2 shows average Ontario corn yields since 1950. The rate of increase is about 1.3 bu/acre/year, or about 1.1% of the 120 bu/acre trend-line-average yield for 2001. While Graph 2 may underestimate the rate of increase for a given farm (the average acre of grain corn was in Kent County in 1950, but about 200-400 heat units further north and east in 2001), the pattern is still clear - average yields are increasing at only about half the rate that real prices are dropping.

What you should expect in 10 years, based on the two graphs, is an Ontario average yield of about 133 bu/acre, and a price $2.80 to $3.20/bu in 2001 currency. This ignores any short-term deviations which might be caused by U.S./EU government policies (see, for example, below-trend prices in most years since 1985) or poor global crops (1983, 1988 and 1995/96 are examples).

While these graphs are for corn, very similar patterns exist for other major crops - indeed, for most major farm commodities.

So what does this mean for future profitability for cash-crop farmers growing corn and other principal crops? To me, it says several things and suggests several options:

First, the graphs offer bleak prospects for full-time farmers who expect better days ahead growing commodity-grade crops on the same acreage base - even if they stay ‘even with the pack’ in rate of adoption of new technology.

The graphs say that the treadmill of continually attempting to reduce per-bushel costs of production, through the use of improved technology and superior management, will continue.

Superior marketing skills will mean prices above the average trend line for individual growers. The same applies for provincial market development strategies (e.g., increased domestic processing of Ontario-grown grains) which improve the average Ontario price basis. But neither changes the long-term trend to lower real crop prices.

Better input-purchasing skills may be equally important. Some Ontario farmers have long used ‘buying clubs’ as a means of securing large-volume discounts. The same approach could be used to reduce the cost of purchased services.

There are other options: one of these is larger farm sizes. As margins decrease, skilled managers capable of overseeing large-scale operations will offset reduced per-acre margins with more acres. This requires superior skills - self-trained or hired - for the management of labour, machinery, crops, pests and soils. In reality, this is merely the extension of a trend to larger farm acreages which has existed for many years.

Another option is value-added production. This includes livestock production, although it has the downside of linking farm income to other farm commodities which also have long-term downward trends in real prices, plus public hostility to increases in livestock farm sizes as a means of offsetting decreases in per-unit margins.

But there are other value-added opportunities. Some involve contract production of superior ‘identity-preserved’ crops. Granted, contract premiums are usually linked to commercial grain prices - i.e., prices which trend downward in real value with time - and the size of the premiums themselves can decrease over time, as more and more growers discover and compete for these income-boosting benefits. But premiums still usually mean more revenue per acre than no premiums. And declining premiums for established speciality crops as they become widely grown, simply mean that the search must continue for newer opportunities to enhance cash-flow by producing unique crops with special quality traits. It means staying ahead of the pack.

The best opportunities may involve crops or crop products marketed directly to consumers - especially for products for which the market is specialized and not as easily exploited. Anna Bragg, former president of OCPA, and her business partners, Barry and Mark, decided several years ago that the future looked bleak for an 800-acre operation growing traditional crops. As a result, they specialized in producing specialized bird-seed products, with an emphasis on quality. They specialized in feed products for carrier pigeons - spent time meeting customers and understanding their needs - and now have a continental market and an established reputation among pigeon breeders. But that corn consists of specialty hybrids grown just for this purpose, and mixed with many other types of seeds to meet customer needs. The corn is also triple-cleaned.

This is not a market opportunity for hundreds of Ontario farmers. The Braggs and a few competitors fill the niche. But there are many dozens of niche opportunities like it. They require imagination, planning, risk-taking and perseverance - especially the latter. And they do represent opportunity for enhanced profitability on limited acreages.

Organic agriculture represents a similar niche, though it’s a fickle market and easily saturated. Just like many other niches.

There’s also the opportunity for further processing, possibly in cooperation with other farmers to provide the capital and scale of production needed. New generation co-ops are providing enhanced income for many U.S. Midwest farmers, and economic losses for others. The same opportunities for profit and failure exist here in Ontario.

As for the farmer who does not want to expand, diversify and/or procure (by training or contracting) new marketing, purchasing and/or technological skills, there appear to be only two options - retirement from farming, or off-farm supplemental income. Jerry Wismer, former OCPA director for Essex County, says that when he graduated from Ridgetown College during the 1960s, the average full-time Essex cash-cropper farmed 200 acres. Now, most 200-acre farmers work off the farm, or are partially retired. Will the same apply in the near future for 500-acre cash croppers whose family income depends mainly on the production of corn, soybeans and wheat, or related grain and oilseed crops?

Some would suggest that there’s another option. That ‘society’ will pay farmers more money in the future - through government cheques or increased food prices - to grow food and provide other ‘multi-functional’ services (maintain the landscape, manage the environment, etc.). Though there is little sign in Canada in 2002 of governments wanting to increase taxes to pay more to farmers, or of most consumers wanting to pay more for basic foods (they will pay more for convenience and variety), it is possible that attitudes might change. Miracles do happen. But don’t bet the farm on it.

Bottom line: What’s the best guide to what lies ahead? Take another look at Graphs 1 and 2. Plan accordingly.

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