A tighter future cash flow for many producers
Usually at the end of the harvest, you can multiply your production by the expected prices and match the income to any upcoming expenses as you prepare for the next growing season.
This year, especially for the large percentage of producers severely affected by drought, it is not that simple.
Cereal prices have been very volatile. The value of what’s in your bins changes dramatically from week to week.
Many producers are faced with buyback contracts because they do not have enough production to meet their obligations. On some of these contracts, the buyout may still be pending and may be a moving target.
Crop insurance will be an important source of income for thousands of western Canadian farmers. Producers can estimate their claims, but that money has not yet been released. Programs are overwhelmed by the volume of complaints.
Reports indicate that less than half of eligible producers are registered with AgriStability. For those who are registered, this could be a year of large payments, but the levels and timing of payments are difficult to predict. It has never been a bankable program.
For producers enrolled in Global Ag Risk Solutions, a private margin insurance program, the support is more bankable and can be estimated in advance, but a lot of math and documentation is required to arrive at the final number.
For these reasons, the revenue side of cash flow planning, both amount and schedule, is considerably more cloudy and fluid than normal. Meanwhile, the expense side of the equation gets more and more frightening every week.
Fall and early winter are usually the cheapest fertilizers. Buying well before the spring rush saves eight or nine out of 10 years. This year, fertilizer prices have remained high after seeding and have gradually increased. In recent months, the price increases have been significant.
It may still be a better time to buy than spring, but at this point growers have priced a minimum amount of their fertilizer needs for 2022. Many want to see the results of their soil tests to find out how much residual nutrients are left in the soil after a year of drought. It has become difficult to know what to plan for next season’s fertilizer expenses.
Another issue is the cost of seeds. When it comes to grains and pulses, most growers rely on tub seed unless they are updating the varieties. In some cases, the meager amount harvested may not be suitable for the seed. In other cases, the contractual obligation on a particular crop may exceed the quantity harvested, leaving nothing for the seeds.
The prices of seeds are naturally higher than the prices of raw materials and the prices of raw materials are very high. When basic flax is priced at $ 40 per bushel, the price of flax for seed must be considerably higher.
Interestingly, the price of canola seeds will be less shocked than usual. Produced under irrigation in southern Alberta, hybrid canola seed is likely to experience much less price appreciation than other grains, oilseeds and special crops.
Overall, the cash flow situation next spring will vary considerably from region to region and even farm to farm. As the cash flow becomes clearer, things won’t be good for some.
It is arguably safe to say that many producers will seek an increase in their operating loans.
Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by email at [email protected]