YORKTON - The year ahead is likely to be one where farmers need to be cautious and yet still be ready to react when they see opportunities.
That was the message from Brad Magnusson of Magnusson Consulting Group who will be hosting a webinar Tuesday. Feb. 1, Ag Outlook 2022 – Thriving on Chaos sponsored by Cornerstone Credit Union.
In a telephone interview Magnusson, who has spent the last 35 plus years working with producers and businesses to create strategic business strategies that enhance profitability, said farmers are certainly facing higher input costs.
“Absolutely input costs have really gone up,” said Magnusson who has spent his working career providing global agricultural analysis and market intelligence.
But, there are reasons for the higher costs. In particular Magnusson pointed to nitrogen fertilizer which has risen in costs in-part because natural gas prices have also climbed and natural gas is a key input for fertilizer.
Then in 2021 and into 2022 farmers in the United States have been “very, very profitable” based on a big corn crop and very high prices.
“When there are high prices in commodities the supply companies also want to raise their prices,” said Magnusson.
The real issue for Canadian farmers is that their 2021 crop was not a good one with drought conditions leading to “a poor crop,” said Magnusson, so they have not enjoyed the high revenues American producers did, but are now faced with higher input costs in part driven by U/S. profitability.
So will the high returns hold through 2022 for grains and oilseeds?
Magnusson doubts it.
“I think it’s going to be very difficult to maintain January 2022 prices across the board,” he said.
Magnusson said on the price side it will be a bit of a “wait and see” scenario, noting if weather hurts yields again prices may hold, but if the crop is more normal, or even better than normal, prices are likely to drop.
“Weather is going to determine what prices are going to be,” he said.
With prices potentially dropping that could be a signal to forward price some 2022 crop to capture good prices today. However, farmers might be a bit shy about doing that since poor yields in 2021 had many scrambling to fulfill their contracts.
Magnusson said producers firstly need “to understand ... they did nothing wrong,” in forward pricing crop in 2021, adding “we’re always telling producers to pre-price a portion of their crop.”
So this year if a producer can lock in a profit they should pre-price at least a portion of the crop, he said.
While there are cautions for grain and oilseed producers, the cattle sector is even at greater risk of tight returns.
“They’re not coming out of this unscathed,” said Magnusson.
Like grain producers the cost of production has climbed. Magnusson said where it was once about $850 to produce a calf, it’s now around $1,000.
“There’s not going to be a lot of profitability in the cattle industry,” he said. “. . . It’s going to be a struggle for that cow-calf producer.”
Generally, Magnusson said producers need to make sure they know what their cost of production is. He said the best producers know, but there are others who have a good handle on the crop costs but might underestimate what they need to live – he suggested the equivalent of a new truck per year.
And, there are still those who “have little idea of the cost, and do kind of fly by the seat of their pants,” said Magnusson.
Magnusson said going back to the name of his talk, ‘thriving on chaos’ producers in 2022 have to remember out of chaos can come opportunity.
“When you see an opportunity you have to make the move to try and capture that opportunity,” he said.
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