Producers bracing for tough year

By Sheri Monk
sherimonk@gmail.com

Between drought, supply chain issues, and global unease surrounding the Covid-19 pandemic, the last couple of years on the agricultural front have been like a wild rollercoaster – the kind that people regret getting on in the first place. Now, the Russian invasion of Ukraine is causing more uncertainty and for some nations, fear of food shortages.

While many in the world simply don’t associate Russia with agriculture, (does Vodka count?) Russia and Ukraine combined produce 30 per cent of the world’s wheat and barley. Ukraine alone supplies the UK with 20 per cent of their cereals, and has been a pivotal exporter to the EU, and to other less food-secure nations. Thanks to its rich, black soil, the land surrounding the Black Sea has become known as the “breadbasket of the world” – but recent reports out of Ukraine are anticipating crop failures of nearly 100 per cent. While some fields will no doubt be damaged from heavy equipment and shelling, most crops simply won’t get in the ground this year. Instead of seeding, farmers are fighting on the frontline, in some cases using expensive farm equipment to block roads or otherwise slow down the Russians. Millions have also fled the country, leaving everything behind to try and bring their children and the elderly to safety.

“On the feed grains side, there are multiple things impacting the market. Not just tight supplies, but the fact that we’re relying on imports from the U.S. right now means that any trucker or rail disruptions also impact the market along with the Ukraine situation,” said Brenna Grant, executive director of CanFax.

While the West has typically relied on barley to finish cattle, the East has fed corn, but that has not been the case this winter.

“The issue with the barley crop is that grain yields in western Canada were down significantly, but of the barley that was produced, a lot actually went malt-quality or into the human consumption side of things. We are seeing significant reliance on corn imports from the U.S. where the American corn belt was less impacted by the drought,” said Grant.

“I think we have a lot of concern about weather coming into the spring, even just the hay crop, but also the grain crop and seeing what is going to happen for that. At this point we are still seeing elevated levels of cow marketings coming to town versus one year ago, so the liquidation of our cow herd is really going to continue until the feed supplies have improved,” Grant said.

“We’ve seen a lot of movement on the futures market, and when you’ve got corn trading at $7 USD per bushel, that has a direct influence on the value of U.S. feeder cattle. We’ve seen the feeder futures drop in the U.S. throughout February, but things look to have made a low on March 4 and have actually bounced back a wee bit this week.”

Demand in China

Incredibly, the feed grain shortage could lead to Canadian producers competing with Chinese buyers for North and even South American supplies.

“It’s really a volatility conversation. The Black Sea region is an exporter of wheat, barley and corn and their main market is actually China. If they can’t get their product to China, is China going to replace that product from North and South America,” Grant questioned. “We just don’t know at this point. China’s demand for feed is really uncertain right now. They had expanded their hog sector following African Swine Fever and they actually had overproduction, which means they’re back in a liquidation phase for their hog sector. So it’s really unclear what their demand for feed grain is at this point.”

Alberta lightweight steers continued to see seasonal price increases recently, with heavier steers remaining steady.

“Given the futures markets, we are definitely going to see pressure on this feeder market, but it’s one where those cash prices staying steady is an indication of the strong demand that we have,” Grant said.

The demand, according to livestock and meat analyst Kevin Grier, is remarkable.

“The demand for beef has been the best I’ve ever seen in 30 years. It’s incredible, and it’s really a positive thing.”

While processors and retailers are benefitting from all that demand, cow-calf producers and feeders are struggling.

“The cattle end of the business is not that great because supplies are so abundant and capacity to get the job done is not quite there, so the cattle prices are not where anyone would feel happy, let alone with these costs that are going through the roof,” said Grier.

Farmers under pressure

“Russia is a major producer and exporter of oil, natural gas, nitrogen and potash fertilizer. We’ve already seen fertilizer prices increase and become very volatile. So again, this is just adding to that volatility and uncertainty in that market. If supply chains are disrupted, can they actually get product?” asked Grant.

Paul Heglund farms near Consul, Saskatchewan. In 2021, he received 188 mm or 7.4 inches of rain and he’s coming into spring with little to no snow cover.

“Last year there were 36 days with measurable precipitation. Most of the rains did no good at all – they were just too small. They just evaporated without touching the roots,” he said. “And it will cost double in 2022 what the 2021 crop cost to seed.”

Wheat prices have surged since Russia attacked, but input costs has been skyrocketing for much longer. While farm equipment and machinery has always been expensive, producers now have to worry not just about whether they can afford to replace equipment, but whether there will be any new equipment in stock to replace it with. In the past, people have turned to the used market, or paid to repair equipment, but replacement parts can be more difficult to come by and there’s an acute shortage of previously-owned equipment and machinery.

The escalating fuel prices will also take a toll on producers this year – the cost of diesel has increased 20 per cent since January alone and many anticipate prices to continue to spiral upward.

“It’s a precarious situation,” Grier said.