By now, all producers have experienced the effects of inflation. When it comes to the financial management of your farm and business, it’s important to think not only about grain market outlooks and prices, but also about how external non-agricultural markets and macroeconomic headwinds (or tailwinds) will impact the Canadian agricultural industry now and in the future.
So, how can the value of all producers’ crops shift due to changes in broader economic activity? We live in a connected world, where many factors can affect farm income: energy prices, economic growth and decay, foreign exchange rates, and more.
Here’s why looking at the bigger picture is important for every producer — and how GrainFox can make it easier for producers to stay up to date on economic trends, allowing for more informed strategic planning and decision making.
Despite the constant need for food, animal feed, and agricultural products for myriad other uses, the ag industry has never been immune to the ebb and flow (and sometimes violent torrent) of the economy at large.
Here are a few recent examples of non-ag markets having a significant impact on the ag industry:
In 2006, the average annual OPEC crude oil price reached over $50 USD to a new all-time high. Thanks to this increase, it made financial sense to use grain to make fuel, which helped spark the ethanol boom to which the US Government further contributed by subsidizing the use of corn for ethanol.
By the end of 2007, the price of corn reached $157 USD per metric ton. In the United States, an additional 6.25 million hectares of corn was planted in 2007 due to this price increase, which led to reduced soybean crops and increased soybean prices. Grains did follow crude, with massive bull markets of their own, in late 2007 and 2008.
The financial meltdown of late 2008 and early 2009 caused several commodities, including crops, to decline. During recessions, consumer behaviour changes and some products, such as animal protein, see reduced consumption. This reduction in demand drives lower demand for feed, such as corn, and causes the commodity price to decrease. Agricultural commodity prices decreased during this time, compared with those in early 2008.