Growing a crop is always an exercise in hope, but the hellish crop year in much of the eastern Prairies has challenged even the most optimistic of farmers, catching them in a drama where hope didn’t even get on stage.
Our farms are flooded. Record rainfall through May and June prevented much of the crop from getting in the ground. And for those who did manage to muck it in, record rainfalls since have managed to drown out a considerable number of those acres too.
Read Also
Riding the tariff rollercoaster
Farmers are accustomed to roller-coaster years. But the current geopolitical windstorm is something else entirely. On his cattle operation near…
While many parts of the Prairies have been deluged this year, Saskatchewan farms are the hardest hit with some areas receiving over 200 per cent above average rainfall before the end of June. Seeding estimates come in anywhere from 50 per cent complete in eastern regions to over 90 per cent in the northwest.
Individual farms can vary from five to 100 per cent seeded, depending on where the rain hit. It’s a mixed bag, although if you draw a line down the centre of the province north to south, the further east you go the worse it gets.
The ultimate reality is 12 million of a usual 32 million acres in the province were either unseeded or drowned out after the fact.
To their credit Saskatchewan Crop Insurance was quick to send out information and claim forms related to the disaster: a $50 unseeded acreage benefit and the usual establishment benefits. And governments responded with the Excess Moisture Program (EMP), providing $30 for each unseeded or drowned acre. It’s funded through AgriRecovery, a federal-provincial framework designed to respond rapidly when disaster strikes. About $360 million will flow to Saskatchewan producers with funding cost shared 60/40 between the governments.
John Burns believes the quick response of government will help farmers feel confident about their chances of survival. “Farmers need to know they’re being supported,” Burns says. “They tend to isolate themselves because they often work alone and when there’s a crunch they need compassion because they haven’t built up a system to cope with this kind of catastrophe.”
Recovery up to five years
The support was shown when government officials came out quickly to see the damage and when programs were announced relatively quickly, Burns says. “Producers knew what they were facing and then could look at the money coming and start to plan right away.”
Burns has been farming at Windy Poplars Farm near Wynyard for 35 years. Together with his brother, his two sons, and a friend, Burns owns and manages 13,000 acres with a small livestock component.
They were able to get 70 per cent of their crop in, but much of that is moisture stressed. Still, it’s a good percentage for one of the hardest-hit regions in the province.
Planning will be key to survival, Burns says, adding it will take two better-than-average years to recover. “People will have made a one-year plan and all of a sudden it’s a two-or three-year plan… I was at our financial institution (in June) so that arrangements could be in place before we started to feel the pinch.”
Burns says his operation is financially sound because it’s relatively well established with some “old” money behind it. But he worries that growing operations will feel the cash flow crunch. They will need money for inputs for weed control this year and seeding next spring and they’ll have ongoing debt payments, all with little to no income from their farm. “People, through no fault of their own, will be cornered,” he says.
New or expanding operations are more exposed financially and, while all farms need help, Burns believes these are less likely to be supported because they don’t have the history with lenders and suppliers to be able to weather this kind of thing
“Keeping up with inputs is going to be a struggle,” Burns says. “That’s where lending institutions are going to come into play. But it doesn’t start or end there. Input providers and those who use our end product will have to be at the table. It boils down to trust and networking.”
“I call it a partnership,” Burns says. “Agriculture is unique. There are so many variables and it’s a completely unique situation: partly timing, partly personalities.”
A farmer’s ability to see their way ahead and not give in to panic and despair is vital in recovering from this disaster, Burns says. “Those who can cope with change and set a plan and work toward it will survive. (Farmers) have to be proactive. An early response from government and industry, as well as working with financial institutions all help producers to cope because they can see the future with some clarity and know where they will be financially. If they don’t have this it starts to spiral and they can’t pull out of it.”
While he suspects a few farmers might throw in the towel after this year, Burns cautions that “to some degree we’re overreacting to the hurt because we had a couple of good years and we expected that to continue.” Farming has been at a peak in the last few years. More people have been employed in the industry and farmers have been able to work with others in the sector to promote success. “This is a severe setback to that progress.”
Leroy Bader, farm business management specialist with the Saskatchewan Ministry of Agriculture out of Tisdale, has gloomy estimates for harvest. “We won’t be harvesting more than one-third of the normal seeded acres,” Bader predicts. “I’m not sure that in the east central and northeast there’s more than 35 to 50 per cent actually seeded. Of that another 15 to 20 per cent is unproductive because it sat in water too long.”
Bader agrees that producers need to plan ahead and stay in close contact with their suppliers and lending institutions. “Plan early,” he says. “And don’t wait until you’re behind in payments. You’ve a better chance of success dealing with the whole situation.”
Bader believes the programs including crop insurance, Agri- Stability and the EMP will help. “Added together there is some cash flow (from the programs) into the farm. Producers will have to look at what the programs contribute, and when, so they can work out cash flow and deal with lenders and suppliers,” he says. “The programs are doing what they are intended to do when margins are down and it was good to see the AgriRecovery program could react as quickly as it did.”
John Burns might not agree. Aside from farming he is also a PhD chemist, his sons are design engineers and his brother a chartered accountant, and speaking for farmers overall, he says, “We are well-educated people running 10-and 20-thousand-acre farms. Yet AgriStability confounds me.”
“The programs are not simple enough for farmers to feel they’re in a partnership,” Burns says. “They seem arbitrary and when that happens, farmers don’t trust them.”
Or the programs don’t keep up to the realities on the farm, Burns says. Take crop insurance. It runs on 10-year averages but rapid technology change alone has meant huge strides in production in a short time, leaving Burns to wonder why 10-year averages would still be applied. “It lags, so it’s not reactive to today’s needs and so why participate?” he asks. “Some of us participate by default. But if a program doesn’t take care of this type of disaster then it’s not a program that works.”
The efficacy of the programs remains to be seen.
In the meantime, Leroy Bader believes agronomic practices will require as much thought as the financial fallout. Livestock producers have a few more ways to use flooded land through fall grazing and greenfeed options. For others, fallow land could provide an opportunity to seed winter wheat this fall. Or producers who’ve been trying to adjust rotations have a blank slate to work from on those fallow acres.
Producers can also look at field improvements like ditching as well as getting rid of brush piles and perennial weed problems, Bader says. It’s obvious however, that he is well aware these “opportunities” are a good spin on a bad situation.
What is true is there will be issues around fertility for next year. Did the fertilizer applied to unseeded land simply leach away? If land wasn’t fertilized, but grew a crop of weeds, how much fertility remains? Soil testing will become an essential management tool going forward as nitrogen will be a big question, Bader says.
All of the financial and agronomic challenges have added stress to the farm sector, says Bader. “We shouldn’t forget this is putting a lot of stress on people and sometimes when you’re under that much stress, making good decisions is not likely to happen.”
While farmers are on the front lines, the industry as a whole will suffer. It’s difficult to gauge the potential impact. Some suppliers are trying to do their part to help the farmer by taking back unused seed or exchanging it for weed control products. But the hit to their bottom line will be significant.
In the meantime, Leroy Bader drives by a farm dealership on his way to work every day. “When I drive by and see all those grain bins on their lot, it makes me think those bins will be sitting there for a while,” he says with a wry chuckle.
The disaster will impact not only the agriculture industry, but the entire rural economy, Bader says. Aside from the obvious — suppliers, grain buyers, crushers, processors — there are others who have found niche markets in agriculture the past few years. He cites an electrician he knows who spends significant time wiring monitoring systems for grain bins. If those bins Bader passes each day aren’t being sold, they aren’t being wired either.
WHAT WILL THE LENDERS DO?
Glen Snyder is an optimist. He’s seen Saskatchewan producers through BSE, the flood of 2006 and the drought of 2002. Though some of us would view that list as an almost laughable illustration of why not to farm, Snyder speaks of those events as examples of challenges we have survived.
The flood of 2010 is another. Snyder is manager of agribusiness for the Saskatchewan district, with Bank of Montreal (BMO). He says it’s important to remember the past few years of good production, prices and margins have left the agriculture sector in a healthy equity position, making it fairly stable. Having said that, he believes the recovery time forindividualfarms from this catastrophe will likely be from one to five years, depending on the situation.
BMO was among the first to announce that it is loosening the rules for flooded farmers. “Even at the time the governments were announcing the Excess Moisture Program (EMP), we were in contact with our agricultural clients in affected areas to see what implications this would have on their particular operations,” Snyder says.
“There are going to be clients with major challenges,” Snyder says. Cash flow is one of them. BMO is allowing farmers to defer principal payments and the bank is waiving new loan application fees and renewal fees. Snyder says this program will complement government programs and crop insurance. It’s available until November of 2011, allowing farmers time to market some of next year’s crop before payments resume.
Agriculture makes up 50 per cent of BMO Saskatchewan’s portfolio. Snyder estimates 35 to 40 per cent of their clients are impacted by the flooding and he expects 15 to 20 per cent of those to take advantage of the programs BMO is offering.
It depends on the strength of their financial picture. Snyder uses the example of one client who managed to get only 52 per cent of his crop in the ground but, with carryover inventory and a strong balance sheet and liquidity, won’t require a deferral program. But for those with serious cash flow problems, a deferral might help see them through.
Recent news reports from Farm Credit Corporation say the FCC will feel the impact of lower demand for loans on land and equipment. But Mike Hoffart, senior vice-president of portfolio and credit risk, promises FCC will do all it can to help out current clients feeling the cash-flow effects of the flood.
At press time, there had been no formal program announced. “People right off the get go were calling us and we were calling our customers in the most severely impacted areas,” Hoffart says. Producers “are not asking for much yet. Everybody is making sure their partnerships are solid.”
“Coming out of the last couple of years, there’s room to absorb and work their way through this,” Hoffart says. “If you’re a little more levered, that group has less room for error. A growing enterprise in rapid growth mode is looking for an average crop at least to meet their financial requirements.”
Hoffart says FCC will look at farms on a case-by-case basis and he foresees the company offering anything from payment deferrals to restructuring. “In the most severe cases we may have to do a complete restructuring,” Hoffart says.
In the meantime he offers much the same advice as others. Have a good understanding of your cash flow and “be as proactive as you can to deal with situations so that you’re not reaching the stage where cash is required now and you’re not sure where it will come from.”
MORE THAN THE PROGRAMS
Snyder has some further suggestions for those struggling. Mitigate production risks with hail and crop insurance. Then cut margin risks with programs like AgriStability, AgriInvest and the current EMP, and reduce interest rate risk by recapitalizing and locking in interest rates.
For cash-flow problems, farmers might review lease and rental contracts on land and equipment. Sell unproductive or unused assets, trying to get them to a market that’s not been quite as heavily impacted. Consider equipment rental versus purchase.
“And restructure if necessary to ensure you have working capital for next year,” Snyder says. “Seek out as many sources of low-interest working capital as you can. Be proactive with your existing financial institutions.”
While producers are suffering, the industry as a whole will feel the impact of this flood. BMO has extended the deferral and fee waiver program to related industries. So far there’s been little uptake from this group. “We’ve had conversations with major suppliers,” Snyder says. “But we haven’t seen a public response from that sector yet.” He believes industry might be waiting to assess the impact before taking BMO up on their offer.CG
———
“ People, through no fault of their own, will be cornered.” — John Burns
