The News & What it Means – Dry Weather in Western Canada Adds to Farm Misery

By John DePutter & Dave Milne – June 11, 2019
The news:

“The third year of overly dry conditions has taken a significant toll on early Saskatchewan crop conditions.”

– Syngenta website story, June 7, 2019

What it means:

More evidence that Murphy was right: What can go wrong, will go wrong.

We haven’t even started the 2019-20 marketing year and it already looks like those farmers in the driest areas of Saskatchewan – and in other dry areas of the Prairies as well – are headed toward another difficult year financially.

For some, this represents the third straight year of drought, and by the looks of the first crop condition ratings of the season all that dry weather is truly beginning to bite. Indeed, at 23% good to excellent, the condition of the canola crop in the province was down 40 points from the previous year, with that portion of the crop rated poor to very poor jumping to 34% from 11%. The condition ratings of most other crops were down just as severely.

Now, there’s obviously still time for crops to recover from this year’s difficult start, and rainfall late last week and this past weekend may potentially hint at more moisture to come. But the majority of central Saskatchewan missed the rainfall entirely or received only token amounts. The season may get wetter later on, but the question now is whether crops can hold on long enough.

Some crops already failing?

In his Prognosticator report last week, World Weather Inc. meteorologist Drew Lerner said some producers are already reporting their crops are failing, with others suggesting they may only have another week to 10 days. Prairie rainfall for the remainder of this week looks only light and scattered. It’s not expected to significantly bolster depleted soil moisture levels, even though it may help keep crops in lots of fields alive for long enough to get to the next drink.

The Prairies are parched. Areas shown on the map in red have received less than 40% of normal rainfall the past 3 months. Orange is 40-60% of normal; yellow, 60-85% of normal.

Trade troubles, heavy supplies also cloud profit outlook

It’s true that adverse weather will lift crop prices but in the case of canola, the trade troubles with China, rising domestic stockpiles and heavy global inventories of soybeans remain bearish influences that work against the market any time it tries to surge wildly higher. In the US, overly wet weather has stalled corn and soybean planting, but even there it seems the worst of the impact is factored into current prices, at least for the time being.

For those crops produced in Saskatchewan that play a big role in setting world prices, such as peas, lentils, mustard and canaryseed for example, the dry weather may yet send values significantly higher, but those crops are grown in such limited quantities they are unlikely to move the needle much in terms of overall farm income in the province. For peas and lentils, there could be an upside lid on whatever rallies manage to get going, due to India’s reluctance to buy as it tries to move toward self-sufficiency.

In short, in general crop prices will have trouble rising enough to fully offset potential production losses.

Farm income already suffering

Meanwhile, Statistics Canada farm income data released last month shows times are already getting tough down on the farm. National realized net farm income for 2018 was pegged just $3.9 billion, down more than 45% from a year earlier. In Saskatchewan, 2018 net farm income of $1.51 billion was down roughly 42% from 2017 and 58.6% below 2016.

National and Saskatchewan farm cash receipts, including returns from crops and livestock, did tick higher through the first quarter of this year compared to the first quarter of 2018. But it’s questionable whether that improvement will show up for the second quarter. Besides, input costs this year will probably tally some increases. It means the bottom line on overall net income will be hard pressed to show an increase from the low level of 2018.

Add in the potential for drought-reduced yields in 2019, and there could be plenty of red ink flowing on the most severely affected farms.

At times like this it’s important to minimize downside risk in the markets while also cautiously trying to maximize what the markets have to offer. That’s what the DePutter Market Advisory Service newsletter aims to help farmers accomplish.

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