Market pundits have been talking “sea change” of late, the prospect of monster crops in key production areas of the world this year transforming the market psyche from famine to feast.
“No longer will a constant fear of scarcity drive prices. Instead, traders will be battling for market share instead of scrambling for supplies,” said a Reuters report outlining this year’s global harvest’s potential to restock the world’s store.
Some of the experts are saying we need just one more trouble-free global growing cycle to safely move way from the past few years of uncomfortably high food prices. “Global stockpiles, while recovering, are still far from the 80 or so days’ worth of demand that will keep panic at bay,” the report says.
Never mind that last year at this time the U.S. was experiencing the worst drought since the Depression era.
We have a hunch most farmers have little interest in returning to the days of exporters driving down the price in order to buy market share. The years since 2008 have made farming fun again for many Canadian farmers — successive years of good yields and high prices are an unheard of combination. But there is a dangerous tendency for both farmers and pundits to base long-term decisions on short-term history. Once again, we’ve gone from famine to feast, or the other way around if you’re talking prices.
But what about the long term? The words “sea change” were in another report released last week and this time the authors meant it literally, rather than as a figurative turn of phrase.
The latest update from the Intergovernmental Panel on Climate Change (IPCC) said scientists are more convinced than ever that global warming is indeed occurring and human activity is the root cause.
The report predicts the Earth is set for more heat waves, floods, droughts and rising sea levels from melting ice sheets that could swamp coasts, inundate low-lying islands and potentially displace entire cities.
The panel said temperatures were likely to rise by between 0.3 and 4.8 C by the late 21st century.
Sea levels are likely to rise by between 26 and 82 cm (10 to 32 inches) by the late 21st century, after a 19-cm rise since the 19th century. In the worst case, seas could be 98 cm higher in the year 2100.
The report estimates that a doubling of carbon dioxide concentrations in the atmosphere would lead to a warming of between 1.5 and 4.5 C, lowering the bottom of the range from 2.0° estimated in a 2007 report. The new range, however, is the same as in other IPCC reports before 2007.
As Manitoba farmers harvest what looks to be a record crop, our guess is their focus is more on the potential for the market “sea change” to lower prices that will be top of mind.
But perhaps it is the potential for increased volatility in their production environment that should be driving their decisions going forward.
Prairie farmers are no strangers to variable weather — droughts, floods, late seasons, early frosts and everything in between. And they have learned to adapt.
For example, farmers affected by Red River floods, which have become more frequent, are typically well equipped with the kind of machinery that can get the seeding done in a shortened window of opportunity.
But adapting to the new climate reality will be about more than the ability to finance additional land or machinery. Weather variability makes for market volatility. Not only will farmers have lower prices for this year’s crop, they’ll have a harder time finding markets for it.
Their future plans should also account for the reality that climate-related disasters such as the flooding that swept across Manitoba in the spring of 2011 or the unprecedented flooding that hit southern Alberta earlier this year could quickly destroy the capacity of governments to respond.
Farmers have already seen governments adopt a more risk-averse approach to farm income stabilization with the Growing Forward 2 program. Premiums have been raised and coverage has been limited. The expression “ad hoc,” at least as it pertains to agriculture, is no longer in the bureaucratic vocabulary.
In short, if farming indeed becomes riskier as a result of global warming, farmers will be bearing a greater proportion of that risk on their own.
While returns are still relatively good, now might be a good time to make realistic long-term plans for the “sea changes” in future.