Grain Today, Gone Tomorrow – Yield is not a financial indicator

“Love is a fickle thing”; then again, so is farming.

As we start reviewing fall yield and price updates, I am reminded again why I have a love and hate relationship with agriculture. Many producers in many areas are seeing some of the largest yields they have seen on their farms, too bad it isn’t worth anything.

I believe that in today’s agricultural environment, we get caught up in the starry glaze of yield estimates. We hear bushels, and we automatically think about profit and capital and the next expansion opportunity. Or for some that upgraded half ton or retirement funds that we want to put away. Sometimes we need to be reminded that grain in the bin is not a measure of revenue or profit. In fact, it may just mean increased cost of logistics and freight. I am starting to see that 2025 may be the year that the rug gets pulled out for many operations.

Bushels and Cents

  Too many operations today rely on a yield monitor as a form of measurement. Even those who scale every bushel and know down to the kernel what they have in the bins or bags often overlook that this is not a monetary unit of measure. If all we had to do was deal in bushels, we would all be better off, no marketing required.

In 2025, we have all ridden the roller coaster that we call the commodity markets. Some decided to get off the ride early enough that they avoided a lot of sickness during the ups and downs, but for many, they are still on the coaster. We have seen almost every commodity fall from grace over the last six months, and many in unforeseen ways. Tariffs with multiple countries, retaliation for electric vehicle mandates by our own country, wars across the world, and now basis numbers that make you shake your head at every elevator as you drive past. We are about to see more grain than many farms have ever grown turn into loss scenarios on many operations. As some farmers have exclaimed, “What else can we do?”.

For those farms that have not grown the grain, you may find yourself in a better position than the latter. With yield insurance and pricing metrics much earlier in the growing season, the ability to be in an insurance claim on yield and collect on prices considerably ahead of the current markets may be a benefit. Furthermore, for those farms that chose to be part of AgriStability, you will collect on the loss of value in your opening inventories, assuming the markets don’t return to bullish. It may seem like a consolation prize, but it still comes with a stuffed animal for the win.

Margin Matters

The other factors in the equation also include crop inputs and the ability to control the cost of production. Many operations that entered the year in tougher situations, whether drought conditions or tight financial metrics, had to strategize and plan around the cost of production more than others. As we see the commodity markets play out, those farms will be at a much lower risk due to their cost structures. For those farms that expected large yields, the pricing metric will most likely catch them in a perfect storm where they spent all the money to grow the massive crop, and it is not worth enough to cover.

I wrote a blog a few weeks ago regarding the fact that the cost of production of farms followed the consumer price index very closely. In agriculture, we had the misconception that our costs were considerably out of control compared to society; it turns out that only real estate (land) was not following the trends. Although this may be comparable to the housing market not following the price index at times. It is important that the difference was always that our prices may not have grown like the minimum wage numbers, but our yields more than made up for the discrepancy. We are now seeing a depressed pricing metric where our “farm minimum wage” has dropped while inflation continued. Again, not something we wanted to see in agriculture before 2026, that looks to be even tighter on margin.

Fail to Plan, Plan to Fail

However bad the 2025 crop year may become with current market conditions, we cannot overlook that crop inputs are going to have an even harder effect on 2026 planning. For the few farms that have reached out for projections for next year, the results are considerably worse than this year’s initial planning. Fertilizer pricing has now decoupled from grain prices, and over the past ten years, it is the worst margin split that we have seen in agriculture in Western Canada. This is uncharted territory and bumpy roads.

In terms of fixed expenses, I don’t like using the “R” word, but as of right now, I can speculate that Canada may be in recession talks. Not saying this moves expenses one way or the other, but if they continue to follow the consumer price index, then we will see an increase of 2% or more again, and they will pile onto the crop input increases to create an even deeper hole for farms to market and grow their way out of. This all assumes that farms will not continue to push land values up and buy capital to maintain equipment lines. Not a perfect storm, more like a full-fledged earthquake and tsunami.

Not All Bad

I don’t like being this pessimistic in the middle of harvest season, so I do have a silver lining. Those farms that had a marketing plan early in the season, took advantage of canola in the $15 range and did not fear yield potential enough to remain unpriced, are looking at high profitability. For many crops, early pricing with high yields (or even average yields) will most likely provide strong returns and increased working capital. I wish more farms did this, but to be fair, it takes a lot of risk tolerance to book grain when yields are in question early in the season. 

Lastly, many farms took on the task of “lean management” to start this season, and they will see returns here. When I say returns, I mean in the form of lower loss amounts or even possible break-even scenarios. By controlling costs, cutting back on capital, and in all words shutting the treasure chest for 2025, they have created a situation where they cannot be hurt as badly as others by the current volatility. For some in parts of the province, this is year seven of a drought, and when farms ask “how” they are still farming, the answer always comes back to internal cost management. Not how, just out of necessity.

We have always said that “policy” is our biggest threat and uncontrollable risk. Sometimes I don’t like being right, but this time it appears that our international trade may cost the 2025 crop year much more than any weather conditions. Furthermore, with the risks of next year on the horizon, many farms need this year to be strong to make a safety net for the coming margin tightness that is expected. I hope that those reading this do not take it as doom and gloom, but more as a call to attention. Plan, run the numbers, know your current scenario, and don’t live a life based on yield and bushels. What is grain today will have to be money tomorrow; farming is a fickle beast.