The Rest of the Story – Is Agriculture Only Telling Half-Truths?
As I get older, I find I remember little insignificant things from my childhood from time to time. Today, that insignificant thing was Paul Harvey’s quote, “and now you know the rest of the story”.
I am going to start this editorial by first stating, unequivocally, that agriculture is entering hard times. Maybe not by societal standards, but compared to the last few decades of growth, profitability, strong real estate, and personal spending, we are entering what many would call a downcycle. Nobody is here to say otherwise.
Now, for the rest of the story. In agriculture, we like to emphasize the negative and humble the positives of the industry. It happened as I grew up; it happened when I got told to leave the farm due to a dying occupation, and it is again happening as we tell society that it is no longer economical to be a farmer. While listening to a Damian Mason podcast, I had to laugh a little when he brought up the topic, “Do farmers have a god complex?”. I don’t necessarily agree, but I do believe we have something that makes us different from other entrepreneurs.
Wealth, Equity, and Personal Spending
I believe that agriculture has created more millionaires over the last couple of decades than almost any other industry. In fact, I often comment that I don’t have a client who is not considered a 1% (the richest individuals in Canada per the government definition). Now, before I get lambasted with negative comments, yes, this is equity, and no, you do not realize this unless you sell. But in my books, that sounds a lot like owning shares in Amazon or Tesla; you can borrow against them, they put you on the Forbes list, but you don’t have liquidity until you sell.
In the end, the truth is that many farmers made a gamble decades ago to double down on being a producer. They bought land, which has now become a 10X investment that has left them millionaires in principle. And, if you were one of those producers who also had business and financial acumen, you most likely also created profitable times from that real estate that allowed you to earn dividends on your investment, much like the stock market. Like it or not, farmers became rich through passive income more than operational profits.
We have made comments in the past on personal spending. I realize that this is a generalization, and not all operations have been able to capitalize on growth and returns. However, in terms of wealth and equity, anybody who has purchased land in the last two decades has created significant returns (well above the market).
So, the rest of the story is that although times may be tight and profits may be scarce, we have still created more wealth in an industry than ever thought possible by our forefathers.
Definition of Risk
I still love to have the debate over what the greatest risk to our industry is today. Most still comment that we do not control Mother Nature or the fact that a war starts on a different continent, which then has significant effects on our commodity values. However, we sometimes forget that we are also in an industry that has insurance and government subsidies for operations. Name another industry that can insure itself against downturns in consumer spending or societal change? I can wait for an answer on that one.
I agree that food security and protecting our farmers are important; I have trouble arguing that we sit on a pyramid well above other important occupations like doctors or educators. You can argue that we deserve the protections that these risk management tools provide, but that also means that we can no longer tell the world that we have too much risk.
Now, if you want full truths, our biggest risk is ourselves and the government. Ourselves because we control some of the largest costs in our operations, and in many instances, vanity and “iron disease” are our biggest risks. I heard a quote lately that I cannot get out of my head, “the grass may be greener on the other side of the fence, but it was probably fertilized with shit”. In other words, they may look like they have it under control from the outside, but it may be a dumpster fire internally. Farms are their own worst enemy when it comes to wanting the next best thing, the bigger thing, the more efficient thing. When in fact, it may just be the shinier thing.
As for government policy, yes, this is our biggest risk. The one true thing that could bankrupt most farms is bad policy or bad trade negotiations (which we are now seeing in spades annually). If you want to lose sleep, lose sleep over our politicians and how they handle international matters and internal infrastructure. Don’t lose sleep over the next hailstorm that you are insured against.
A Losing Epidemic
Margins are tight; it does not take an accountant like me to tell you that. In fact, looking at the coming year, I would argue we are only looking at one crop that makes a true profit at this point. However, in the past, we have said that in ten years, you are looking for two good years, two bad years, and six break-evens; 2026 is looking like a bad one unless you have controlled your internal cost structures to a very low amount.
I had a client reach out a couple of weeks ago asking me to benchmark against inflation and interest rates. He was trying to figure out the cost structures that his farm was facing moving forward in comparison. A few interesting concepts:
- The CPI (consumer price index) is up 22% since 2019; the cost of production across the farms we work with is up 24%, with labour, power and machinery being up 23%. The capital machinery and infrastructure on farms are up 26%. The cost of production in agriculture is following the inflation rates rather closely, so are we truly that far off from society? Yes, grain prices remain steady as in the past, but I would argue that wages increase in society have not skyrocketed either. Are we “different”?
- Now, for the wild card that all of you are thinking – land values in Canada are up 78% over that same time (with my province of Saskatchewan up 111%). This is where the farmer sentiment of tight margins and uneconomical times is true. However, rent has not followed the price of land up nearly as fast, so this is somewhat of a tall tale, as over 50% of the land base in Canada is rented by producers, not owned. Lastly, although interest rates are 38% higher over this time (3.95% to 5.45% prime rate), the farms we work with have expanded by 38% in acres, and total assets are up by 64% showing that farms continue to purchase land, buy investments, and invest into farming even though we continually argue that it is uneconomical.
Finance in agriculture is always a touchy subject. We don’t want to tell society the wealth increase in agriculture, but we are quite open to telling them how we don’t make money and cannot sustain the current environment. Many farms will continue to “make ends meet” I am not oblivious to the fact that many farms continually fight insolvency and bankruptcy every day (especially in the US land environment), but I am trying to encourage farms to start telling the “rest of the story”. Paul Harvey may just be a footnote in history, but for the next generation, hearing that agriculture is a dying industry will have a large, detrimental effect on them and our ability to remain sustainable. I was told to leave the farm because there was no money in it. Don’t let history repeat itself in 2026.
