Opinion: Inflation is brewing up a spending hangover

Glacier FarmMedia – Man, beer has gotten expensive.

That was one of the things I thought the other evening when I met a colleague for a couple of brews on a pleasant patio.

We were drinking fancy local brews rather than off-the-shelf main market brands, and those are more expensive, but still, beer ain’t as cheap as it used to be. I’ll probably scale back my summer plans for spending time on public patios and decks. Those social inputs are getting too expensive.

Some others’ input considerations are considerably more vexing than my modest bar tab, particularly those being pondered by farmers.

Sky-high fertilizer prices are punching a hole in farmers’ previously buoyant hopes for great returns this year and in coming years. Anything farmers plant is having bigger input impacts. Fertilizer, fuel, herbicides and everything else it takes to put in a crop is getting more expensive at a faster rate than we’re used to. Let’s not even touch on the subject of machinery, which is giving sticker shock to anybody who’s out kicking tires.

This is the farmer version of inflation and we’re discovering that farmers are reacting to it the same way urbanites are reacting to the rising costs cost of everything in their lives.

According to the Ag Economy Barometer, a monthly measure of farmers’ sentiment, farm financial optimism has dropped to the lowest point since the beginning of the pandemic, and more than 40 per cent lower than its high-crop-prices peak in spring 2021. 

Farmers still see high prices in the future and those look nice, but they’re worried about high input costs, and the input price concern appears to be trumping their optimism about crop prices.

Canadian farmers seem to share those feelings. I popped up a poll on Twitter to see how farmers balanced input versus price considerations today, and many were more worried about inputs than thinking about crop prices, with another significant group looking mostly at margins, which are worsening.

According to the Ag Economy Barometer, American farmers are pulling back from investing in their farms in the face of hefty input bills and outlooks.

“In the May survey, only 13 per cent of respondents said this is a good time to make large investments in their operation, while 78 per cent said they viewed it as a bad time to invest in things like machinery and buildings.”

This, I believe, says a lot about the economic reality of farming, rather than being a sign that farmers are inherently financially conservative or pessimistic by nature. From my experience, farmers are bullish, optimistic and risk-takers by nature.

Instead, it’s a product of input prices being concrete, up-front, nearby and inescapable, while crop prices are potential, far-off and uncertain.

A farmer’s fertilizer bill won’t change in the time between buying the stuff and having to pay for it after harvest, but the crop’s value and the farmer’s ability to cover the bill might change by a lot. Any sort of price risk management is less certain than any of the debts taken on to produce the crop. Farmers know that.

Farmers always live a delayed reaction life; between today’s costs and tomorrow’s sales. Urban folks face it less, but one major delayed reaction situation is likely to become Canada’s number one political issue for years to come.

As interest rates surge and inflation becomes entrenched, new homebuyer remorse is growing. Millions of Canadians bought houses in recent years and they’re carrying lots of mortgage debt. Some are also carrying bountiful credit card debt. Millions of homeowners have enjoyed dipping into their growing net worth with home equity lines of credit to fund renovation projects.

All of that debt will be resetting at much higher interest rates in the next few years. Everybody’s costs are going up and few people’s incomes are keeping pace. Some won’t be able to afford their current lifestyles. That doesn’t make for a happy populace.

Canadians have paid prices for urban homes that would have seemed absurd just five years ago. People have borrowed more than they could have imagined.

Farmers have never invested so much in a crop as they are doing right now. That investment had better pay off because the bills are going to come due. It’s no surprise that farmers are reining in their spending plans.

I enjoyed those patio beers the other night, but I’m not sure I’ll indulge in many more this summer. Prices are going up and some plans are going to be put on hold.

– This article was originally published at The Western Producer.