How supply and demand drives production and marketing decisions

6.5 min read

Supply and demand dynamics are ever-present and changing, but you can use them to achieve higher profits.

The foundation of earning profit through supply and demand is to make the right decisions about what to grow and when to sell it.

Justin Shepherd, an FCC Senior Economist, says farmers usually choose what to grow based on crop rotation and crop prices. For example, if prices are high for a crop grown last year, it may be tempting to grow the same crop again.

When it comes to selling, Shepherd says farmers usually make the decision on when to sell and for how much based on cashflow needs. For example, for land and equipment payments and to pre-buy seed and inputs.

However, there are other considerations to keep in mind to make a more encompassing decision.

1. Think locally, nationally and globally

Farmers set themselves up for success when they make informed production and marketing decisions that are broad, far-reaching and at a high level. From considering local, national and global crop supplies, to judging the impact of world issues, all play a role in agricultural production and sales.

For example, consider growing conditions in other parts of the country and the world. A wet spring at home may delay your seeding plans and reduce the crop yield, but ideal spring conditions in another province or on the other side of the globe may produce a bumper crop.

That means the days of finalizing a crop plan in November and using it to seed in May don’t exist anymore for top producers, says Evan Shout, CFO of Hebert Grain Ventures, a grain and oilseed farm in southeast Saskatchewan. Instead, farmers need to think long-term and consider what’s happening on a global and national scale and what impact they could see as a result.

“We’re looking at the supply/demand impacts for both inputs and (crop) pricing and volatility, pretty much 12- to 36-months out,” Shout says.

2. Prices are global

The factors behind the price you receive for what you produce go far beyond your crop field, paddock or barn.

“We’re in a global market,” Shepherd says. Using canola as an example, he adds, “Canada is a canola producing powerhouse and strongly influences the global price. However, there are many international factors that impact the market.”

If canola production in Australia is down, there could be an opportunity for Canada to fill any world supply gaps. However, a strong soybean output in the United States and South America could also help fill the broader market for vegetable oils and protein meals. At the same time, palm oil supplies in Southeast Asia could take up the canola oil shortage left by a poor Australian crop. All contribute to shaping the value of canola grown in Canada in any given year.

3. Weather can significantly alter market supplies

Record-breaking drought can cause pasture, hay and feed shortages and even reduce water availability. A local shortfall in any of those areas could lead farmers to reduce the size of their livestock herd and sell more for meat processing. In turn, local farmers and those in other parts of the country could see a slump in prices in the short-term. In the long-term as cattle herds are reduce prices could rise as fewer cattle are available for slaughter.

“Monitoring local drought conditions as well as in‑season rainfall is essential for understanding how weather will influence crop production,” says Shepherd. Keeping an eye on global weather patterns has also become critical for anticipating broader market and production impacts. Tools such as the Canadian and USDA drought monitors offer farmers valuable, timely insights into developing moisture trends. In addition, Shepherd says more producers are installing on‑farm weather stations and using real‑time data to assess conditions specific to their own fields, improving both short‑term decisions and long‑term planning.

4. Politics and world issues play a role

Political factors such as Indonesia’s 2022 palm oil export ban can also affect available supply. So too can geopolitical tensions.

Ukraine was a major exporter of wheat, canola and other crops, but Russia’s invasion and logistics issues in 2022 caused grain and oilseed prices to soar that year until exports resumed in the Black Sea.

The conflict also contributed to a fertilizer supply crunch, sending input prices soaring that year. While nitrogen fertilizer has declined from those highs, recent geopolitical issues and supply constraints have kept prices elevated. For example, China has restricted fertilizer exports, particularly phosphorus and urea.

Leigh Anderson an FCC Senior Economist says, “gone are the days of picking up the entire seasons fertilizer needs at planting time”. He points out that planning crop rotations, fertilizer rates and working with agronomists and retailers year-round are incorporated into farming now. Farms now have additional on-farm inventory for fertilizer, allowing them to take advantage of pre-buys in the off-season if pricing is favourable. Understanding and managing cost of production has become more important than ever to protect profitability.

5. Strong production doesn’t guarantee profitability

Strong production doesn’t guarantee profitability for farmers. Somebody must buy that production, and farmers in Canada are highly reliant on exports.

Strong supply doesn’t guarantee high prices for farmers.

For example, Canadian farmers had record grain, oilseed and pulse production in 2025. However, that increased production at the farm-level doesn’t mean profitability will be higher. Prices for grains, oilseeds, and pulses have been falling for most crops over the past several years largely due to global trade uncertainty and improved production. In addition, profitability has been pressured as crop expenditures have remained elevated.

Furthermore, on the demand side for commodities- it’s challenging to forecast what importing countries will do, and sudden changes in buying behaviour can occur.

While the Ukraine-Russia conflict also created demand opportunities for Canada, trade restrictions and barriers from China and India caused Canada’s canola and pulse sectors to take a hit.

How do farmers market in an uncertain environment and in a way that doesn’t force selling into dips or miss rallies?

“The plan’s not to be perfect, the plan is to sell into a profit,” Shout says.

A must-have is a cash flow and working capital in place. Then you’re not forced to sell and can wait for a more desirable price.

Knowing and managing cost of production is critical as increased on-farm inventory reduces and delays cash flow. Farmers would do well to focus on the things they can control and should not underestimate the incremental efficiencies from small improvements. For example, Anderson says “renegotiating land rents that are up for renewal could be considered”. “Communication with input suppliers on needs e.g., target yields and appropriate fertilizer and chemical rates, is also crucial for producers”.

“It goes back to having the finances in place to be able to execute a marketing plan, not based on having to sell, but based on when you want to sell,” Shout says.

Obviously, no one can know when prices will peak or bottom out. Although chances are they're lowest at harvest, when supplies hit the pipeline as farmers need cashflow to pay the bills.

Grains and oilseeds farmers who can hold on are much more likely to receive better prices for their crops moving into the summer than they would have off the combine.

“If you looked at a 15-year trend, it’s not very often that during harvest or during fall or January/February, when all the lines of credit are due, that those are the top places for basis or for futures,” Shout says.

What farmers can do

Beyond bide your time you can:

Improve profitability chances by developing marketing plans and calculating true costs
Implement stocks-to-use ratios in marketing plans
Read more about supply and demand

Maple syrup supply and demand

In some sectors, supply and demand forces are out of the hands of the free market. That’s the case for the maple syrup industry in Quebec, which accounts for approximately 72% of world production.

As of 2004, Quebec maple syrup producers must hold quota, which applies to all production except containers of five litres or less that are sold directly to consumers. That means they are allotted a specific amount of maple syrup to produce. The objective of the quota system is to support producers’ prices.

The Québec Maple Syrup Producers, which represents 13,300 producers, regulates production and marketing. It also established the Global Strategic Maple Syrup Reserve in 2000.

QMSP explains that the reserve maple syrup ensures constant supplies to customers and “stabilizes product prices, eliminating the swings typically caused by shortage or surplus.”

That means if poor spring weather means a reduced maple syrup harvest by Quebec producers, the price to consumers won’t skyrocket, as the supply will be topped up by the reserve supply.

When excellent spring weather conditions mean a bumper crop of syrup, those who produce over the quota must send their surplus barrels to the reserve. They are paid when the product is sold.

The reserve is in Laurierville, Que. At a 267,000 square foot-site and can store 55 million pounds of maple syrup, the QMSP says.

The organization has plans to expand its storage facilities. It says sales and exports will go up by almost 20% in the early 2020s, so they are looking ahead to increased product demand to ensure prices stay stable.

Article by: Richard Kamchen

Commodity marketing Risk management