The last few years have been good for business, generally speaking, but as some notable headwinds gain strength, Canadian farmers may want to approach the coming year with caution.
Uncertainties regarding trade and economic health south of the border, as well as upward pressure from input costs and interest rates, make it difficult to predict how 2019 will play out. However, Farm Credit Canada (FCC) sources indicate Canadian farmers do have some things going for them.
In a presentation given at the Ontario Processing Vegetable Growers (OPVG) recent annual conference in London, Jean-Philippe Gervais, vice-president and chief agricultural economist for FCC, described 2018 as characterized by trade tensions, rising farm input costs and steadily increasing interest rates.
A slowdown in Canada’s economic growth from these and other factors, he said, was already becoming apparent at the end of last year.
The Bank of Canada raised interest rates several times throughout 2018, and the expectation was a similar strategy would be pursued in 2019, Gervais said. That thinking has now changed.
“The picture has shifted a lot over the last eight weeks. Now there is only a 55 per cent chance the bank will hike things once by the end of 2019,” Gervais said.
Hoping for a favourable dollar
The price of oil and interest rates suggest the loonie will remain at an average of 75 U.S. cents, according to FCC predictions.
Gervais said he does not see the loonie going much higher than that. He added that FCC’s prediction is on the low end of the range espoused by some other predictors, some of which estimate averages, unreasonable in Gervais’ eyes, well into the 80 cents U.S. range.
For producers of grains, oilseeds, pulses and horticultural crops, a Canadian dollar holding strong around 75 cents U.S. will help offset the pressure exhibited by strong international competition, he said.
Combined with additional, though not necessarily ideal, levels of market access under Canada’s current trade agreements with Asia and Europe, growth remains a possibility.
“We do have a vested interest in not seeing the Canadian dollar go up,” he said.
FCC’s 2019 Economic Outlook reports indicate a mixed forecast, with some potential boons as well as pitfalls for the livestock sector.
Softening prices for hogs and somewhat tighter margins for beef production are probable. However, feed costs are not expected to increase drastically, despite delayed harvest issues in the West and vomitoxin issues in Ontario in 2018.
The report also said opportunities to expand exports are forthcoming.
Tyler Fulton, director of risk management with Hams Marketing Services in Winnipeg, a swine marketing service, and Brian Perillat, manager and senior analyst with cattle marketing service Canfax, expressed sentiments similar to those detailed in FCC’s outlook reports.
They said there is reason for optimism among Canadian pork and beef producers, but that optimism hinges on the resolution of trade disputes between the U.S. and a variety of other countries, with China taking centre stage.
An opening of Chinese markets to Canadian pork, said Fulton, would allow Canadian hog farmers to fill the gap in its domestic production created by African Swine Fever, a serious livestock disease threatening Asia.
Beef exports are already at record levels, but will continue to grow in necessity if farmgate prices drop, Perillant said. Still, there is potential to increase exports with agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
FCC predictions for the poultry and dairy sectors are balanced, with both positive and negative profitability pressures expected.
For many crops, Gervais said crop receipts are stabilizing after what has been a period of significant growth. This is partly a result of increasing input costs, as well as land prices.
Gervais said land values in Ontario are not expected to rise beyond four per cent during the coming year, which may help improve profitability by reducing the current gap between farm expenses and land values.
Gervais added the margins for vegetable growers might be getting squeezed in terms of lower sale prices, but trends in retail competition combined with competitive grower prices and consumer preferences have been generally favourable. Lower prices continue to make Ontario vegetables more competitive for buyers.