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Loonie value will determine 2017 ag outlook

FCC’s chief agricultural economist says a low Canadian dollar is expected to continue to benefit the sector

A low loonie is likely to continue to benefit Canadian farmers through 2017.

That’s according to J.P. Gervais, Farm Credit Canada’s chief agricultural economist, who added that will be the continuation of a trend seen throughout 2016.

“There are certainly other factors that could influence Canadian agriculture, such as the global economy, the investment landscape, commodity and energy prices,” Gervais said in a release highlighting issues for the coming year. “The Canadian dollar, however, has been a major driver for profitability in the last couple of years and could have the biggest influence on the overall success of Canada’s agriculture industry in 2017.”

Gervais is forecasting the dollar will hover around the 75-cent mark and will remain below its five-year average value relative to the U.S. dollar in 2017, potentially making the loonie the most significant economic driver to watch in Canadian agriculture this year.

The low dollar not only makes Canada more competitive in agricultural markets relative to some of the world’s largest exporters, but it also means higher farm cash receipts for producers whose commodities are priced in U.S. dollars.

The enhanced competitiveness will also mean stronger demand for Canadian agricultural products, an important issue given the higher projected supply of livestock and crops. That could translate into revenue growth, especially for livestock producers who are hoping for a rebound from weak prices in the latter half of 2016.

“A lower Canadian dollar makes farm inputs more expensive, but the net impact in terms of our export competitiveness and cash receipts for producers is certainly positive,” Gervais said. “Given the choice, producers are better off with a low dollar than one that’s relatively strong compared to the U.S. dollar.”

Food processors are also better off with a low Canadian dollar, which is partly the reason behind the strong growth in the gross domestic product of the sector over the past few years. Canadian food products are less expensive for foreign buyers, while it is more difficult for foreign food processors to compete in the Canadian market, according to Gervais.

“The climate for investment in Canadian food processing is good, given the low dollar and growing demand in the U.S.,” Gervais said.

He projects that exports of food manufactured products to the U.S. could climb five per cent in 2017.

But he also notes that “a weak loonie raises the price of inputs like fertilizers or equipment, making them more expensive for producers, which may impact their purchase decisions.”

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