If the economic crisis in Europe and financial instability in the U.S. is any indication, producers can expect a bit of a roller-coaster ride, but they should be able to survive the storm, according to Brett Harris, western bureau chief of Business News Network.
The situation for agriculture in Alberta is still looking pretty good, Harris told AgChoices, the annual conference held by the Alberta Agricultural Economics Association.
“We’re coming off a year that was reasonably profitable for Canadian agriculture, not withstanding the flooding that hit good chunks of the Prairies and the drought that hit some parts of the West as well,” he said. “Aside from that, it was a pretty good year.”
Harris predicts another year of volatility in all commodities. “It will be absolutely phenomenal this year, and a little bit gut wrenching and that’s going to continue,” he said. Harris sees price swings continuing until the economic situation in Europe and the U.S. settles and contracting growth rates in Asia stabilize. “It’s going to be quite a roller-coaster ride, so it’s going to take a pretty strong stomach for a lot of producers to get through it.”
High input prices will create additional risk for producers as fertilizer, fuel and land prices will continue to rise. “We’re not expecting to see a huge income boom, but overall we’re expecting to see a profitable year, which I think is fairly good news,” he said.
Rising incomes in the emerging nations have created a stronger demand for Canadian agricultural products, which will benefit the sector in the long run, Harris said.
“If the global economy does deteriorate, some of that demand could disappear a little bit, but people still need to eat.”
The livestock sector has reaped the benefits of high prices and strong demand from both emerging markets, China and Korea. “Animal exports from Canada to China were up 40 per cent, so exports are starting to come back a little bit,” he said.
Harris noted that in Canada, herd liquidations have taken cattle numbers to the lowest level since 1994 and that following a drought in the southern Plains, the U.S. cattle herd is now at 91 million head, the lowest in about 60 years. “You don’t have to be an economic expert to know that when you have strong demand and very tight supply, you get good pricing.”
Harris noted that hog prices are starting to rebound, and the inventory is about 16 per cent below the 10-year average. However, “Input prices were pretty high, so we’re not expecting to see a huge producer response or increase in production.”
Harris predicted that hog prices may slide from about $67 per cwt to $65 this year and maybe down to $60 in 2013.
Wheat prices weakening
Harris said canola prices dipped in December and January, putting values about 10 per cent lower than a year ago, but the USDA is still calling for a higher demand than current supply. “It’s still going to be a pretty tight market and so the forecast from BMO economics is that we should have canola prices coming in around $580 a tonne which is still pretty reasonable,” said Harris.
Strong global wheat stocks and a deteriorating global economy mean wheat prices have fallen. “We have seen prices coming off significantly for wheat and the USDA is calling for pretty significant production coming from the big players for the next little while. This is the one exception. We are going to see prices drop for wheat over the next couple of years,” Harris said.