As the U.S. enters a dark period for its farm economy, there’s cautious optimism in the Canadian agricultural outlook.
“The net income and the overall situation in the United States is not looking good,” said Craig Klemmer, senior agricultural economist with Farm Credit Canada. “When we look at the net income expectations for 2016, there’s not a lot of optimism in the United States.”
American farmers have been slammed by a steep drop in grain and oilseed prices, and livestock prices are now down, too. But the low Canadian dollar has sheltered producers north of the border.
“Broadly, commodity prices are down from where they were a year or two ago, but they are high historically,” said Michael Burt, director of the Conference Board of Canada’s industrial economic trends group.
“Canadian farmers have an additional advantage because if you’re selling commodities going onto global markets or priced according to global benchmarks, the weaker Canadian dollar is definitely good news.”
And although pork prices have dropped, beef prices are still high in comparison to what they have been, he added.
But the low loonie — which has been creeping towards the 80-cent market in recent weeks — will be less of a shield if it continues to climb.
“The impact of the change in the Canadian dollar is going to have an impact on profitability, and right now, it’s still providing us with cautious optimism,” said Klemmer.
Still, surveys conducted by the conference board in the last two years consistently show Canadian farmers are optimistic, with more than half saying they expect their businesses to grow over the next five years.
“It was remarkable how optimistic Canadian farmers were in regards to their growth prospects,” said Burt.
Back on the farm, there are other positives — lower fuel costs, relatively stable input prices, and if the slowdown in the oilpatch hasn’t made it easier to find workers, the pressure on wages has lessened.
And while global stockpiles of most crops are piling up, there are exceptions which are benefiting Prairie growers.
“But for other commodities, like pulses, there is strong demand,” said Klemmer, noting Western Canada has stepped in to fill demand for pulses caused by severe drought in India.
“That’s creating a lot of optimism,” he said. “If you look at our recent farmland values report, we have fairly strong growth numbers in Alberta and Saskatchewan.”
“We have a lot of specialty crops where Canada has a large market share in terms of global trade,” added Burt. “We’ve managed to establish ourselves as key players and in many respects, that’s good, because it allows farm operators to get away from staples that might be more cyclical, in terms of price fluctuations, and allows them to have a more stable source of income.”
It’s tough to forecast where the Canadian dollar will go, but Klemmer predicted there will be some fluctuation but not a steep jump in its value.
But there could be some pressure on commodity prices, and producers should sharpen their pencils and look at their management, he added. Producers should know their cost of production, make sure they understand their cost structure and work with their financial experts to prepare for the bad times.
“That being said, we have low interest rates right now and we have some strong land value increases, so we’re kind of at a point where we need to protect our working capital and build adequate working capital if we start seeing some further stresses in the market. If you have that cash availability, you have opportunities,” said Klemmer.