Turbulent times require constant vigilance by farmers
A farmer pulls a long hose behind his tractor that carries liquid manure and then injects it directly into the soil on a farm southeast of London on Wednesday May 24, 2017. Farmers inject the manure into the soil to mitigate some of the worse odours from the manure and to get more into the soil. Mike Hensen/The London Free Press/Postmedia Network
While the lower value of the loonie during the first six months of 2018 has been positive for farmers, trade tensions are shaking up commodity markets requiring producers to keep a close watch on their operations, says the latest Farm Credit Canada forecast.
The dollar’s drop in value has helped boost farm revenues and offset increases to interest rates, fuel and fertilizer prices, said J.P. Gervais, FCC’s chief agriculture economist. Although he expects interest rates to rise in the second half, fuel and fertilizer costs should stabilize.
“Trade tensions make headlines and are on top of mind for many producers, but it is the resulting movements in interest rates, the value of the Canadian dollar and commodity prices that make up the outlooks for various sectors of Canada’s farm economy,” he said.
“Being resilient means Canadian agriculture and agri-food businesses can quickly adjust to a dynamic operating environment that could last the rest of the year,” he said. “We’re likely to see some fast-changing circumstances, including those that are beneficial or potentially risky to their operations.”
To cope with the uncertainty, he recommends building resilience through risk management in case of unfavourable financial trends or weather events. Individual marketing plans should be updated to reflect changing market conditions while keeping long range financial plans in mind.
“Change is constant in this industry, so producers need to be in a position to take advantage of opportunities and address challenges as they arise.”
As the agrifood sector has already proven resilient and most Canadian farms continue to be in a very good financial position, farmers can maintain or grow their operations in turbulent times, he said.
The background to the current turbulence is years of record-high production that boosted global stocks of many agriculture commodities and helped to lower commodity prices, he said. Yet global consumption continued to trend upward and stocks started to fall. Now trade tensions are disrupting commodity markets.
Still all sectors of Canadian agriculture can count on the sound fundamentals of robust consumer food demand at home and abroad, he said.
The FCC forecast included comments on the crop and livestock sectors.
“Corn production should remain profitable in 2018. Canola too will see positive margins till the end of the year, although they’ll be more pressured than they were in the first half. We still expect red lentil margins to be negative. Green peas should begin to see some upside, becoming slightly profitable for the remainder of the year. Wheat won’t likely be profitable despite some recent upside in pricing and global uncertainty has helped drop the soybean price to levels that, if sustained, likely mean breakeven profitability or slightly better.”
The outlook said that while the hog sector was generally profitable in the first half, it was a mixed bag though: rising feed prices led to tight margins on finishing operations, while farrow-to-finish operations recorded profits close to $20 per head on average. Those margins will be tested throughout the rest of 2018, largely because of trade tensions and growing pork supply in the U.S.
“Our forecast for the cattle sector has also held so far in 2018. Cow-calf operations have been profitable all year, a trend that’s likely to continue into 2019. Backgrounders and feedlots recorded negative margins in the first six months, with little relief in sight. Live cattle futures show a small increase between now and December, while feeder cattle futures look to hold steady.”
Among the other factors FCC recommends watching are the NAFTA negotiations as well as progress in implementing the free trade deal with Europe and in ratifying participation in the Pacific trade. Farmland values are expected to rise only moderately this year.