2020 economic forecast: Risks, rewards, volatility and low interest rates

By Connor Lynch
REGINA — Farm Credit Canada’s economic forecast for the farm sector in 2020 isn’t dismal, but it isn’t exactly optimistic either. The ag lending company is anticipating an unpredictable year, creating both risk and opportunity for farmers; if you’ve been meaning to tighten up your risk management strategy, now’s the time. FCC noted three main areas of disruption.

First, climate change, making seasonal weather less predictable, not just here but abroad. Given a global supply chain, it is easy to see how disruptions in other parts of the world can have an impact here, particularly on the crop sector which is most reliant on predictable weather.

Protectionism is number two, which hardly needs any introduction. The ongoing U.S.-China trade war showed the first signs of slowing down, with an initial agreement finalized in December, but some are skeptical about the future of free trade. Agri-Food Economic Systems argued last year that protectionism was the new normal, and that would have a huge impact on the globally-connected ag supply chain.

Automation may not play a big as role as it should: The FCC communique pointed out that 2019 farm incomes were under the five-year average, and automation is driven by investment. Protectionism, by limiting market access, further de-incentivizes investment in bigger, better operations.
Now for the good news. Interest rates are expected to remain low, which have been a profound boon for farmers borrowing and expanding their operations; the CUSMA agreement, while a loser for the dairy sector, is good news for most other farmers; and food demand is expected to continue growing.

Bank of Canada governor Stephen Poloz, in his year-end speech, noted low population growth as holding back the Canadian economy and economies worldwide, and that trade wars “could stall the globalization that has helped firms and workers become more efficient in the past.” With the bank anticipating low growth, interest rates were likely to remain low, he said.

TD Bank, in its 2019-2020 forecast released last summer, anticipated crop prices to remain low, which would be buoyed by lowered prices on crop inputs, but that livestock prices were likely to increase as African Swine Fever devastated hog herds in China and Southeast Asia. As well, new trade deals such as CUSMA and the CPTPP were expecting to be a medium to long-term boon for the farm sector.