REGINA, SASK. Farm Credit Canada, Canadas leading agriculture lender, is forecasting an accelerated economy for the latter part of 2015 and another good year for farming.
“Interest rates should remain low,” reported FCC chief agricultural economist J.P. Gervais. “Oil prices and the value of the Canadian dollar should remain below their average of the last few years for most of the year. Trade matters and Canada should see its global trading position consolidate further in 2015, offering opportunities in red meat, grain and oilseed sectors.”
In his year-end comments, Gervais also offered five key agriculture economic issues to watch in 2015:
1. Good help gets harder to find
Canadas agriculture labour market is expected to remain tight in 2015 as the number of workers available to the industry continues to decline.
2. Food prices will rise again
Food prices in 2015 are expected to increase faster than the overall rate of inflation for a second year in a row, although at a more moderate pace.
Beef and pork were the main drivers behind the 2014 increase good news for producers who saw unprecedented high prices for cattle and hogs. The markets suggest that cattle will trend slightly higher in 2015, while hog prices will ease from recent highs.
3. Beef and equipment sales will get a boost
Strong livestock prices helped drive new small tractor sales in 2014, but lower crop prices reduced sales of large four-wheel-drive tractors, combines and harvesters by about 20 per cent. “Were predicting strong profitability in the livestock sector especially for beef which will result in strong demand for smaller tractors, as well as haying equipment,” Gervais said. “Conversely, weaker margins for grain and oilseed producers will reduce overall demand for four-wheel-drive tractors, combines and harvesters, and other field crop equipment.”
Gervais noted that strong equipment sales over the past few years have built up inventories, which may translate into a buying opportunity for used equipment.
4. More trade with U.S. and China
The fortunes of two of Canadas largest agriculture export markets the United States and China will continue to grow. The Bank of Canada is projecting the U.S. Gross Domestic Product (GDP) to grow from 2.2 per cent in 2014 to 2.9 per cent in 2015. Chinas GDP growth is expected to slow down from 7.4 per cent in 2014 to 7 per cent in 2015.
Gervais believed Canada will continue to increase oilseed and red meat exports to China and a weak Canadian dollar will enable producers to increase exports to the U.S. He predicted low oil prices will continue to put downward pressure on the Canadian dollar, which means producers can expect strong returns throughout 2015.
5. Soft landing for farmland values
After several years of sharp increases, all signs point toward a slowing down of increases to farmland values in 2015. “Low interest rates and strong crop receipts have been the two driving factors behind the recent increases in the value of farmland,” Gervais said. “But we already know that commodity prices are no longer at record-high levels. While increases in interest rates may not be on the horizon before the end of 2015, there are some signs that they may gradually increase.”