By Connor Lynch
NORTH GOWER — While 2019 brings with it a promise of new markets for some farmers, the year is expected to be a mixed bag at best. Some farmers might have to tighten their belts.
Overall predictions from the major banks and Farm Credit Canada reveals a tightening market more prone to unpredictability. According to FCC principal ag economist Craig Klemmer, speaking to farmers at North Gower in December, Canada’s overall farm economy is “strong, but not quite as strong as hoped.”
Producers across the spectrum are facing challenges. Soybean prices struggled with the U.S.-China trade war, Ontario’s sizeable corn crop was badly mauled by vomitoxin in Southwestern Ontario, the dairy sector faces the twin specters of the new NAFTA deal; an implemented CPTPP trade deal gobbling up market share while the hog sector faces flat prices hovering close to break-even.
It’s not all doom and gloom. The newly-implemented CPTPP is a challenge for the dairy sector but an opportunity for beef and pork producers. Access to the Japanese market means a big new market for hogs and cattle, though Canadian producers will be going up against low-cost, high-quality product out of Australia, Klemmer said.
The Canadian dollar is expected to hover around US 75 cents for the year, which is great news for exports. But the dollar value needs to watched. According to Klemmer’s math, every 1 cent change in the Canadian dollar in relation to the U.S. dollar will mean a $5/acre margin change for grain farmers, $1 per hog for pork producers and a $13 change for beef animals. For example, if the Canadian dollar increased from US $0.75 to US $0.76, crop farmers’ margins get tighter by $5 per acre of crop.
Consumers are going to be price-conscious; their disposable debt-to-income ratios are around 1.7 across Canada, said Klemmer, meaning for every dollar the average consumer earns, he has $1.70 in debt. The underlying message is that you cannot expect consumers to be eager to pay more for food.
Canada’s low interest rates are creeping up. The Bank of Canada raised interest rates five times last year, and has shown no hesitancy to do so. The new year could well see more increases. However, farmers’ debt-to-asset ratios are at historic lows, around 0.15 in Ontario, meaning most Ontario farmers have around 15 cents in debt for every dollar in assets they own. Klemmer said that suggests most farmers are in a good place to handle interest rate increases.
Commodity prices are not likely to rise through the year, Klemmer says, projecting a 1 to 2 per cent increase in farm cash receipts, on average, but is expecting that to come largely from producers growing more crop.
One large question remains. Will the U.S. actually make its massive swap of soybean acreage to corn? American farmers are expected to swap an enormous four million acres of soybeans to corn production, which would devour North America’s already tight fertilizer supply and push fertilizer prices even higher, Klemmer said.
However, this prediction is predicated on the U.S.-China trade war continuing. Talks in January concluded on Jan. 9, with some signs of progress.
