Craig Klemmer laughed when told that economists today are like weather forecasters: too many factors and moving targets to be sure you’ve got it right. The Farm Credit Canada economist didn’t disagree. Speaking last month at the online Ontario Agricultural Conference he covered a wide range of indicators from the drop in unemployment to the rise in food demand in China and all pointing to a better year ahead for farm exports. But just in case, he cautioned, he’ll keep monitoring the situation.
Stimulus spending and COVID recovery in Canada and the U.S. could be two of the biggest economic factors to watch, he said.
It hardly seems possible that the new year could be worse than 2020. “It’s been a pretty stressful year,” Klemmer said. With that in mind, the future of 2021 looks downright rosy.
Excluding December data, the global economy contracted by 4 per cent last year. Canada’s GDP contracted by an ugly 7.1 %. It was the worst year in the last 50 years. Europe’s economy declined last year by 7.2 % and the United States declined by 4.3 %. China, however, saw growth of 1.9 % and this year is expected to expand by about 8 %, a champagne-popping year by any standard.
“The one good news story, when we think about the grains and oilseeds markets, when we think about some of the major exporters in agriculture in Canada, China looks to grow,” he said.
Other indicators look good for the economy and agriculture. Unemployment dropped to 8.5 % by November. That’s down from a 50-year high of 13.7 % last May. The labour market is still weak but with hopes of a vaccine on the horizon, optimism is in the air. Household debt levels have also dropped, meaning that there is an increase in disposable income and consumers are looking at higher value protein, higher value cuts of meat. As more people go back to work, ethanol plants demand more corn. Governments spending ramped up to protect households providing for their families. But it came at an enormous cost: “the largest deficit in history.”
Interest rates were at 2.21 % at the end of 2020, he said. Expect cheap money for the entire year and people using that cheap money to make investments. “Interest rates will remain low.”
Klemmer sees the Canadian dollar trading at 78 to 80 cents throughout the year but notes that both currencies have weakened compared to other countries.
Klemmer is also watching other countries. South American drought levels have helped corn and soybeans hit multi-year highs in December. China is quickly rebuilding its hog herd and opened the world’s largest hog facility expected to produce 2.1 million hogs in a one year.
“There are a lot of challenges with these kind of operations, but if they don’t have outbreaks, it’s going to increase strong demand for feed from Canada.”
Crop receipts looked healthy in 2020 but for the first time cannabis has skewed the numbers as cannabis receipts increased 185 % in 2020, Klemmer said. Ontario total crop receipts in the first three quarters were up about 7 per cent, “but if you remove cannabis from that number they are actually down 1.6 per cent. The impact of cannabis cannot be overstated.”
He added that when Statcan releases net farm income numbers in April or May “cannabis numbers are going to be included in that. It will be difficult to understand the directional health of Canadians farmers as we traditionally knew it. Hopefully we will see those numbers reported stripped of cannabis, so that we can compare.”
Klemmer ended on a sober note, referring to the COVID bump in prices for a lot of products. He doesn’t see prices dropping back as long as demand is there. Companies are dealing with higher labour costs and slower production lines and will try to maintain profits, he said. “As agricultural producers we generally end up being price takers in the marketplace.”
