Agricultural innovation is key in the current economic climate, said J.P. Gervais
FCC’s chief agricultural economist shares 2018-19 outlook for the grains and oilseeds market
Over the next year, “farm revenues will be driven by volume rather than price,” according to J.P. Gervais, vice-president and chief agricultural economist at Farm Credit Canada (FCC).
Given this shift in paradigm, farmers need to look towards agricultural innovation in order to increase efficiency and productivity, as well as to manage costs, Gervais said yesterday at the Farms.com Precision Agriculture Conference.
After the third increase in interest rates in the past six months, farmers are asking Gervais if Canadians are seeing the beginning of a trend, he said. (The Bank of Canada raised interest rates to 1.25 per cent on Jan. 17.)
While he is reluctant to predict a trend based solely on three data points, Canadians face about a 50 per cent chance of another interest rate increase before the end of March, he said. American interest rates are also trending up.
Producers should review their loan portfolios and evaluate the risks of possible interest rate increases, Gervais suggested.
In terms of the grains and oilseeds market, global production continues to climb, he said, which means market analysts are focusing on the strength of demand and global weather conditions. The market is well-supplied compared to previous years.
Corn prices could move a bit lower as we head into the 2018-19 marketing year. Producers likely face a barely breakeven situation for corn, he said.
At this stage, “soybeans clearly have a better outlook than corn” for 2018-19 but they also face a limited upside, Gervais said. These predictions can shift, of course, as a result of weather challenges in the primary grain- and oilseeds-producing countries.
Pulse producers have faced a significant decline in prices because of the Indian tariff. Western Canadian farmers will likely grow more canola and soybeans this year as a result of the market uncertainty, Gervais said. Indeed, the trade issue with India probably will remain unresolved this year, he suggested.
Gervais also discussed two looming trade deals: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the North American Free Trade Agreement (NAFTA).
CPTPP opens up markets in high-value countries and growing markets, he said. The trade deal will likely have a “positive impact on prices” but probably not until next year, Gervais suggested.
In terms of NAFTA, a renegotiated agreement likely will not include significant changes, Gervais predicted. The United States could also withdrawal from the deal, which could create secondary impacts, such as a decline in the Canadian dollar.
“Everybody has a vested interest in seeing a trade deal done but we’ll see what the United States does,” he said.
Overall, however, Gervais is “excited about the possibilities in the agricultural industry over the next few years.”