FCC economists share their predictions for the industry this year
By Kaitlynn Anderson
Throughout 2018, Canadian farmers may want to keep an eye on five particular trends that could impact the industry.
FCC economists discussed these topics in a number of articles last month, which are summarized below.
The global economic landscape
As the global GDP is expected to grow 3.7 per cent this year, Canadian producers could have some stability to withstand any challenges they may face, Martha Roberts, an economic research specialist with Farm Credit Canada (FCC), wrote in an article .
The crop and livestock sectors could also benefit from a relatively low Canadian dollar (relative to the USD).
“The Canadian dollar is expected to be higher in 2018 than it was in 2017, though still low enough to support profit margins,” Roberts wrote.
And, from a trade standpoint, producers may want to keep an eye on the NAFTA renegotiations.
A renegotiated agreement could “alter existing dispute settlement procedures and has the potential to shift the value of the Canadian dollar,” she stated. “Changes in any of these (processes) could impact prices of ag commodities in Canada.”
However, the existing CETA and CPTTP agreements will provide producers with increased market access across the world, including in Japan and Europe.
The next trend producers may want to monitor is the evolution of farmland values, according to an article by J.P Gervais, vice-president and chief agricultural economist for FCC.
While the value of farmland will likely continue to rise, this growth will be moderate.
In fact, overall farm cash receipts – one of the drivers of farmland values – could grow by 3.1 per cent this year, he said.
But higher interest rates could limit the growth in farmland values throughout 2018.
“We expect two 25-basis point increases in the overnight rate of the Bank of Canada in 2018, gradually rolled out,” Gervais said in his article. “Rising borrowing costs will limit what potential buyers can afford in the farmland market.”
Farmers should also follow energy prices this year, which could impact input costs and the value of the Canadian dollar, according to an article by Leigh Anderson, senior agricultural economist with FCC.
Specifically, producers may want to keep an eye on all energy markets this year, Anderson stated.
“Well-supplied energy markets will likely keep fertilizer prices and farm fuel costs low in 2018.”
But, it is possible that global demand for oil could increase due to “a strengthening of U.S. and global economies,” he said. “If that demand exceeds expectations and reduces some of the current glut, prices could rise.”
Producers could look forward to a growth in investments in value-added activities in the industry thanks to an “improving global economy and evolving consumer food preferences,” according to an article by Craig Klemmer, principal agricultural economist with FCC.
However, the industry could also face some challenges on this front.
“Borrowing costs are expected to climb in 2018 and access to foreign markets can appear uncertain and volatile,” Klemmer wrote.
As Gervais mentioned, economists predict that the Bank of Canada will raise its interest rate, which will raise borrowing costs.
Despite these forecasted increases, “borrowing costs remain low from a historical standpoint,” Klemmer stated.
Partnered with “a favourable Canadian dollar, (more) value-added opportunities and (advancements in) technology,” the historically low borrowing costs could point to an increase in investments this year, he said.
Food retail tech revolution
The final trend that farmers should watch in 2018 is the evolution of the food-to-consumer relationship, according to an article by Amy Carduner, an agricultural economist with FCC.
The year will likely bring “more opportunities for agricultural producers and food processors to establish strategic alliances with retailers,” Carduner stated.
These new prospects are a result of the changing food retail landscape, including the trend toward e-commerce. (The “Amazon Effect” has pushed grocers to offer online shopping options.)
To take advantage of these opportunities, producers and processors may want to consider “marketing exclusive food products and focusing on freshness.”