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Focus on resilience in turbulent times, FCC chief economist advises

Canadian producers need to focus on building resilience into their business to maintain or grow their operations in turbulent times, according to Farm Credit Canada (FCC) chief agriculture economist.

“Trade tensions make headlines and are on top of mind for many producers, but it is the resulting movements in interest rates, the value of the Canadian dollar and commodity prices that make up the outlooks for various sectors of Canada’s farm economy,” said Gervais, in launching the latest series of outlooks for the agriculture and agri-food sector.

Previous years of record-high production boosted global stocks of many agriculture commodities and helped to lower commodity prices. Yet global consumption continued to trend upward and stocks started to fall. Now trade tensions are disrupting commodity markets.

“Change is constant in this industry, so producers need to be in a position to take advantage of opportunities and address challenges as they arise,” Gervais said.

One reason for optimism in this uncertain environment is that all sectors of Canadian agriculture face sound fundamentals: consumer food demand at home and abroad is still very robust.

“Being resilient means Canadian agriculture and agri-food businesses can quickly adjust to a dynamic operating environment that could last the rest of the year,” he said. “We’re likely to see some fast-changing circumstances. including those that are both beneficial or potentially risky to their operations.”

During the first six months of 2018, a lower Canadian dollar helped boost farm revenues, offsetting increases to interest rates, fuel and fertilizer prices. But the Canadian economy relies on the strength of export sectors. Trade tensions, currently pushing the Canadian dollar lower, could continue to pressure the loonie below the $0.78 projected 2018 average and may limit future interest rate hikes in 2018.

Interest rates are expected to increase in the latter half of 2018, while the dollar, fuel and fertilizer costs are expected to stabilize.

With the ever-changing economic environment, volatile commodity markets and shifting trade patterns, Gervais offers the following tips to build resilience:

  • Risk management – develop scenarios to determine your exposure to unfavourable financial trends (sudden rise in interest rates) or weather events
  • Execution – update your marketing plan to reflect the changing environment and resulting volatility and build crop plans to match emerging food preference trends
  • Strategy – keep an eye on your long-term objectives and think about the integration of the crop, marketing and financial plans

Gervais said the Canadian agriculture and agri-food sector has already proven resilient and most Canadian farms continue to be in a very good financial position.

FCC Ag Economics Outlooks cover crops (eastern and western Canada), food processing, dairy, hogs and pork, cattle and beef, and dairy throughout July.

By sharing agriculture economic knowledge and forecasts, FCC provides solid insights and expertise to help those in the business of agriculture achieve their goals. For more information and insights, visit the FCC Ag Economics blog post at www.fcc.ca/AgEconomics.
 

Source : Farm Credit Canada