Don’t count on agriculture to propel provincial economy in 2018

RBC report doesn’t take into account many important factors, writes Kevin Hursh.

A Dec. 14 Saskatchewan government news release proclaimed, “Saskatchewan Projected to Lead Canada in Economic Growth Over Next Two Years.” It was based on a forecast from RBC Economics, and cited agriculture as one of the main positive factors.

Unfortunately, the RBC analysis, at least on agriculture, is shallow at best.

RBC correctly notes that “unusually dry weather weighed on Saskatchewan’s economic performance in 2017.” However, for some reason the analysis fails to note crop production ended up at almost exactly the five-year average.

“An assumed return to more normal growing conditions in 2018 and 2019 would contribute to agricultural activity bouncing back through the remainder of our forecast,” the RBC analysis states.

The RBC economists might want to check precipitation maps. Other than the northwestern corner of the grain belt, the province is in a severe moisture deficit. The 2017 crop was saved by an abundance of subsoil moisture. That ace in the hole/money in the bank doesn’t exist going into the 2018 growing season.

Average growing season weather will not produce an average crop in 2018. It will take above-average precipitation.

Sometimes when the year starts out dry, everything turns out just fine. But at this point, it doesn’t seem reasonable to predict anything more than an average crop — one in line with what was produced in 2017.

And we’ll be hard-pressed to harvest a crop with higher quality than what was achieved in 2017. Although wheat protein levels were lower than expected, most crops ended up in the top grades, eligible for the top prices. That performance will be hard to repeat.

Of course, prices matter just as much as production, and on that side of the equation the outlook has dimmed considerably. Most crop prices are below last year’s levels and some are significantly lower.

Lentil and field pea prices have come crashing down due to oversupply and high import tariffs implemented by India (50 per cent on peas and 30 per cent on lentils).

For many years, lentils have been one of the most profitable crops for farmers in southern Saskatchewan. Peas have been an excellent rotational crop across the province, with reasonable, if not always stellar, returns.

In 2017, lentils accounted for 3.9 million acres in the province, with peas at 2.1 million. While far below canola, which is our largest crop, with 12.7 million acres, lentils and peas are still significant contributors to the economy.

In 2018, expect a million or more acres of Saskatchewan farmland to switch out of lentils and peas to other crops. Unfortunately, few profitable options exist. We’ll probably have recordhigh canola acreage, but canola prices have been grinding lower, too.

For some reason, we pay attention to long-range weather forecasts even though they are wrong almost half the time. Long-range economic forecasts aren’t much better. To accurately predict the agricultural economy requires accurate weather forecasts at home and around the world, along with accurate macroeconomic forecasts for factors such as currency exchange.

It would be nice to believe Saskatchewan will lead the nation in economic growth over the next two years, and it’s nice to have agriculture recognized as one of the key drivers of the economy.

The grain sector dominates agriculture in this province and the last 10 years have seen some of the greatest returns ever experienced. Nothing goes up forever. Hopefully we’re not on the brink of a major setback, but weighing all the factors it’s difficult to believe the agricultural economy will be stronger in 2018.

Hopefully, the economists at RBC have more depth in agriculture than they displayed in their December forecast.

The Saskatchewan government should know better, too, but apparently it couldn’t resist trumpeting a positive report.