Producers should feel optimistic heading into new crop year
FCC chief agricultural economist J.P. Gervais anticipating positive year
Agriculture producers are advised to keep their eye on a series of key economic drivers, but overall farmers should be optimistic for the coming year. That was the consensus of J.P. Gervais, vice-president and chief agricultural economist at FCC, following his presentation at the FCC Ag Outlook 2017 in Swift Current on January 31.
“I’m absolutely optimistic, especially if you put things in perspective. We have an economy that’s not necessarily growing really fast. It’s growing, but it’s growing at a rate below average. If you look at the ag sector, we’re seeing still a lot of growth. And we have been very successful in making the investments in productivity that we need. And I think I have no reason to believe that we’re not going to be able to do so in the next few years. It’s maybe the beginning of a new phase in the cycle in ag where we see the income level out, but I just don’t think it’s negative. I’m actually fairly positive about the entire thing,” Gervais said following his presentation at the Sky Centre last Tuesday.
Gervais believes one of the most important factors this coming year is the value of the Canadian dollar.
“It has such a big impact when it comes to farm income, profitability. And I do believe that we actually benefit from a low Canadian dollar.”
He realizes that a lower Canadian dollar results in more expensive input costs, but he feels the net impact is advantageous overall. He is currently expecting to see a Canadian dollar in the 75 cent range on average during 2017.
“That’s a big plus. From a revenue standpoint, if you convert those US prices that we normally use to price our Canadian crops, that lower Canadian dollar means that we’re getting a little big of a higher revenue. The other thing as well it makes us more competitive in foreign markets. And at a time where there’s growing supply basically everywhere, I believe that the lower Canadian dollar is good for us.”
Canadian producers will clearly be carefully watching a series of international factors ranging from BREXIT (the British exit from the European Union), China as a growing market for Canadian agriculture, and President Donald Trump and his push to renegotiate NAFTA.
“I do believe that despite all the uncertainty of what is going on in the United States, it will be OK from a trade standpoint. We need to have the Canadian border remaining open for us,” Gervais said.
“Our exports to the US, when it comes to ag products, that represents 30 per cent of our Canadian farm income roughly. So we need that border to remain open. I do believe that both countries will manage to find a way to keep it open.”
Canadians will be closely watching for any return of Country of Origin Labelling, or any type of US imposed new regulations which would make it tough for Canadian producers.
Gervais is expecting farm cash receipts to level out this year following a long run of upward totals.
“I always like to point out that we’ve had some tremendous growth for the last 10 years. Something that perhaps we’re not likely to see in maybe in 50 years from now.
“The last 10 years we grew farm income by roughly $20 billion at the national level. So that’s $2 billion a year.”
“Even if we’re projecting farm income to level out, it’s actually fairly positive. If we’re able to maintain that level of income, we’re going to have no issues maintaining farm asset values.”
This past year producers experienced a little bit of a decline, but he is forecasting farm cash receipts to roughly be in line with the record year of 2015.
“It looks as if we’re going to be able to maintain that farm income at a very high level, which is positive overall for the industry.”
Gervais also talked about market outlooks during his FCC Ag Outlook presentation, and production growth continues to impact outlooks.
“The overall theme when it comes to market outlook is growing supply,” he said.
He noted that all commodities are experiencing production growth, and exceeding consumption growth, so that puts pressure on commodity prices.
“It looks as if oil seeds is positioned better at this stage, and I do believe that there is quite a bit of an upside for oil seeds, not just this year but the following year.”
“Anything cereal is under pressure right now. And so depending on where you are in your rotation and all that, those are things to consider obviously.”
“Pulse crops, I’m still fairly optimistic despite some of the growth in production we’re seeing out of India, which is a major producer. But never the less, I think pulse crops and oilseeds are the two key commodities to focus on.”