FCC watching five top economic trends

In keeping with Farm Credit Canada’s (FCC) commitment to providing timely and relevant economic insights to Canada’s agriculture industry, FCC chief agricultural economist J.P. Gervais shares five key economic trends in agriculture to watch in 2019.

“Agriculture is an exciting and dynamic industry driven by passion and possibilities,” Gervais says. “While the following five trends are on FCC’s radar, there are many other trends helping to shape this year’s outlooks for various sectors within Canada’s agriculture and agri-food industry. We encourage those in the industry to follow the trends that are most helpful in protecting and improving their business’s bottom line.”

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Net cash income plateauing

Price volatility, higher input costs and weather-related challenges in many parts of the country over the past year took a toll on Canadian net cash income in 2018. Final calculations will likely show it decreased, and it’s forecast to plateau in 2019.

Overall, the long-term outlook for Canadian agriculture remains positive, since consumer demand for food at home and abroad is still robust and Canadian agriculture and agri-food sectors have shown resilience in the face of adversity, according to Gervais.

“We are likely to see some fast-changing circumstances, including those that are both beneficial or potentially negative to Canadian agriculture,” Gervais says. “However, I am confident that Canadian producers, manufacturers and agri-food operators can quickly adjust to this dynamic operating environment.”

Ripples in the flow of trade

Canada already has some well-established trade agreements in key markets, including the Canada-European Trade Agreement, The Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the yet-to-be-ratified Canada-United States-Mexico trade agreement, also referred to as the new North American Free Trade Agreement.

However, geopolitical tensions resulting in tariffs and other trade barriers will likely continue to disrupt traditional trade relationships and could possibly open new markets at the same time, according to Gervais.

“While the markets generally don’t react well to trade uncertainty, it also opens the door to opportunities for new trade relationships,” he says. “Disruptions can pave the way for new trade flows, which could be positive. But global trade tensions also have the potential to slow growth in the world economy. They can upset the status quo, and potentially impact the demand for Canadian ag commodities and food, and that’s never comfortable.”

Despite the volatility of the international trade environment, Canadian agriculture is well-positioned for export growth in 2019 and beyond, Gervais says.

Global supply and demand fundamentals shifting

Different trends in agriculture are building world supplies of agricultural commodities, but large productivity gains bear special mention. Global production growth in recent years has helped replenish stocks and better equip the markets to absorb potential weather-related supply shocks.

With world demand for food still robust, higher production has been needed to meet the pace of increase. This is having lasting repercussions on prices and revenues for Canadian farmers in a range of sectors, and this trend is expected to continue in 2019.

“Producers who want to see what’s coming should actively monitor global weather patterns, and production updates as the South American crop year wraps up,” Gervais says. “And keep an eye on China and the U.S. China’s large influence on global agricultural markets and the U.S. supply of commodities will have important impacts on 2019 prices.”

Tighter profit margins mean taking calculated risks

It is difficult to anticipate with much precision the domestic supply of various commodities in 2019. With little chance of real growth in commodity prices this year and possibly higher farm input costs, Canadian farmers will need to properly evaluate the outlook for profitability along with the associated risks. Risk management will become an even more significant component of success.

“Canadian producers need to find ways of reducing costs while increasing productivity from their existing operations, whether that means increasing the yield per acre or getting more butterfat from a litre of milk,” Gervais says.

“Adding value to our agricultural products is another avenue to grow farm revenues, as consumers continue to look for healthy and convenient food products,” he says. “Investments in innovation and technology will go a long way in ensuring Canadian agriculture remains competitive.”
 

Welcome to the golden age of protein

“Canadian producers of both animal and plant-based protein stand to gain buyers both at home and abroad as markets around the world are embracing a wide variety of protein products,” Gervais says. “This trend will continue in 2019 and beyond, as plant and animal proteins serve different segments of the global market.”

2018 was tough on those involved in protein production, even as consumption continues to grow.

“A lot happened last year to impact producers’ bottom lines,” Gervais says. “If there’s a silver lining to the cloud of uncertainty that hung over the sector last year, it’s that this coming year may be the start of something bigger and better.”

FCC Ag Economics will post in-depth blogs on the top five trends, as well as present outlooks on red meat (beef, pork), grains, oilseeds and pulses (corn, soybeans, wheat, canola, lentils, peas), dairy, broilers, horticulture (cranberries, blueberries, maple syrup), food processing (fruits and vegetables, meat, bread, canola, potatoes) and agribusiness (farm inputs, equipment) throughout January. For these insights and more, visit the FCC Ag Economics blog post at fcc.ca/AgEconomics.

FCC is Canada’s leading agriculture lender, with a healthy loan portfolio of more than $36 billion. Our employees are dedicated to the future of Canadian agriculture and its role in feeding an ever-growing world. We provide flexible, competitively priced financing, management software, information and knowledge specifically designed for the agriculture and agri-food industry. As a self-sustaining Crown corporation, our profits are reinvested back into the agriculture and food industry we serve and the communities where our customers and employees live and work while providing an appropriate return to our shareholder. Visit fcc.ca or follow us on Facebook, Instagram, LinkedIn, and on Twitter @FCCagriculture.

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