Worsening trade tensions along with economic instability in export markets will create an uncertain situation for Canada’s agribusiness sector in 2019.
Farm Credit Canada’s (FCC) chief agricultural economist J.P. Gervais explained it will take at least a few months to sort the issues out, but expects it will end up being a good year.
Given the latest free trade agreement with the U.S. still not ratified, demand across the globe has slowed for Canada’s agricultural inputs and the relationship with China is on very shaky ground. Gervais pointed out the sector’s success depends on these situations righting themselves soon.
“While the outlook seems extremely positive due to demand for commodities worldwide remaining exceptionally strong, the trade tensions do matter when it comes to selling overseas,” Gervais stated.
“Canadian farm incomes may decline in 2019, but it will be more moderate than in the last five years. Though, when you put it all together and depending on the income of producers, it could be a good year.”
However, he added agribusinesses aren’t likely to have the growth that’s been seen in recent years.
With ever tighter margins and higher costs of borrowing hitting Canadian producers, the outlook for new equipment sales and inputs is likely to slow even further in 2019, according to the FCC report released last week.
Fertilizer and other input prices are forecast to rise another one per cent this year, while fuel costs along with global shipping expenses are also slated to growth slightly — both of which may drive up costs for farmers and limit their ability to upgrade machinery or plant crops.
Another aspect that could have a great effect on agribusiness is the level of the Canadian dollar, with Gervais expecting it to average even lower than in 2018 — right around the 75 cent U.S dollar range.
“The loonie is so critical,” he said.
“The higher dollar and a U.S. farm economy that has really struggled for the last four years had created significant headwinds for the Canadian businesses. And that, is the number one variable that will impact the farm business sector.”
Gervais noted that the loonie may get weaker over the first six months, but he expects it to rebound somewhat in the last half of 2019.
What to watch
Trade, or a lack of it, with the U.S. — and now China potentially — is one front that Gervais noted will be one producers and the whole farm sector will have their eyes on.
Last year was one of the worst for agricultural profitability south of the border and it could get worse if the tensions with China continue to escalate — for both the U.S. and Canada.
As well, drier conditions in much of North America’s northern agricultural growing regions — as well as in Asia and Africa — that has been predicted for 2019 could significantly disrupt production. Meanwhile, areas in the southern U.S. anticipate more rain this year which would impact produce and fruit supplies, making for higher prices.
This is the first of seven in a series looking at the agricultural sector for Canadian producers.