Farm Credit Canada believes farmland values, trade deals, U.S. politics and economics, a bullish beef industry and equipment sales gearing down are the five agriculture economic issues to watch out for this year.
Farmland values has been a hot topic in the past few years as land prices sky-rocketed, due to high commodity prices and low interest rates, however Farm Credit Canada Agricultural Economist James Bryan tells Rural Roots Canada prices will plateau this year, with an increase of only 3 to 5 per cent.
“Commodity prices are a bit lower, so margins are going to be a bit tighter for crop producers and that’s going to take some heat out of the market, but interest rates remain low and they are expected to remain low for much of 2014, we don’t expect the Bank of Canada rate to change until the end of 2014,” said Bryan.
Bryan says the recently signed trade deal with the European Union and the Trans Pacific Partnership, which is being negotiated and will be finalized, will mean growth for the Canadian ag sector.
“They might not see any difference in 2014, but if we get a trade deal done, as tariffs are reduced over time we’ll be able to export more and more product to these countries.”
The Farm Bill, which will passed into law in the U.S., will have a major effect on crop producers.
Bryan says if it goes ahead as is, this bill will get rid of direct payment farmers get for farming and replace it with an enhanced insurance program.
“This will have an impact on what producers plant and since the U.S. is the largest producer of corn in the world if they significantly increase of decrease corn acres or soybean acres that can have a major implications for world prices and therefore Canadian prices.”
FCC believes Canadian beef producers have the opportunity to take the bull by the horns in the coming years.
Bryan says because our national herd has remained flat over the past few years, and the U.S. herd has been on the decline because of droughts in recent years, Canada is in a better situation to grow its herd.
“If we start expanding now, we’ll have a year or two jump on their expansion, which will really give us an advantage over the next 5 to 6 years.”
“The Futures prices for cattle in 2014 will remain fairly strong because of the reduction of the U.S. herd, going forward, 2015 also very likely to be very strong according to Futures market, but as the herd starts to expand we will probably see prices top out either in 2016 about there, the cattle industry cyclical so we could see cattle prices topping out in 2015 or 2016.”
As for equipment sales, Bryan says we should expect to see a slight drop off as commodity prices and profit margins for producers will not be as good as they have over the past few years.
“So, if we look over the past five years it has been excellent for the crop sector we see very really robust sales. And in 2013, while western Canada saw a record harvest it should bare well for equipment dealers going into 2014. However, when producers look at the futures market they know they are not going to be making as much money in 2014 – 2015 as they have in 2011 or 2012 So going forward we expect producers to be expanding their equipment rotations, so instead of changing out a tractor every 2 or 3 years they might change one out every 3 or 4 years.”