Trade uncertainty and oversupply have added a considerable amount of uncertainty to this year’s agricultural outlook, says a report released on Wednesday by TD Economics.
The Canadian Agriculture Outlook said oilseeds in particular are expected to weigh on cash receipts and increase storage costs.
“That said, there are several pockets of optimism. In the near term, a relatively constructive outlook for livestock should help offset some of the weakness in crop prices. At the same time, increased market access through newer trade deals such as CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) should be a positive for the sector in the long term,” said the report.
Highlights of the report include:
- Canadian crops face an unenviable mix of weak global supply-demand balances, subdued prices and trade uncertainty. Prices are expected to remain low for most crops over the remainder of 2019 and into 2020, putting a damper on growth in farm cash receipts.
- Also likely to weigh on top-line performances over the near term are restrictions on Canadian canola seed shipments into China, as well as a modest strengthening in the Canadian dollar.
- Prospects for the livestock sector are comparatively stronger. The devastation to herds from the African swine fever epidemic in China and other countries is likely to result in increased global trade in meat products, supporting hog and other livestock prices.
- Despite an overall soft price environment, the report expects a flattening in most input costs on the heels of last year’s surge will provide a reprieve to farm incomes.
- Canada has bucked the trend of de-globalization by recently entering into important new trade deals, namely the CPTPP.
“The increased access to new markets is expected to benefit Canada’s farm sector over the medium-to-longer run. Canada’s agriculture sector is accustomed to dealing with challenges and unexpected twists. This year is shaping up to be no different, with farmers facing an unenviable mix of soft price conditions, excess global stockpiles, and growing uncertainty around trade policy. The latter now relates to trade uncertainty both between the U.S. and China, as well as China and Canada. Crops, and the oilseed complex in particular, have recently been hard hit. Support provided to farmers by a weakening Canadian dollar last year is also expected to fade given the currency’s recent outperformance,” said TD Economics.
“Notwithstanding these challenges, there remain some silver linings. Adverse weather conditions in the United States this planting season are expected to result in a tightening in the North American corn market, supporting prices. Prospects for livestock prices are also comparatively brighter, as global demand remains solid and prices for hogs and meat products respond in part to the devastation to herds from the African swine fever.”