Potatoes in Canada

Features Business & Policy Markets and Marketing
Canadian producers benefit from drop in loonie in 2016, BMO report

 

While North American farmers are in the process of wrapping up a fourth-straight bumper harvest, according to the BMO 2016 North American Agriculture Report, foreign exchange developments have yielded very different experiences for producers in Canada and the United States.

"In the United States, the lofty greenback, which has gained 20 per cent on a trade-weighted basis since the start of 2014, has been yet another bearish factor for crop prices and revenue," said Aaron Goertzen, Senior Economist, BMO Capital Markets. "Canadian producers, in contrast, have benefitted from a drop in the loonie, which is down 17 per cent against the U.S. dollar since the start of 2014 and has provided a like-sized lift to crop prices north of the border."

Mr. Goertzen added that as a result of the weaker loonie, domestic crop prices in Canada are 18 per cent below all-time highs – compared to nearly 30 per cent in the United States – and have risen five per cent from their recent low in mid-2014. The lower loonie has been a particularly fortunate development given the country's mediocre crop yields over the past few years.

Canadian Outlook
In Canada, composite crop yields, which consist of corn, soybeans, wheat and canola, picked up modestly on last year's subpar result. However, they remained on-trend overall as a near-record crop of canola on the prairies was offset by a decrease in corn and soybean yields in Ontario.

"Canadian producers have undoubtedly been supported by the weaker loonie," said Adam Vervoort, Head of Agriculture Banking, BMO Financial Group. "This means now, with extra capital available, is an ideal time to invest in technology, which is driving the current string of bumper crops we've seen on a North American scale."

He added, "Those producers who have adopted modern agricultural practices, particularly in the corn space, have grown trend crop yields substantially. There's still room for autonomous, satellite-informed equipment to be refined and used, as the innovation trend shows no sign of slowing down."

Producers in Canada's Western regions, namely Alberta and Saskatchewan, have experienced a more difficult season impacted by weather challenges since October that have delayed their harvest timeline. However, the prairies remain on track for a near-record crop of canola.

Mr. Vervoort affirmed that producers in the West could have potentially seen stronger results weather permitting, but have managed to still sustain a decent crop turnaround. "The harvest conditions have not been ideal, but we continue to work with farmers negatively impacted by adverse weather."

While Canadian producers benefitted from a timely fall in the loonie that lifted crop prices north of the border, it also raised the cost of internationally-priced inputs like energy and fertilizer. Most producers face a wide variety of Canadian dollar-dominated expenses though, so margins have ultimately benefitted on balance.

From mid-2014 to early this year, the weaker Canadian dollar also caused food prices to inflate four per cent yearly. Consumers have been somewhat relieved as a result of the partial bounce-back of the dollar in the latter half of the year and a decrease in livestock prices.

 


January 10, 2017
By BMO

Topics

Print this page

Related



Leave a Reply

Your email address will not be published. Required fields are marked *

*