NA: Five agriculture economic issues to watch in 2014
"Canadian agriculture is a challenging and rewarding industry, filled with professional, forward-thinking, business-savvy people who love what they do," Gervais says. "By building and sharing agriculture knowledge, producers benefit, agriculture benefits, rural Canada benefits and so do all Canadians."
North American farmland values have been increasing rapidly over the past several years, but they could soon plateau, according to Gervais.
"Many producers will be surveying the landscape to determine if they should buy more land or pay off some debt," says Gervais. "A lot of their decisions will be based on commodity price forecasts, their current profit margin and how much they have invested in land in recent years."
The tentative agreement between the European Union and Canada on the Comprehensive Economic Trade Agreement (CETA) may be generating the headlines, but Canada is also involved in negotiating other significant trade deals, including the Trans-Pacific Partnership (TPP).
"Between those two agreements, every sector of Canadian agriculture will have opportunities and face some challenges," says Gervais. "We need to start preparing to manage our business in a new environment."
U.S. political infighting promises to create more uncertainty south of the border. The dispute resulted in a partial government shutdown this year and continues to pose a risk that the U.S. will default on its debt.
Gervais, however, predicts things will continue to improve south of the border. The U.S. Federal Reserve recently started scaling back its aggressive monetary policy because it is seeing strength in the labour market and household finances.
"Rolling back a program of this magnitude is sailing in uncharted waters," Gervais says. "This change in the U.S. monetary direction can have wide impacts in the financial markets - mostly on the value of the emerging markets' currencies - impacting the competitiveness of Canadian agricultural commodities."
Canadian livestock producers - particularly beef producers - should expect healthy returns over the next couple of years, according to Gervais.
Stronger beef prices are the result of supply and demand dynamics. Cattle numbers have been declining for some years; a result of drought in the U.S. and financial conditions that forced many producers to reduce the size of their herd or leave the sector. The U.S. herd was reduced by five per cent over the past two years and will take a couple of years to recover, while the Canadian herd is stable and appears ready to rebound.
Gervais says the U.S. Country of Origin Labelling (COOL) legislation has hurt Canadian cattle producers, especially since new rules were issued by the U.S. Department of Agriculture. The coming year will determine if the U.S. government backpedals or even takes apart this legislation, either voluntarily or through pressure from its trading partners.
Like much of the rest of the agriculture economy, equipment sales were on fire for many of the past five years. From 2006 to 2012, an average of 2,100 tractors were sold every month in Canada, according the Association of Equipment Manufacturers. Sales are expected to be equally as strong for 2013 when the final numbers are tallied.
"In the short-term, we will likely see equipment prices staying steady, but they could soften somewhat if supplies remain high and producers decide to retain their old equipment or buy used equipment," Gervais says. "Broad economic factors may influence how producers use their past profits, but it really comes down to the unique circumstances of individual producers."
For more information:
Farm Credit Canada
www.fcc.ca
