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Guarded but encouraging outlook for Canadian crops in 2019

Annual forecast for prices and production still high for producers despite challenges

As is usually the case for farmers, the outlook for grain, oilseed and pulse crops for 2019 is cautiously optimistic.

That’s pretty much what Farm Credit Canada (FCC) and its chief agricultural economist J.P.Gervais expressed as its opinion in its annual industry outlook.

“We are projecting an overall outlook that is optimistic, though with some tight margins, and those operations that remain efficient are the ones that are going to be profitable,” he explained.

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For grains, the margins for spring wheat may be slightly above what was achieved in 2018, while winter wheat will be under some pressure. With U.S. prices forecast to increase — ranging from season average farm prices of $5.05 to $5.25US per bushel — Canadian producer margins may find some relief if acres south of the border fall as has been suggested.

Gervais also noted that despite an eight per cent increase in seeded wheat area in Canada last year, lower yields resulted in just a one per cent hike in wheat production.

As for oilseeds and pulses, both of these commodity sectors may be influenced by some significant trade issues.

“A couple of things producers will need to be aware of include U.S.-China relations and the trade barriers India has in place on Canadian exports,” Gervais added.

“If the U.S. and China resolve those trade issues, then it is going to bring a lift to overall commodity prices. Otherwise, we are still going to see oilseed prices being pressured.

“On pulses, from a trade front, I think margins will improve if we do return to a more normal year and that should actually paint a positive picture for profits. It would also really help to see those barriers lifted, but that isn’t likely to happen until after India’s election as the government probably doesn’t want to undermine its rural support.”

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Gervais believes soy and canola should see some positive margins this crop year with canola prices slated to average over $500 CAD per tonne. This is due to lower world soy prices with any losses limited by a lower Canadian dollar. However, a nearly five per cent production decline in 2018 will support soybean prices that are expected to be in the $7.85 to $9.35 USD.

The introduction in late 2017 of import tariffs by India forced a drop in 2018 production of peas and lentils, which saw prices drop by 18 per cent and 37 per cent respectively. And while India’s production in 2019 may be challenging, any upside for Canada’s higher available supply will be pressured by stiff overseas competition and possible continuation of import tariffs.

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Looking ahead overall though, Gervais feels the two trade deals — Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and Comprehensive and Economic Trade Agreement (CETA) — gives Canadian farmers a step up on U.S. producers due to the preferential market access they provide to Asia and Europe on oilseeds and pulses. Wheat exports are also anticipated to rise three per cent in 2019 with a combination of greater export demand and reduced competition from Russia, Australia and the Ukraine.

While a delayed 2018 harvest — from poor weather — added to already existing feed grain supplies, the situation will also keep prices low. However, that should be offset by strong demand in 2019 with growing demand for more beef and pork production.

Gervais noted though that all producers will need to seek greater efficiency gains to compete as input costs are expected to rise — such as fuel which averaged 20 per cent higher in 2018 over the previous year because of world oil supply and demand — with interest rates and labour also slated to increase.

This is the fifth of seven articles in a series looking at the agricultural sector for Canadian producers.