Outlook strong for agriculture sector

The Canadian livestock industry is set to benefit from a variety of factors this year, including lower feed costs, the weaker loonie and expected stronger economic growth on both sides of the border, shows a BMO Economics Agriculture Report.

“Between the [mad cow] crisis, fluctuating feed prices, the global recession, and the longer-term appreciation of the loonie, Canadian hog and cattle producers have faced almost every conceivable challenge over the past decade or so,” says Aaron Goertzen, Economist, BMO Capital Markets.

“Fortunately, the pendulum has finally started to swing in the other direction, which has positioned the industry for a long-awaited rebound in margins and profitability.”

Growing Conditions and Livestock Pricing

• Better growing conditions in the U.S. and a bumper crop in Canada have yielded a sharp drop in feed prices, providing producers with a much-needed boost to their margins.
• Livestock producers can also look forward to soybean prices retreating further as farmers devote more acreage to the crop.
• Other feed crops, such as corn, are now relatively well-stockpiled, which should prevent the prices of those crops from rising excessively as farmers shift their acreage toward soybeans.
• Key feed crop prices have fallen by approximately one-third over the past year (Ontario corn prices were down 35%, and Alberta barley prices were down by 28%), which has helped boost livestock producers’ bottom lines.

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Livestock Supplies

“Based on conversations with clients, we’re expecting 2014 to be an improved year for livestock producers. With margins stabilizing at a more favourable level than in previous years, we believe this will help support higher returns for their agricultural products,” says David Rinneard, vice president, agribusiness and agriculture, BMO Bank of Montreal.

• Although livestock herds have declined significantly since the mid-2000s, a more favourable industry environment is now leading producers to resume expansion, which is applying upward pressure on livestock prices as animals are retained for breeding.

Read: Canadian agriculture to post strong 2013 growth

Effects of the Loonie

• The weaker Canadian dollar has helped widen producers’ profit margins.
• Livestock producers should also benefit from more robust economic growth in North America, as the economic headwinds of last year – particularly in the United States – appear to be easing.

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Canada’s trade negotiations also bore fruit for livestock producers last year, Goertzen adds. Officials announced an agreement-in-principle on the Comprehensive Economic and Trade Agreement, which will further open the European market to Canadian beef and pork products, but is not expected to take effect until 2015 at the earliest.

Regional Operating Revenue by Farm Type in 2012

Farm Type	Canada	Atlantic	Quebec	Ontario	Manitoba	Sask.	Alberta	B.C.
Cattle Ranching	$12.4 B	$116.7 M	$957.6 M	$1.7 B	$771.6 M	$1.4 B	$6.8 B	$504.5 B
Hog & Pig Farming	$4.7B	$69.9 M	$1.9 M	$1.3 B	$976.4 M	$151.5 M	$262.3 M	$76.7 M