Economists at Farm Credit Canada have updated their outlook, reflecting uncertainties caused by tariff turmoil touched off by United States President Donald Trump.
The tariff war has particular impacts on the grains and hog sectors.
Canadian soybean prices usually track U.S. trends and the U.S. prices have dropped about 20 per cent since China and Mexico imposed retaliatory tariffs on U.S. soybeans.
Those two countries usually buy about 40 per cent of U.S. soybean exports.
Given that backdrop, FCC’s outlook says “uncertainty will, at the very least, introduce price volatility and an ambiguous U.S. farm price (US$8.00-$10.50 per bushel compared to US$9.35 per bushel in 2017-18). Despite the potential for risk, we expect the sector to weather the storm.”
“The average 2018-19 price is expected to slowly
rise above the 2014-15 price for the first time.’
Canadian corn prices will continue to track U.S. markets which are showing declines in the futures market. Canadian corn acres planted this year “may not be large enough to raise corn revenues.”
“Our January forecast for Canadian dairy failed to anticipate the challenges to profitability the sector faced in the first half of 2018. We expect profit margins in the P5 milk pool to be breakeven or slightly negative for the remainder of 2018.
“Trends in dairy product consumption remain positive. Cheese and yogout consumption each grew between two and four per cent in the first three months of 2018. The fluid milk market is holding steady and butter demand is still expanding, with over four per cent annual growth.’
“Escalating trade tensions between the U.S and Mexico, and the U.S. and China and the resulting tariffs on U.S. pork exports may disrupt markets.
“Around 40 per cent of U.S. exports wind up in those two countries.
“Fewer trade opportunities for U.S pork may open the door for more Canadian pork exports, but also result in reductions in the hog price that Canadians receive.”
“The good news is that demand continues to be strong, both domestically and globally. Canadian beef prices have come down 0.6 per cent so far this year. That trend may last until December and this is good news for the cattle sector.
“Global markets continue to buy Canadian beef: beef exports increased 86 per cent in the last five years, with the U.S. leading the growth. Japan, Mexico and China have also stepped up their imports of Canadian beef.”
Margins have been squeezed and the labour market is tight.
“The record in exports that Canadian food processors set in 2017 fell a slight 0.7 per cent up to June, but continued strong U.S. growth could spur exports in the second half of the year to make up for the slower pace recorded in the first six months of 2018.
“Canada’s food processors could see further export opportunities expand beyond the U.S. market. Given ongoing trade tensions and tariffs applied to numerous U.S. products, foreign markets will look to source more competitively priced imports from non-U.S. suppliers.
China, Mexico and the European Union are particularly enticing markets in the current global trade environment.”