Above-average crop prices, a lower loonie and easing cost pressures are expected to mean “another good year,” from where TD Economics sits, for Canada’s ag sector overall in 2009.
This despite the “growing likelihood” of a global economic recession next year, TD Economics forecast in a report released Monday on prospects for Canada’s ag sector in 2009.
Generally, TD Bank’s economic analysts expect ag commodity prices to end 2009 on a “firmer” note compared to the start of the year, although the average level of forecast prices is expected to be well below those in 2008.
But reduced cost pressures are expected to be the “number one factor” supporting net ag income for both crop and livestock producers during the near term, TD Economics wrote, citing expected lower prices in energy, fertilizer and transportation and “gradual easing” in credit conditions.
Crop prices in 2008 surged “to the moon” in the first half of 2008 but dropped back in later months, due in part to an “unexpected surge” in global crop supplies. And ag markets “have not been immune to the general flight out of commodities and other perceived riskier assets.”
That said, TD Economics predicted the further downside risk to prices is “limited” and expects a “recovery” in place by mid-2009, with prices further supported by the Canadian dollar, which is expected to trade lower in the US80- to 90-cent range next year.
Food demand in China, India and other emerging markets is expected to remain firm in 2009 and beyond, TD wrote, and although oil prices have dropped, mandates for ethanol use in Canada, the U.S. and other countries will also help support crop prices.
U.S. livestock prices are expected to rise, supported by lower inventories of cattle and hogs. For Canadian producers, however, those increases will be offset by reduced demand for Canadian imports due to the U.S. government’s new mandatory country-of-origin labelling (COOL) for meat and other foods, increasing the costs for U.S. food companies that process imported products.
In a longer-term outlook published in 2007, TD Economics said the ag sector’s overall fortunes appeared brighter in the future, given rising incomes among consumers in emerging markets as well as opportunities for organic production and increased demand for ethanol feedstock.
“Despite this year’s flurry of developments and ongoing challenges in the livestock sector, TD Economics stands by that assessment,” TD Economics said in Monday’s report. “While significant challenges remain, the pendulum will continue to swing to the sector’s unprecedented opportunities in the global marketplace.”