The 2026 FCC Food and Beverage Report states sales among food and beverage manufacturers are predicted to rise by 0.8 per cent while volumes fall by 0.7 per cent, the fourth straight year of decline. It notes sales growth will likely be driven by higher prices, not higher consumption.

WHY IT MATTERS: With trade tensions still disrupting global supply, prices could fluctuate this year, affecting consumers’ choices.

FCC chief economist Craig Johnston said this disparity speaks to the issue of consumer purchasing power.

“Higher food prices over the past several years are really weighing on households’ budgets,” he said in an interview. “They’re making more cost-conscious decisions.”

“This is actually a headwind for consumption and a headwind for volumes.”

He said any upstream changes will no doubt filter down to Canadian producers. Some challenges are shared across sectors.

“When we think about common elements, you can think about the tariffs, the elevated input costs, generally,” he said.

Margins are tight across the sector, including for farmers.

“We’re not seeing massive improvements on margins within the food and beverage manufacturing sector to pre-COVID levels, and we’re not necessarily seeing that filter through to a broad-based increase in margins for primary ag.”

“The industry in general is still going through this adjustment period” he said, “and we do expect that to continue to 2026.”

Trade tensions still a factor

Canada will continue to grapple with trade uncertainty this year, including the recent instability caused by the conflict in the Middle East.

Forecasts for costs of goods in the Food and Beverage Report were made before the crisis, “meaning that if the commodity price surge persists beyond just a few months, there would be upside risks to those estimates.”

FCC had expected pressures on some inputs, such as cattle and hogs, to ease from 2025 highs, but surging energy prices due to the conflict make that less likely.

Costs of production up

Production costs for food and beverage manufacturers increased by two per cent in 2025, driven mostly by raw material costs.

“The increase in raw material costs was driven by disruptions that constrained availability and raised prices,” the report states.

“Some examples from 2025 include avian influenza impacts on poultry … tariffs that increased the cost of imported aluminum packaging and historically low cattle herd sizes across North America.”

Costs across sectors

The report also breaks down costs associated with sub-sectors of food and beverage processing.

In grain and oilseed milling, sales were uneven in 2025 but improved by the fourth quarter. 2026 shows signs of a rebound in sales and volumes.

Large carryover of canola stocks is expected to keep prices under pressure in 2026. Canola prices are expected to fall by 3.1 per cent in 2026.

The report suggested demand for Canadian maple syrup and honey has continued to increase in the global market.

In the dairy sector, 2026 will likely see a 3.6 per cent increase of product manufacturing sales over 2025. Processors are also expected to pass along costs from the producer price increase for unprocessed milk to consumers.

In the meat manufacturing sector, FCC forecasts sales up 1.6 per cent and volumes down by 5.6 per cent.

Tight supplies of live animals, due largely to disease outbreaks, drove prices up in 2025. According to the report, “2026 will likely see another year where price, not volume, drives sales upward.”

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The farm lender maintained its prediction that GDP growth would slow to around one per cent.

The effective blockade of the Strait of Hormuz, which has restricted the flow of oil and gas from the region, has pushed commodity prices to multi-year highs, FCC economist Krishen Rangasamy wrote in a March 18 report.

Pros and cons

The jump in prices could spell opportunity for Canada, Rangasamy said.

WHY IT MATTERS: Higher fuel and fertilizer prices for farmers today could be followed by higher borrowing costs in the future if core inflation persists.

“Given its high historical correlation with commodity prices, nominal GDP (which matters for government revenues) is likely to also perk up.”

If commodity prices stay high, the federal government and governments in resource-rich provinces such as Alberta or Newfoundland and Labrador could see higher revenues. That doesn’t mean governments will spend more, Rangasamy said, but there’s potential for a spending-related GDP boost.

However, fertilizer prices are among those surging due to the conflict which is weighing on the ag sector. Higher prices for fuel can also push up inflation and erode consumers’ buying power.

Trade war damages

Last year, Canada’s economy saw the worst performance since the 2020 pandemic recession — growing just 1.7 per cent, Rangasamy wrote. Export volumes fell on an annual basis for the first time in five years.

Government and consumption spending offset weaknesses in housing and business investment. However, based on a slumping household savings rate, consumers also dipped into savings to maintain lifestyles. This means Canadians have little cushion to absorb future shocks.

“With no end in sight to America’s trade war … look for trade and business investment to act as a drag on Canada’s economy again in 2026,” Rangasamy said.

Government and consumption spending may not provide as much of an offset this time. Rangasamy noted the government has telegraphed caution related to public spending. While ambitious public projects are in the works, that spending isn’t expected this year.

Interest rates and the loonie

If commodity prices stay high long enough, businesses may be forced to raise prices which could lead workers to demand higher wages.

“That could potentially trigger a wage-price spiral,” said Rangasamy.

The Bank of Canada could pre-emptively raise interest rates to prevent core inflation from taking off. However, he predicted the bank would stay in “pause mode” for several months.

FCC predicted the Canadian dollar would trade in the 72- to 74-U.S. cent range for most of the year, but acknowledged currency volatility could temporarily take it outside that range.

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The July contract failed to record consecutive gains or losses during the week, with prices ranging from C$615.40 to C$641.80 per tonne. The November contract, which traded as high as C$662.90 earlier in the week, fell to its lowest point since May 1 at C$637.40 on June 12 before closing the day higher.

Ken Ball of Ventum Financial Corp. in Winnipeg identified the reasons for canola’s volatility as speculative funds liquidating long positions as well as increased grower selling.

“The canola market, being a very small market, it just can’t handle it when the market goes through a shift like that,” he said. “We had that very (volatile) day where we (ranged) C$30 and there have been a few other relatively weak days in canola just as we transition from a spring bull market into a little bit of a different market over the last few weeks.

“It should start settling down now, being a little bit more in line with the soy markets. We’re off to a fairly good start to the canola crop.”

From June 10 to 12, the July soyoil contract had three positive sessions, but did not gain more than 0.12 of a U.S. cent per pound in any of those days. Ball added that while canola crush margins are lower than they were last year, they are still quite strong.

Rains across the Prairies over the last month have alleviated drought and dry conditions, providing sufficient moisture for canola and pressuring prices. Ball believes the rains were the impetus to recent selling action on the market. However, he added the rains have slowed canola development and the crop is in need of a few hot and sunny days in a row to catch up.

“There are hardly any truly dry areas left in the Prairies. But crops are starting to develop slowly due to the cool and cloudy weather,” Ball said. “Of course, it is only the first part of June … At the end of June, early July, we’re going to see some very good crops in the Prairies.”

Ball said the typical spring rally for canola has subsided, but there is still time for weather scares to temporarily prop up canola prices. However, he said canola prices are currently biased to the downside.

“It’s a bit early for the market to just assume we’re going to have a great crop, but we are leaning to a good start to the crop,” Ball explained. “Assuming we have close to a normal summer, (prices are) likely to be leaning lower going into fall.”

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Gross margins, however, should increase as the effects of falling commodity prices work their way through the supply chain, the farm lender said in an April 9 news release.

In its Food and Beverage Report 2024, FCC said that Canadians spent less than average on food and beverages in 2023. People shifted shopping habits to purchase more sale items and cheaper brands, and even cut back on the volume of food purchased.

“While changing shopping habits may pose challenges, they also present opportunities for food and beverage manufacturers,” said FCC chief economist J.P. Gervais in the news release.

“Taste remains the top consideration for consumers, but price sensitivity has increased, leading processors to innovate and meet evolving consumer demands.”

A growing, diverse population also provides opportunities for food manufacturers, the report said. More than one million people came to Canada in the first nine months of 2023.

“That’s a lot more mouths to feed,” FCC said.

FCC projects food and beverage sales to slip 1.4 per cent in 2024, while gross margins improve 1.5 per cent on average—varying widely across the sector.

Much of sales growth in the last three years has been influenced by inflation, “as manufacturers aimed to pass on increases in input costs to the best of their ability to protect margins,” the report said.

In 2023, input costs like commodities, fuel and transport began to stabilize or decline. Wage growth is still hot, but falling job vacancy rates suggest that could soon moderate.

FCC projects grain and oilseed milling sales to decrease by 11.3 per cent while volumes increase by 1.1 per cent.

Dairy products should see sales grow by 6.5 per cent, while volumes grow 7.5 per cent. The sector can also expect improving margins—though still below 2022 levels.

Sales of meat products are expected to grow by 2.7 per cent, with volumes bumping up 0.7 per cent year over year. Pork margins are expected to improve compared to a difficult 2023. Beef processing margins should stay in the black, but competition for live cattle will be fierce. Poultry processors will deal with plateauing demand and high frozen inventory.

The U.S. economy is a wildcard, FCC said.

“Should the U.S. economy continue outperforming expectations, export growth could surprise to the upside and turn the projected small sales contraction forecast into small growth,” the report said.

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“In this environment, I do think that management skills are absolutely critical,” said J.P. Gervais, vice-president and chief economist with Farm Credit Canada (FCC).

“Any two, three, four or five per cent that you can get in terms of efficiency, in terms of productivity, will help on the bottom line because there’s a multiplicative effect when it comes to lowering your costs and the impact on the overall profitability of operations.”

That said, Gervais is “cautiously optimistic” about Canadian agriculture this year.

“I’m optimistic because we’re going to get relief when it comes to interest rates. We know that (input) costs for some sectors are going to be coming down. So that’s going to help profitability,” he said at FCC’s 2024 economic outlook January 23.

“But I’m being cautious as well because consumers are under a little bit of pressure. And it all starts with consumers.”

From a broader economic perspective, Krishen Rangasamy, principal economist with FCC, noted a recent downward trend in inflation in Canada created by economic slowdown. This may result in interest rates dropping in 2024, he said.

“We’re forecasting growth to be below potential. In other words, you can expect inflation to keep trending towards the Bank of Canada’s two per cent target,” said Rangasamy.

“Our own forecast is for the Bank of Canada to start cutting interest rates in the second half of the year. But the Bank of Canada is going to do that only if they become comfortable about inflation sustainably going down,” he said.

“So that’s why we think they’re going to wait a little bit.”

Beyond 2024, Gervais envisions health for the overall ag industry.

“I think the long term outlook for the industry remains extremely positive. I think we know there is a very, very strong demand for what we can grow and produce as food. That’s the reason why I think we’re still very optimistic about the long term,” he said.

—Jeff Melchior writes for the Alberta Farmer Express.

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The Food and Agriculture Organization’s (FAO) price index, which tracks the most globally traded food commodities, averaged 118.5 points in December, down 1.5 per cent from November and 10.1 per cent below December 2022 levels.

For 2023 as a whole, the index averaged 13.7 per cent below year earlier levels, with only sugar prices higher over the period. The FAO’s sugar price index did, however, decline 16.6 per cent in December from November.

This was “mainly driven by the strong pace of production in Brazil, along with reduced use of sugarcane for ethanol production in India,” the UN agency said in a statement.

The FAO’s cereal price index rose 1.5 per cent in December from November, as wheat, maize, rice and barley prices all rose amid hindered shipments from major exporting countries.

For the year as a whole however, cereal prices were 15.4 per cent below their 2022 average as markets are well supplied with the exception of rice.

The largest price falls were in vegetable oils, with the price index slumping 1.4 per cent in December, from November, and a substantial 32.7 per cent drop for the year as a whole.

The FAO’s meat price index dipped 1.0 per cent in December from November and was down 1.8 per cent year-on-year, while the December dairy price index rose 1.6 per cent month-on-month, but was down 16.1 per cent from a year earlier.

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“We forecast commodity prices to rise by an average of 2% in 2024 and fall by 4% in 2025,” HSBC wrote in a note.

HSBC expects China’s growth recovery and ongoing supply constraints will keep commodity prices supported this year.

It said geopolitical risks and expectations of looser monetary policy in the second half of 2024 will add to the upside, while downside risks include the ongoing slowdown in global growth.

Cocoa and iron ore prices surged in 2023, while natural gas and coal prices tumbled, with most agricultural products expected to outperform energy and industrial metals in the New Year amid supply constraints and dry weather.

HSBC projected Brent to average $82.5 per barrel and U.S. Henry Hub natural gas prices to average $3.75 per million British thermal units.

Crude futures lost more than 10 per cent in 2023 during a tumultuous year of trading marked by geopolitical turmoil and concerns about oil output levels of major global producers.

U.S. natural gas futures recorded their biggest percentage fall for the year since 2006, under pressure from record production, ample inventories in storage and relatively mild weather conditions.

HSBC also predicts gold prices will average $1,825 an ounce in 2024, predicting the first rate cut from the Federal Reserve in June 2024.

Gold investors anticipate record high prices this year, when the fundamentals of a dovish pivot in U.S. interest rates, continued geopolitical risk, and central bank buying are expected to support the market.

–Reporting for Reuters by Ashitha Shivaprasad, additional reporting by Deep Vakil in Bengaluru.

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In the federal agency’s report, it increased canola production for 2023/24 from its September estimate by about 900,000 tonnes at 18.3 million, which was the average trade guess ahead of the report.

While the canola number was in line with the average trade guess Klassen also said it surprised many participants. He suggested the trade was now wondering if there is actually more canola out there than what StatCan calculated.

Since the report was issued, the January canola contract dropped C$30.60 per tonne on the Intercontinental Exchange, closing out Dec. 6 at C$649.90. And this was despite 2023/24 canola production being two per cent lower than what came off of the fields last year.

Klassen said major importers of Canadian canola and domestic crushers were backing away from their purchases with both seeing supplies being sufficient enough.

The most recent numbers from the Canadian Grain Commission placed year-to-date canola exports at about 2.03 million tonnes, less than the 2.64 million the same time last year. However, so far through the 2023/24 marketing year domestic usage remained ahead of last year at 3.48 million tonnes versus 3.17 million.

“With the larger crop, the trade is now anticipating we are going to get overwhelmed with deliveries,” Klassen stated.

The CGC reported producer deliveries of canola lagged behind those from last year at 5.59 million tonnes compared to 6.52 million.

“On top of that, you got the spec funds pouring it on,” Klassen said.

The latest numbers from the United States Commodity Futures Trading Commission reported the net managed money short position in canola was at 81,770, with 88,688 short and 6,918 long as of Nov. 28.

Klassen said that the declines in the global vegetable oil market have added to the bearish tone in ICE canola futures.

“You’re not going to see things turn around before the end of the month,” he stated, noting that January and February are traditionally quite bearish for canola as that’s when farmers often bring in more of the oilseed.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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Innovation Minister Francois-Philippe Champagne made the announcement after two hours of what he said were difficult discussions with the chains.

Champagne, who summoned the executives to Ottawa, reiterated a threat that the government could impose new taxes if the chains do not come up with a plan to help address budget-busting price increases.

“They have agreed to support the government of Canada in our efforts to stabilize prices in Canada,” Champagne told reporters, without giving details.

“This is a step in the right direction,” he said. “We’ll keep on pushing them — trust me, this is just the beginning.”

Champagne said in a separate statement the government wants to see “concrete actions” from the retailers by Thanksgiving (Oct. 9).

However, he said, any such actions “must not negatively impact small suppliers or the price that farmers receive for their products.”

Any moves by the grocers, he said, also must not impact “pricing mechanisms as determined by supply-managed industries” such as Canada’s dairy, egg and poultry sectors.

The Liberals are trailing in the polls and facing complaints about the high cost of living and a lack of affordable housing.

One of the five executives at the meeting, Metro CEO Eric La Fleche, said the chains were keen to do all they could but dismissed the idea that they alone were to blame.

“We’re all committed to finding solutions to stabilize prices … it’s an industry issue. Any conversation has to include all the manufacturers, producers, farmers and everybody,” the CEO said.

“It’s not just about the retailers, the minister understands that very clearly.”

The other chains attending the meeting were Loblaws, Sobeys, Walmart and Costco, which together with Metro represent 80 per cent of the Canadian market.

As part of the government’s push to cope with high prices, Prime Minister Justin Trudeau last week announced a tax break designed to boost the construction of new rental apartment buildings and relieve pressure on the Canadian housing market.

Karina Gould, the minister in charge of pushing the government’s agenda through the House of Commons, said she would shortly introduce wide-ranging draft legislation designed to help curb inflation.

Polls show the official opposition Conservatives, who blame high inflation on Trudeau for what they call excessive government spending, would win an election if one were held now, ending eight years of Liberal rule.

— Reporting for Reuters by Steve Scherer and David Ljunggren. Includes files from Glacier FarmMedia Network staff.

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Financial details were not disclosed.

Agribriefing’s businesses include protein price-reporting agency Urner Barry and crop consultancy Strategie Grains, the latter acquired by Agribriefing in 2021.

New Jersey-based Urner Barry provides market intelligence for the poultry, egg, meat, seafood and plant protein segments, while France’s Strategie focuses on European and world grain and oilseed markets.

The Agribriefing takeover follows Mintec’s acquisition in December of commodity price reporting firm CommoPrices.

Mintec, based west of London, publishes prices and analysis on food ingredients.

Five Arrows Principal Investments, an investment arm of financial advisory group Rothschild and Co., acquired a majority stake in Mintec last year.

— Reporting for Reuters by Gus Trompiz in Paris.

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