This year’s “lacklustre” pricing in ag commodities is expected to improve only modestly in 2010, beyond which TD Economics sees a “favourable” longer-term outlook.
TD Bank Financial Group’s economic forecasting and research arm released its latest report on the state of Canadian farming last week, documenting the effects of excess global supplies in major ag commodities along with a higher Canadian dollar.
“It appears that these negative influences will persist in the near term, leaving crop and livestock prices vulnerable to further bouts of downward pressure,” TD economist Dina Cover said in a release. “But by mid-2010, prices should be ripe for a moderate recovery, led by the livestock sector.”
“Bumper harvests around the world have led to a surge in carryover stocks of most crops, while the livestock sector continues to battle an oversupplied market,” TD said.
“Meanwhile, input costs — notably, energy, transportation and fertilizer — have fallen considerably from the heights seen in 2008, providing some offset to the drop in prices. As such, this year’s net farm income will likely be in line with 2008 levels.”
Next year, TD said, crop and livestock prices are expected to benefit from supply/demand conditions firming up globally and an “easing” in the value of the loonie in the third and fourth quarters.
That said, the costs of key inputs are expected to resume growing next year, which in turn could leave farmers with lower net incomes on average compared to 2009, TD said.
In the longer term, prospects are seen brightening for the ag sector due to the continued upward trend in prices that began early in the decade. Biofuels will still support demand for crops, as mandates in the U.S. remain in place and are set to rise over the next few years.
Incomes and populations are also expected to continue to grow rapidly and underpin a steady uptrend in demand for high-quality food, supporting both the crop and livestock sectors.
“As such, Canadian agricultural producers should look to broaden their export markets,” TD said.
To that end, the bank urged livestock producers to step up traceability measures. “Given all the disease outbreaks that have occurred over the past decade relating to livestock and meat-related products, this is one issue that is increasingly becoming a necessity in order for producers to remain competitive on the global stage.”
The federal government plans to implement a national agricultural and food traceability system by 2011, TD noted.