Producers have reason for optimism going into 2013, according to Charlie Pearson, provincial crops market analyst with Alberta Agriculture.
“We have a continuation of current reasonably high prices,” said Pearson. “I don’t think prices will be quite as high as they have been in the current crop year, but I think farmers can look forward with some optimism to… high prices.”
Last year’s record high prices were thanks to a combination of factors, said Pearson, including drought conditions in the U.S., Russia, the Ukraine and Kazakhstan, good crops in Alberta and increased demand in Asia.
Pearson said although the drought is persisting across the U.S., he doesn’t think crops will suffer the same level of disaster as last year. He added more will be known in the next couple of months dependent on the weather.
“That crop is not a disaster yet, but you do need good weather,” said Pearson. “It’s a matter of whether Mother Nature cooperates.”
Better crops will affect the prices of grain, said Pearson.
“With bigger supplies in the U.S. and more availability of crops to look after world needs, that will probably put some more pressure on prices,” he said.
Pearson said livestock producers faced a different circumstance than crop producers last year. The high feed-grain prices forced some tough decisions, he explained.
He said the number of both cattle and hogs has decreased over the last year in Alberta because of the high cost of feed, which may lead to higher prices for livestock producers.
“We do have tighter cattle numbers right across North America with continued strong demand,” said Pearson, adding feed prices in Alberta are lower than those of our neighbours to the south.
Another factor affecting farmers is higher land prices and rental costs.
“A lot of the expense side is increasing as well,” said Pearson. “There is still good profitability, it is just a matter of being cautious… and remembering that good years and high prices don’t necessarily stay around forever.
“Risk management is still important.”
Farm Credit Canada’s Chief Agricultural Economist J.P. Gervais echoes Pearson’s cautious optimism.
He predicts demand for Canadian agriculture products in emerging markets, such as China and India, will continue to increase in 2013.
Increased demand coupled with world inventories of major crops remain tight when compared with projected demand, could lead to higher crop prices.
It may also mean expenses remaining high for livestock producers, he explained in a press release.
“The likelihood of two major droughts in a row is small, but adverse weather conditions in the U.S., Australia, or South America could push crop prices upward again,” said Gervais. “Livestock producers may have to live with higher-than-average feed prices throughout 2013.”
The FCC Farmland Values Report estimated Canadian farmland appreciated on average by 8.6 per cent over the first six months of 2012, according to an FCC press release.
“The outlook for farmland values rests with interest rates and crop receipts,” said Gervais. “It’s impossible to project future interest rates with certainty, but it’s plausible that interest rates will remain low into the second half of 2013. Crop receipts should remain strong, barring adverse weather in Canada.”
Given the volatile economic climate, Gervais recommends Canadian producers continue to look for efficiencies and productivity gains.
“Investments in land, equipment and technology must be linked to the bottom line over the long-run,” he said.
Gervais also recommends producers watch free trade negotiations with the European Union, saying it could open up new markets, but also trigger more competition in Canada.
Strong economic performance in Western Canada continues to keep unemployment low, building pressure for higher wages, according to Gervais. This could leave some producers struggling to find qualified seasonal or full-time employees for their businesses, a situation that could also affect their bottom line.
