3 tips to prepare for tighter profits

Profit margins are likely to get tighter across all sectors throughout 2016. The low Canadian dollar that has shielded Canadian producers from lower commodity prices observed throughout most of 2015 and early 2016 now sits about 4 cents below where it was a year ago. A strengthening loonie simply can’t provide the same buffering effect.

I spoke a lot about this at the FCC 2016 Ag Outlook series, which ended in Moncton in mid-March. One of my critical messages was the need to focus on farm management skills.

To help with that, here are three major influencers or impacts on Canadian agriculture and how you can stay ahead of them.

1.  Interest rates and their effect on exchange rates

The Bank of Canada (BoC) will announce its next interest rate decision on April 13. The next meeting of the U.S. Federal Reserve (Fed) is scheduled for April 27. Watch for signals from either side of the border suggesting a different course for each interest rate. A slowdown in increases to the key U.S. interest rate would further strengthen the Canadian dollar vis-à-vis the USD.

Hikes in the U.S. interest rate may slow. Central banks in Europe, Japan and China keep pushing for an accommodative stance on interest rates as the world economy still shows economic weakness. This pressure may make it difficult for the U.S. Fed to stick to its plan to normalize its key interest rate.

2.  World economic health and oil prices

The International Monetary Fund (IMF) will release its updated projections of economic growth in April. Stronger than expected global economic growth may help to resolve the glut of oil in the world market and continue to strengthen oil prices, which are critical for a healthy Canadian economy.

3. USDA reports on crop and livestock markets

Of course, the March 31 Prospective Plantings report is important as it provides a first look at U.S. producers’ 2016 planting intentions. The next update of the World Agricultural Supply and Demand Estimate (WASDE) report is scheduled for April 12. But perhaps of even greater interest is the May 10 report: the USDA’s initial assessment of U.S. and world crop supply and demand prospects for the 2016/17 marketing year. This report impacts commodity markets and prices around the world. Stay tuned to the Ag Economist blog as we’ll be posting our take on these reports as they happen.

Agriculture and Agri-Food Canada’s Outlook projects a positive 2016 for Canadian agriculture, with net cash income expected to be 14% higher than the 2010-2014 average. To ensure you see the opportunities (and challenges) ahead, monitor and understand emerging trends in interest rates, the global economy and as they’re reported in upcoming USDA reports. Each brings to bear a strong influence on what happens here. And remember to check back here for more updates as 2016 progresses.

For more on this topic, check out some of our past posts: