I had the pleasure of attending the United States Department of Agriculture (USDA) . The overall mood during the conference was sombre considering the U.S. agriculture industry is coming out of a difficult 2015 – a year which saw net farm income decline by 27.7 %.
The next 10 years look cautiously optimistic. My top four takeaways from the meeting were:
1. Potential trade deals could boost U.S. exports by one-third:
- The U.S. dollar has appreciated against the currencies of both customers and competitors; resulting in slowing U.S. exports
- Nevertheless, optimism reigned as long-run prospects appear positive with potential Trans-Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (TTIP) with the European Union and normalization of trade relationship with Cuba
- By 2025 U.S. agriculture exports are projected to rise 33 %
2. Large global and U.S. stocks of grains and oilseeds are weighing on U.S. prices:
- Abundant supplies of grains and oilseeds put downward pressure on prices and are expected to reduce total U.S. acreage in 2016:
3. U.S. farm income and farmland values are declining:
- U.S. net cash income is expected to decline 2.5% in 2016
- Land values in certain regions will decline based on lower net cash income
4. U.S. livestock herd continues to expand despite lower prices:
- Livestock prices for 2016 are expected to decline 6 % for hogs and 7 % for cattle from 2015 averages
- Continued expansion is expected given lower feed costs, improved pasture and increasing pigs per litter
Why does this matter to Canadian agriculture?
In contrast to U.S. agriculture, currency movements have been positive for Canadian producers. Canadian exports benefit from the low loonie and shield producers from low U.S. prices, boosting Canadian prices of grains, oilseeds, and livestock.
As a result, the export pace of many Canadian commodities exceeds expectations. Weekly statistics for 2015-16 (week 29) from the indicate exports are approximately 1.2 million tonnes (Mt) higher than last year during the same time period. In addition, canola crushed year to date totaled 4.4 Mt as of February 17, 2016, versus 3.9 Mt a year ago.
The good news for Canadian producers is domestic-ending stocks could be slightly tighter given the strong export pace and domestic use to-date. This, coupled with an export friendly Canadian dollar, should keep basis levels attractive and prices supported relative to the U.S.
Cattle exports to the U.S. may decline in 2016 but improve over the next several years as rebuilding occurs. Live hog exports to the U.S. are projected to increase due to an expectation of a large Canadian hog production and a low dollar.
While market conditions south of the border have been challenging lately, macroeconomic conditions and the supply and demand outlook for Canadian crops and livestock imply the Canadian agriculture industry has reasons to remain optimistic.