Four ways the Bank of Canada Outlook relates to agriculture

Have you checked out the most recent Bank of Canada’s quarterly outlook? It’s got some great insights for the entire agri-food supply chain:

1.    Canadians watched in-store meat prices soar well above inflation over the last 12 months (11.5 percent increase).  Those prices are the product of tight supplies in the cattle and hog sectors and strong demand.  The ceiling on livestock prices will ultimately be reached when consumers say “enough”. A continued weak labour market in Eastern Canada and projections of slower consumer spending may trigger this ceiling soon. 

2.    U.S. 2014 corn and soybean production will reach a record level, and this will finally replenish stocks that have remained low for a long time. Only ongoing strength in world demand for agricultural commodities will counter the growth in supply. And the strength of world demand is – in part - related to the strength of the world economy.

So what is the Bank of Canada outlook for the world economy? In a word — it’s slowing.

Their projections call for weaker world economic growth than what they projected in July. Yet, this doesn’t automatically translate into a weaker demand for agricultural commodities. It’s important to keep an eye on global export numbers (and not overall GDP) over the next few months as they’ll determine the future path of grain and oilseed prices.

3.       The overnight interest rate of the Bank of Canada is expected to remain low into 2015, giving breathing room to grain and oilseed producers facing tighter margins heading into the current marketing year. With marketing margins in the livestock sector remaining extremely high, the low interest rate environment could also encourage some expansion in that sector.

4.    And last, watch the one bright spot in the global economic landscape. The U.S. economy continues to grow and show “strengthening momentum” – great news for Canadian food manufacturers who sent 68 percent of exports to the U.S. in 2013. That means even more to our success at a time when two of our most important markets (Europe and Japan) face challenges to stimulate growth.

For more insights on how to use economic outlooks in your business, stay tuned.

J.P. Gervais, Chief Ag Economist