Strong crop prices needed to grow 2018 receipts

Crop receipts declined 6.1% at the national level in the first quarter of 2018 compared to the same time a year ago. But because each province features a different crop mix, the trends in revenue have differed in each (Table 1). In the last quarter, changes in provincial crop receipts ranged from 7.0% growth in Nova Scotia’s revenues to a 9.4% loss in Alberta’s revenues.

Table 1: Prairie provinces see largest dip in receipts in the last quarter

 

Canada -6.1%
Nova Scotia 7.0%
New Brunswick 4.8%
British Columbia 0.2%
Manitoba -0.6%
Ontario -2.0%
Prince Edward Island -3.5%
Quebec -4.2%
Newfoundland and Labrador -6.4%
Saskatchewan -8.1%
Alberta -9.4%

Percentage change in crop receipts from 1st quarter of 2017 to 1st quarter of 2018

Strengthening apple and blueberry prices helped push up Nova Scotia’s receipt growth – although they remain below the 5-year average. But the prairie provinces’ crop revenues, which account for 79% of total Canadian crop revenues, play the biggest role in the overall national story to date in 2018. With smaller volumes of grains and oilseeds marketed in the first three months of 2018, Alberta and Saskatchewan recorded declines in revenue, pushing down the national average.  

2018 crop size will matter

Early estimates suggest crop receipts may shrink in 2018. Most revenue in the first three-quarters of 2018 will come from 2017’s crop production, a year that saw record canola and soybean production.

But while a disappointing 2018 crop would certainly lower receipts from 2017 levels, healthy production in 2018 could lift revenues in the fourth quarter enough to produce year-over-year revenue growth. That lift would represent the seventh time in ten years Canadian crop producers have recorded revenue growth. At this point, there’s still uncertainty around growing conditions across the country, but the good news is that concerns around dryness in parts of the Prairies have lifted recently.  

Demand remains robust, keeping crop prices from falling further amid short-term uncertainty

Assuming 2018 production will be close to that of 2017, I expect crop receipts to increase slightly this year if trade conflicts involving the U.S. don’t end up pushing prices of soybeans and other commodities lower throughout the year.

Corn and wheat prices have risen lately, driven by both robust demand and concerns around dryness in the U.S. plains. Although there’s still lots of supply, global demand for oilseeds remains strong. And, as a bonus, the USD/CAD exchange rate will likely stay favourable to Canadian producers.

Note: I’m not speaking directly about Canadian profitability over the next six months. I expect farm inputs will be more expensive this crop year, and that will certainly pinch margins. 

Farmland values to see a hike in 2018?

In summary, barring an unforeseen Canadian production slowdown and/or significant permanent trade disruptions in 2018, prices should help to produce revenue growth for Canada’s crop producers in 2018. And because it’s generally the case that strengthening revenues result in rising farmland values – at least at the national level – we may also see a modest increase to those values over the year.

Of course, interest rates will also shape farmland values in 2018. Financial markets largely expect the Bank of Canada to raise the overnight rate in July, pushing farms’ borrowing costs higher and potentially dampening land value increases. At the very least, any rate hike that increases borrowing costs will pinch margins even further.

Watch this video to find out what rising farmland values mean for your operation.  


J.P. Gervais
Vice-President and Chief Agricultural Economist

J.P. is the Vice-President and Chief Agricultural Economist at Farm Credit Canada. Prior to joining FCC in 2010, J.P. was a professor of agricultural economics at North Carolina State University and Laval University. He also held the Canada Research Chair in Agri-Industries and International Trade at Laval. J.P. is Past-President of the Canadian Agricultural Economics Society. He obtained his PhD in economics from Iowa State University in 1999.

@jpgervais