The beginning of a new year marks a time of planning. The FCC Ag Economics team wants to help you put your best foot forward into 2017 with an in-depth look at the top five economic drivers likely to affect Canadian agriculture this year.
The Canadian dollar will impact every business across the entire agri-food supply chain in 2017. Varying against the relative value of the USD, it can uniquely drive profits either higher or lower and is therefore our number one trend to watch.
The USD plays a unique role in Canadian agriculture. The U.S. is our largest export market and many commodities that Canada produces, are priced in U.S. dollars. The Canadian dollar has steadily declined against the USD since 2012. Making some assumptions about oil prices and interest rates, we expect 2017 won’t be any different: next year’s loonie will pick up where the 2016 loonie left off. It will be a generally positive trend for Canadian agriculture, remaining below its 5-year average of US$0.88, and hovering around US$0.75 throughout the year.
That’s good news for many Canadian producers and agri-food businesses.
What can Canadian ag expect from the world in 2017?
We expect another four drivers to have a major impact on Canadian agriculture throughout 2017. We’ll be sharing insights about each over the following weeks, but here’s a quick overview now.
1. Energy prices
Theoil price benchmark is expected to remain around the US$50 per barrel threshold. Commitments to cut oil production by major oil producing countries strengthened the outlook for oil recently. But there are serious questions about the likely supply and strength of demand throughout the year.
2. Commodity prices
With production growth and high ending stocks the big story for 2017, commodity prices aren’t likely to get much better for Canadian producers. Will lower commodity prices keep consumption and export demand strong enough?
3. Interest rates
The US Federal Reserve chose to hike its key interest rate in December. Interest rates should rise both in the U.S. and Canada, but it’s the spread between the different rates that matters. With an outlook for this spread to grow slightly in 2017, how much investment potential will the Canadian economy hold?
4. Global economy
The global economy will be a bit of a wild card in 2017. It’s going to impact demand for ag commodities. But as China-U.S. trade flows evolve, the question of their capacity to influence commodity prices and the long-term health of Canadian ag exports remains.
What’s the bottom line?
Watch the loonie in 2017. It could easily have the largest impact of all possible trends and drivers on the profitability of Canadian agriculture and agribusiness throughout the year. It’ll certainly show up in the prices Canadian ag producers will get and ultimately, their farm cash receipts. A low loonie makes Canadian manufactured food products more competitive in foreign markets, and domestically, it’ll help shield Canadian firms from foreign competition.