- Trade, and trade talks, like the Trans Pacific Partnership negotiations, and have dominated Canadian ag concerns.
- Issues like interest rate cuts and the declining value of the loonie have also been top of mind.
- Farm equipment sales have weakened in the past year, while used equipment sales, parts and service have been on the increase.
- The Chinese economy continues to slow - and Canadian ag is watching.
As 2015 comes to an end, it’s fitting to look back at the top economic issues that have impacted Canadian agriculture over the last year.
The top five issues that we tracked throughout 2015 were:
Trans Pacific Partnership negotiations
This was arguably the biggest economic story of 2015, yet it will take some time to write the final chapter. In early January, we gave a brief overview of things you should know about the TPP as a deal was on the horizon. After the negotiations ended in October, the offered a glimpse of future business opportunities and challenges if the deal is ratified and implemented.
"While supply and demand fundamentals in both Canada and the U.S. determine regional prices, the lower Canadian dollar provided strong support to profit margins in both the Canadian crop and livestock sectors."
Interest rate cuts
The Bank of Canada cut its benchmark interest rate twice in 2015, mostly in response to the fall in oil prices and the resulting weakness of the Canadian economy.
In comparison, the agriculture sector in Canada remains healthy.
The low interest rate environment has allowed agricultural operations and agri-businesses to leverage growth opportunities and make investments to position themselves for long-term success.
The declining loonie
Canadian farm-gate prices in 2015 were a reflection of the Canadian dollar, masking global price declines. The value of the Canadian dollar relative to the United States dollar declined by $0.10 in 2015 to its current value of $0.75 due to weaker oil prices and changes in interest rates. While supply and demand fundamentals in both Canada and the U.S. determine regional prices, the lower Canadian dollar provided strong support to profit margins in both the Canadian crop and livestock sectors.
While many factors influence prices, consider the following:
- U.S. corn prices were approximately 10 per cent lower in 2015 over 2014, but Ontario corn prices were nearly four per cent higher in 2015 compared to 2014.
- U.S. soybean prices have decreased over 20 per cent but have fallen on average only 13 per cent in Canada, a result of the Canadian dollar.
- Cattle and calf prices increased between three and ten per cent in the U.S., compared to a whopping 20 per cent increase in Canada this year.
Different patterns in farm equipment sales
Softening commodity prices and the declining Canadian dollar resulted in weaker sales of new farm equipment throughout 2015.
For example, combine sales are 15 per cent lower year-to-date than in 2014 and four-wheel-drive tractor sales are 33 per cent lower.
A slowdown in equipment sales was not unexpected given the high sales volumes experienced in 2013 and 2014. While new equipment sales have weakened, revenues from used equipment sales, parts and service have all risen. Preliminary data indicates used equipment sales could be up as much as 30 per cent. Check back on our webpage as we will release shortly a farm equipment report which will project trends in 2016.
A slowing Chinese economy
The Chinese economy continues to decelerate.
Before 2015, China’s GDP was projected to grow at a rate of seven per cent, a slowdown which we thought was was inevitable. China’s final GDP growth in 2015 at the time of writing is projected at 6.8 per cent. As the country transitions from an investment and export-driven economy to a consumer economy, China’s demand for some commodities has definitely weakened. However, the demand for agriculture commodities and food has been strong. We project it will remain a growing market for Canadian agriculture.
In early January 2016 we will write about the top economic issues to watch for the year ahead, so please check back with us, but what do you think will make our top five?
Leigh Anderson, Senior Agricultural Economist