Video: Markets weaker but profits remain

Margins will be tighter next year, but most facets of farming will still be using the black ink cartridge, says Farm Credit Canada.

J.P. Gervais, FCC’s chief agricultural economist, told Agri-Trend’s 2014 Farm Forum Event that grain and oilseed prices are down and input costs are up, but there is still money to be made in grain farming.

“It’s tighter, for sure, but I don’t think the sky is falling at all,” he said.

And the good times will keep rolling for livestock producers.

“I think the outlook is extremely positive,” said Gervais.

His biggest concern for Western Canada’s agriculture sector is its inability to keep up with wage in-creases in other sectors.

Saskatchewan farm workers averaged a three percent annual wage increase from 2008-13, but that is well below the nearly four percent hike in all other sectors of the economy.

Gervais said it is going to be a major impediment in the region’s ability to meet the growing global demand for crops.

Grain prices have steadily tumbled since their highs in 2012.

Gervais believes corn and wheat prices should remain near today’s values next year, while oilseed prices could drop.

Grain sector revenue should still be strong despite the lacklustre prices.

“The best thing that is going on for us right now in grains and oilseeds is that we still have very strong demand on the export market side of things,” he said.

The U.S. economy, which is picking up steam, consumes 30 percent of Canada’s grain and oilseed exports. The downside is that wages in the United States have been falling, which could hurt consumption.

The growth in China’s gross domestic product has been slowing down, but the economy is still expanding by about seven percent per year.

China’s growth has been slowing partly because of a shrinking labour supply. The good news is that this will force wages to increase, which in turn drives consumption.

“I would be worried if I were part of the industrial sector, but if I think about ag and food, I’m not worried at all,” said Gervais.

India is another market brimming with potential, with 600 million people younger than 25.

The slumping Canadian dollar will also boost revenues. Gervais expects it to stay in the 85 to 90 cent range next year.

Rising costs will offset strong revenues, including for labour, land and fertilizer.

However, he said the money coming in will outweigh the money going out for all of the major crops grown in Western Canada.

The livestock outlook is much better. Low feed grain prices have vastly improved sector profitability, and margins in the hog sector have been “spectacular” because of the contraction of the U.S. herd caused by the porcine epidemic diarrhea virus.

Gervais expects hog profits to re-main high next year, although not as high as this year.

He does not expect a big expansion in the hog herd next year.

“No. Not yet. I think we’re going to have to have another really good year before we have to think about expansion.”

Cattle supply will also remain tight, which is good for prices. However, he expects the record prices won’t be around much longer.

“I wouldn’t be surprised to see a softer market as we move into the second half of 2015,” he said.

Gervais has been surprised by the relentless demand for beef, given the record prices.

“Consumers have been willing to pay those higher prices. I think that’s a really good news story in the industry,” he said.

“People love beef. They want to eat beef.”

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